Worst Month Yet

[JohnnyP]

I log a daily snapshot of my account details (well, my software does) and I thought it would be interesting to take a look at Adjustments for Past Due Notes as a percentage of Principal Balance. This data isn't available in the monthly statements. Adjustment percentages are the standard LC 9 month loss estimates for In Grace, Late 16-30, Late 31-120 and Default: https://www.lendingclub.com/account/investorReturnsAdjustments.action.

The following chart takes a look at my account since February this year on a weekly basis:



All things equal the adjustment percentage should fall back to the 3% level at some point in time after the principal balance stabilized in mid-September. However all things aren't equal and in my view the percentage has remained stubbornly high (5.2%). Doesn't look like it's coming down to 3% anytime soon. It's likely another confirmation of the erosion of loan performance since late May and it will be very interesting to see where this value finally settles out. At this level my account essentially breaks even. I'd sure be interested in the value others are seeing, particularly those with WAIR's in the 17% area.

My average weighted interest rate is 20.9%. My adjustment as a percentage of my gross outstanding principle is 7.6%. I stopped buying two months ago. My XIRR for 2016 was 1.8% with last quarter at -1.2%. My 3-year XIRR is 8.1%. The numbers explain my story quite well. I was enjoying great returns with note grades in the D and E range. I got lazy and was not paying attention very closely as these higher risk notes started heading south. By the time I took action (starting buying more conservative and then stopped buying), it was too late. Now I have a bunch of notes that will take a LONG time to weather off.  Just shows that one must watch these "alternative" investments very closely.

[rawraw]

Success!  I returned to profitability this month.

I don't track IRR, but seems like a ~5-6% return this year, which is down from prior  years.  And my stocks went up 30%.  Have to love uncorrelated assets!

And I disagree that the conclusion is you have to watch "alternative" investments (you should!   just wrong conclusion).  The conclusion is you shouldn't just lend to the riskier people and expect defaults never to occur.

[thezfunk]

The conclusion is you shouldn't just lend to the riskier people and expect defaults never to occur.

blasphemy!  Tar and feather that man!

[Rob L]

Five months of consecutive losses. Charge offs as a percent of trailing 5 months interest (blue bars) very near an all time high. The only good news is that I'm "only" losing half what I would have if not for downsizing my portfolio. Part of this could be seasonal and I'm not giving up completely quite yet.

[JohnnyP]

The jump in your red bars is astonishing. It is not like the charge-offs slowly increased, they basically shot up very quickly.

[BruiserB]

My full year losses were nearly 80% of the interest I earned.  My early years with LC this ratio was more of a constant 33%.  My last few months, the losses have exceeded my interest earned.  This better improve soon.  I've stopped reinvesting my taxable account for the foreseeable future.

[screwedbylendingclub]

I knew lending club was a scam as soon as the rep called me asking me why I was trying to withdraw from my account. Right after that, the liquidity in the market dried up, bringing my 20% down to a -1% return in a few months. I now have a slew of charge offs.

The model is completely unsustainable since they do not hire the right credit analysts/statisticians and severely underestimate the risk of their borrowers. The platform only benefits debtors esp. those that commit financial fraud.

-As for me,

I am pulling out of Lending Club ASAP and looking for a partner to start a real, legit payday loans company.

[fliphusker]

The liquidity in the FOLIO market dried up?  You took 20% returns and turned them into -1% in a few months?   
When you bail out taking losses, what do you expect your returns to do?  I remember reading, might have been your initial post, but you were buying notes that were 31-120 days late.  Personally I think that is the craziest strategy for someone just getting into FOLIO, could ever do and just playing with fire.  Absolutely you are going to have a slew of charge-offs with this kind of excessively risky strategy.  I can only guess that you were overpaying for notes at 31-120 days late and then turned around and tried to sell them at the same discount and could not find any takers. 

I knew lending club was a scam as soon as the rep called me asking me why I was trying to withdraw from my account. Right after that, the liquidity in the market dried up, bringing my 20% down to a -1% return in a few months. I now have a slew of charge offs.

The model is completely unsustainable since they do not hire the right credit analysts/statisticians and severely underestimate the risk of their borrowers. The platform only benefits debtors esp. those that commit financial fraud.

-As for me,

I am pulling out of Lending Club ASAP and looking for a partner to start a real, legit payday loans company.

[apc3161]

My full year losses were nearly 80% of the interest I earned.  My early years with LC this ratio was more of a constant 33%.  My last few months, the losses have exceeded my interest earned.  This better improve soon.  I've stopped reinvesting my taxable account for the foreseeable future.

Same here. I wonder what LC's most recent quarterly report is going to say. I would imagine a lot of people are pulling their money out. I'm currently at a 1-2% return this year. No reason to keep my money with them.

[rawraw]

The liquidity in the FOLIO market dried up?  You took 20% returns and turned them into -1% in a few months?   
When you bail out taking losses, what do you expect your returns to do?  I remember reading, might have been your initial post, but you were buying notes that were 31-120 days late.  Personally I think that is the craziest strategy for someone just getting into FOLIO, could ever do and just playing with fire.  Absolutely you are going to have a slew of charge-offs with this kind of excessively risky strategy.  I can only guess that you were overpaying for notes at 31-120 days late and then turned around and tried to sell them at the same discount and could not find any takers. 

I knew lending club was a scam as soon as the rep called me asking me why I was trying to withdraw from my account. Right after that, the liquidity in the market dried up, bringing my 20% down to a -1% return in a few months. I now have a slew of charge offs.

The model is completely unsustainable since they do not hire the right credit analysts/statisticians and severely underestimate the risk of their borrowers. The platform only benefits debtors esp. those that commit financial fraud.

-As for me,

I am pulling out of Lending Club ASAP and looking for a partner to start a real, legit payday loans company.

He may have been one of these guys loading up on the riskiest stuff and selling it on Folio when it looked like it was going bad.  I have always vocally felt this is a poor strategy and you  should be willing to live with the consequences of a strategy if Folio disappears.  Needless to say, posts like the above are amusing.  I'm so glad I work in an area of finance isolated from retail investors lol

[dr.everett]

My full year losses were nearly 80% of the interest I earned.  My early years with LC this ratio was more of a constant 33%.  My last few months, the losses have exceeded my interest earned.  This better improve soon.  I've stopped reinvesting my taxable account for the foreseeable future.

Same here. I wonder what LC's most recent quarterly report is going to say. I would imagine a lot of people are pulling their money out. I'm currently at a 1-2% return this year. No reason to keep my money with them.

I wonder as well. I'm surprised we haven't seen any lawyers poking around for "negligence" or any of the many other terms used when one doesn't live up to their fiduciary duties. If one does show up and is successful- I would get onboard. I have $40K in losses since day one between two accounts that I'd like to get some of back. In the meantime I'll continue to sell my low FICO notes and replace them with better ones.

[lascott]

My full year losses were nearly 80% of the interest I earned.  My early years with LC this ratio was more of a constant 33%.  My last few months, the losses have exceeded my interest earned.  This better improve soon.  I've stopped reinvesting my taxable account for the foreseeable future.

Same here. I wonder what LC's most recent quarterly report is going to say. I would imagine a lot of people are pulling their money out. I'm currently at a 1-2% return this year. No reason to keep my money with them.

I wonder as well. I'm surprised we haven't seen any lawyers poking around for "negligence" or any of the many other terms used when one doesn't live up to their fiduciary duties. If one does show up and is successful- I would get onboard. I have $40K in losses since day one between two accounts that I'd like to get some of back. In the meantime I'll continue to sell my low FICO notes and replace them with better ones.

Does really amount to $40K if you offset it with gains on your taxes or the using the rolling $3K annual tax claim a deduction against the loss?

[fliphusker]

This is his post I was referring to.  I hope I am not sounding like a jerk to him, just questioning his post and his extremely risky strategy.

1. Say I change my maintain cash level from $300 (current) to $500. How does the program decide how to price/markdown notes? Is there a way to set the max discount?

2. I've recently started buying in grace period and 31-120 day late notes as part of a more aggressive investment strategy, will PLS mess with these?
Thanks in Advance,

The liquidity in the FOLIO market dried up?  You took 20% returns and turned them into -1% in a few months?   
When you bail out taking losses, what do you expect your returns to do?  I remember reading, might have been your initial post, but you were buying notes that were 31-120 days late.  Personally I think that is the craziest strategy for someone just getting into FOLIO, could ever do and just playing with fire.  Absolutely you are going to have a slew of charge-offs with this kind of excessively risky strategy.  I can only guess that you were overpaying for notes at 31-120 days late and then turned around and tried to sell them at the same discount and could not find any takers. 

I knew lending club was a scam as soon as the rep called me asking me why I was trying to withdraw from my account. Right after that, the liquidity in the market dried up, bringing my 20% down to a -1% return in a few months. I now have a slew of charge offs.

The model is completely unsustainable since they do not hire the right credit analysts/statisticians and severely underestimate the risk of their borrowers. The platform only benefits debtors esp. those that commit financial fraud.

-As for me,

I am pulling out of Lending Club ASAP and looking for a partner to start a real, legit payday loans company.

He may have been one of these guys loading up on the riskiest stuff and selling it on Folio when it looked like it was going bad.  I have always vocally felt this is a poor strategy and you  should be willing to live with the consequences of a strategy if Folio disappears.  Needless to say, posts like the above are amusing.  I'm so glad I work in an area of finance isolated from retail investors lol

[rawraw]

My full year losses were nearly 80% of the interest I earned.  My early years with LC this ratio was more of a constant 33%.  My last few months, the losses have exceeded my interest earned.  This better improve soon.  I've stopped reinvesting my taxable account for the foreseeable future.

Same here. I wonder what LC's most recent quarterly report is going to say. I would imagine a lot of people are pulling their money out. I'm currently at a 1-2% return this year. No reason to keep my money with them.

I wonder as well. I'm surprised we haven't seen any lawyers poking around for "negligence" or any of the many other terms used when one doesn't live up to their fiduciary duties. If one does show up and is successful- I would get onboard. I have $40K in losses since day one between two accounts that I'd like to get some of back. In the meantime I'll continue to sell my low FICO notes and replace them with better ones.

I don't think risky borrowers defaulting is negligence. They'd have to lie about the data disclosed at loan listing or something similar. At most i expect it to be in the risks section, given it impacts potential volumes

Sent from my SAMSUNG-SM-G935A using Tapatalk

[BruiserB]

My full year losses were nearly 80% of the interest I earned.  My early years with LC this ratio was more of a constant 33%.  My last few months, the losses have exceeded my interest earned.  This better improve soon.  I've stopped reinvesting my taxable account for the foreseeable future.

Same here. I wonder what LC's most recent quarterly report is going to say. I would imagine a lot of people are pulling their money out. I'm currently at a 1-2% return this year. No reason to keep my money with them.

I wonder as well. I'm surprised we haven't seen any lawyers poking around for "negligence" or any of the many other terms used when one doesn't live up to their fiduciary duties. If one does show up and is successful- I would get onboard. I have $40K in losses since day one between two accounts that I'd like to get some of back. In the meantime I'll continue to sell my low FICO notes and replace them with better ones.

Does really amount to $40K if you offset it with gains on your taxes or the using the rolling $3K annual tax claim a deduction against the loss?

My rough example with numbers rounded off:

Interest Earned: $25,000
Losses in Past Years: $8,000
Losses in 2016: $20,000

I believe I am in the 28% tax bracket, but I could pay long term capital gains tax of only 15%.

If I had no other stock sales:
In past years I would have had a profit of $17,000 and paid tax of 0.28*(25,000-3,000)= $6160 and I could carry $5,000 losses to a future year.
Last year I had a profit of $5,000 and will pay tax of 0.28*(25,000-3,000) = $6160 and I could carry $17,000 losses to the future.
But note that I will now pay more in tax than I actually made in profit!

Now I do have capital gains that I can offset with my $17,000 loss.  Let's just say $10,000 worth....so now I will get that 10,000 gain tax free (a savings of $1500 since it was long term gain).  But I had to pay $2800 in tax on $10,000 in interest that I didn't really earn from Lending Club because of my losses.  So it has the effect of wiping out the benefit on the Long Term Capital Gains tax rate.  It uses up my deduction that would eventually be worth $2800 to wipe out a tax of $1500.

This was somewhat manageable when losses were around a third of interest paid.  But now that they are 80+% (and over 100% the last few months).  This investment makes no sense in a taxable account.  :-(