Worst Month Yet

[Fred]

I've been recently cleaning my account out of high grade notes ...

Me, too.

[lascott]

I also think supply has severely decreased over the last 12-18 months (at least for my filters).  2-3 years ago I was able to reinvest payments + $20k of new cash a month at $25 per loan without an issue.  I have been forced to expand my filter criteria as well as my per loan investment.  I now take more risk at a lower interest rate than I would have received had I taken that level of risk in the past.  What I am finding is I am investing an increasing % of funds at a lower interest rate to simply get funds invested. 

I'm wondering if the affect of new investing (41 states now?) PLUS new tools (LendingRobot, custom) has spread the available notes thinner available to you (us).

A lot has changed in the just the couple years I've been here.  Example, LendingRobot has an estimation of the number of notes your filters will pick up based on the past few weeks notes. My filters are shown to pick up 1/4th as many notes as they were probably a year ago. Perhaps tho their estimation accounts for a large increase in subscribers to their service (only so many notes to go around).

There's still note volume but perhaps just more investors.
Image: http://i.imgur.com/Oko3QJa.png

Image: http://i.imgur.com/MNzB1IV.png

[rawraw]

I agree with CircleT, but it's just a function of credit in general.  It's going to be virtually impossible to get the pricing right.  Loans always have these same trends, whether it is banks or other entities.  A crisis happens and underwriting tightens, returns increase but growth slows.  Then in an attempt to grow, competition comes in and underwriting loosens to achieve the growth and maintain returns.  Then economy has a hiccup and the loose underwriting results in credit costs (more for some than others).  Then it tightens back up.  It's just the way credit works and I don't see a reason to think this will ever change, it is just human nature.  We are in the loosening phase and compared to history, this phase is lasting a very long time without hiccups.  Some think the hiccup is coming now, but I have no clue other than I know it'll seem obvious after the fact.

I don't mean the above to criticize LC or suggest they are doing something wrong.  It's just I hope people who don't spend much time around other forms of lending understand this dynamic.  Hopefully things don't get as loose as they did in 2008, but they will get loose.  Just like it happened in oil -- some people started waving certain parts of the a typical structure and are not feeling the pain from those choices.  But you have to bend some to compete or you may not be able to grow enough.

The above is why every strategy I use, I also test that strategy starting in 2007 and seeing how the loans performed when the recession hit.  It's important to not just know the expected return, but how wide the range of possible outcomes are.

[Rob L]

Things don't seem to be going better. Lost  another 6 ANAR basis points just today.
Meanwhile my "blue dot" (not earth from space, the other one) is near top of the class.

[jheizer]

I feel like the week or two after a holiday anar is always goofy.  Mine is down the last two days and I haven't had any more loans drop a status.

[Rob L]

So I wondered if LC has begun charging off loans more quickly.



These data are almost all of my charge offs (about 460 of them), not a map of Florida. A few of my charge offs do not have a loan status date and were omitted.
Charge offs do seem to be happening more quickly after last payment. I cannot rule out some natural cause and have not looked closely at the results.
Here is one loan from the chart very recently charged off:

https://www.lendingclub.com/account/loanPerf.action?loan_id=12816075&order_id=19011062&note_id=42543100

[Fred93]

Days OVERDUE would be more meaningful I think than days from the last payment (which may not have brought the loan back to current).

[Randawl]

So I wondered if LC has begun charging off loans more quickly.



These data are almost all of my charge offs (about 460 of them), not a map of Florida. A few of my charge offs do not have a loan status date and were omitted.
Charge offs do seem to be happening more quickly after last payment. I cannot rule out some natural cause and have not looked closely at the results.
Here is one loan from the chart very recently charged off:

https://www.lendingclub.com/account/loanPerf.action?loan_id=12816075&order_id=19011062&note_id=42543100

I don't have data to show but anecdotally my experience has been the same.

[Rob L]

Days OVERDUE would be more meaningful I think than days from the last payment (which may not have brought the loan back to current).

Okay, if you can tell me how to figure out days OVERDUE I'll run a plot of it.

In the example loan I linked above the next payment is due on 12/14 (two days from now).
The last payment was made on 9/29 (as shown on the graph). It was "completed in grace period" and presumably brought current.
Isn't that what "completed in grace period" means? Maybe not since the final collection log entry says:

11/16/15 (Monday) Charge-off after settlement completed

So, charged off on 11/16 after payment made on 9/29 and zero "recoveries" paid to me.
There was a nice "investor fees" of about 3.9% of the remaining principal back on 5/7 though.
Meanwhile I buy and hold. I almost never look at the collections log. I look at one and don't understand it.
Go figure...

[Fred93]

Okay, if you can tell me how to figure out days OVERDUE I'll run a plot of it.

There's a good reason I didn't explain how in prior mail.  They don't make it easy.  I think you have to look at how far the principal has been paid down, and then look at what time principal was supposed to be paid down that far.  Lateness is the difference between now and when the principal was supposed to have been at this level.  This is my approach.  I should add that I'm too lazy to do it.

In the example loan I linked above

The link doesn't work for me.  Probably because I'm not in that loan.

the next payment is due on 12/14 (two days from now).
The last payment was made on 9/29 (as shown on the graph). It was "completed in grace period" and presumably brought current.
Isn't that what "completed in grace period" means?

If I were using those words, that is what they would mean, because you wouldn't be in a grace period if you were more than one payment late.  However, when LC's computer prints those words, I'm not sure what they mean.

Maybe not since the final collection log entry says:
11/16/15 (Monday) Charge-off after settlement completed

I see a big red flag there.  What the ... does "after settlement completed" mean?

So, charged off on 11/16 after payment made on 9/29 and zero "recoveries" paid to me.
There was a nice "investor fees" of about 3.9% of the remaining principal back on 5/7 though.

How can that be?

[rubicon]

hey I was just looking at my charged off amount and compared with the individual loans that were charged off and it looks wrong.

Can other people compare the actual charged off amount for the month with the individual loans that were charged off (remaining principal)?

thanks!

[Rob L]

hey I was just looking at my charged off amount and compared with the individual loans that were charged off and it looks wrong.

Can other people compare the actual charged off amount for the month with the individual loans that were charged off (remaining principal)?

thanks!

LC posted my charge offs for the first half of the month today and I now have a total of 512 of them (up from 485).
I downloaded my detailed notes into a spreadsheet, summed the PrincipalRemaining column for all notes with status=charged off. It exactly matches the amount LC displays in the dashboard "Notes at a Glance" adjusted amount table as well as that shown in "Account Details". This is an all "all time" total, not the monthly amount you mentioned. Does LC provide a monthly amount display? I'm not sure where to find that.

[rubicon]

thanks!

For me, the charged off amount in "Understanding Your Traded Note Returns" differs from "my notes at a glance".

[Rob L]

I did an analysis last week of recoveries as a percent of amount invested for each of my 512 charged off notes.
These are predominantly D & E notes starting mid 2013 and continuing to date (8100 notes issued).

     Amount Recovered       Number of notes
         21% - 100%                   18
         14% - 20%                     36
         13% - 9%                     176
          8%  - 1%                      16
          0%                              266   

Recoveries are only a part of the picture.
Obviously payments made before the charge offs significantly mitigate the total losses.

With notes sorted in order of decreasing loss as a % of note principal:
   Cumulative Total Loss           Number of notes (and % of total number of notes)
                11%                           64 (12.5%)
                21%                         128 (25%)
                38%                         256 (50%)
                50%                         384 (75%)
                58%                         512 (100%)

For D & E loans 58% may be a good estimate of average loss given default.
Sound reasonable?

[mo]

I've been recently cleaning my account out of high grade notes ...

Me, too.

I tightened my filters substantially for auto-investing about 14 months ago figuring eventually the economy will go south and I didn't want to be stuck with a bunch of CDEFG when it does.