Author Topic: Car refis  (Read 4176 times)

jheizer

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Car refis
« on: October 25, 2016, 11:59:34 AM »
https://www.ft.com/content/d7174fea-9a4a-11e6-8f9b-70e3cabccfae

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Lending Club will start its auto loan business in its home patch of California, and plans to expand nationwide early next year. Loans of between $5,000 and $50,000 will be provided by WebBank, the Utah-based bank that supplies all Lending Club’s personal loans. Terms will range from two to six years, with interest rates ranging from 2.49 per cent a year to 19.99 per cent.

« Last Edit: October 25, 2016, 12:01:26 PM by jheizer »
Replacement to P2P Quant's Percentile Tool http://lc.geekminute.com

Rob L

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Re: Car refis
« Reply #1 on: October 25, 2016, 05:06:37 PM »
Since this is a new product launch LC will initially fund the loans themselves on their balance sheet.
Wonder if it will be possible to know if LC is ONLY putting these new auto loans on the books, or if they are also putting some of the old existing style loans there as well. How much cash did they have last quarter; $80M or so IIRC? LC's next quarterly report should be interesting.

Also, there is no origination fee for the new auto loans. The "Marcus effect"?.
How is that going to work? Lenders pay LC the "origination" fee (which LC obviously must pass through to the borrower via a higher APR)? Could this "no fee" approach work itself back into LC's approach to existing style loans?

Fred93

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Re: Car refis
« Reply #2 on: October 25, 2016, 06:02:36 PM »
Wonder if it will be possible to know if LC is ONLY putting these new auto loans on the books, or if they are also putting some of the old existing style loans there as well.

Scott Sanborn has spoken about how they will use balance sheet cash.  He's been very clear that they will use it for starting up new products etc, but not for large purchases of loans, ie no intention to become a balance sheet lender.[/quote]

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How much cash did they have last quarter; $80M or so IIRC?

$832.475 Million cash+marketable securities.

(Marketable securities means stuff that can be sold immediately, ie things that a treasurer buys to invest the cash, so you need to add these two lines on the balance sheet to get what the common man calls "cash".)


Rob L

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Re: Car refis
« Reply #3 on: October 25, 2016, 08:00:09 PM »

How much cash did they have last quarter; $80M or so IIRC?
$832.475 Million cash+marketable securities.

Oops... slipped a digit!  Knew there was an 8 in front.  :)

Meanwhile, I know LC has said it has no intention of becoming a balance sheet lender.
I wonder if, push comes to shove (lack of lenders), they could be forced to go there.

The numbers of loans of all grades at feeding times has been very impressive. I remember LC was forced to put some loans on the books last quarter because of guarantees to borrowers solicited by direct mail or some such. Either the lender shortage has been remedied or they could find themselves in that situation again. One way or the other they just gotta originate.

nonattender

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Re: Car refis
« Reply #4 on: October 28, 2016, 08:00:45 PM »
Not exciting, to me, personally, but probably will do a lot of originations.  Backend servicing on these, if can be well automated (pun!), is ripe for being dragged into the late 20th century - dragging it into present day could be exciting, but fraught with scale/execution risk...

I'd have rather seen mortgages.  Guess I have to wait.  Ohwell.
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rawraw

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Re: Car refis
« Reply #5 on: October 28, 2016, 08:30:37 PM »
There is always next announcement!  The no origination fee is interesting to me.

SLCPaladin

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Re: Car refis
« Reply #6 on: October 28, 2016, 10:47:59 PM »
Quote
I'd have rather seen mortgages.  Guess I have to wait.  Ohwell.

I feel like if LC can execute this program, scale it, and open it up to their entire investor base, it would be a pretty good warm-up for a bigger asset-backed lending scheme like mortgages.

Fred93

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Re: Car refis
« Reply #7 on: October 29, 2016, 03:57:24 AM »
It is my understanding that the car loan business is presently very competitive, ie crowded.  It therefore seems a curious place to enter.  I suspect that LC's plans were laid a couple of years ago and this project is just now coming into view.

I have for many years owned stock in Nicholas Financial, a small company (balance sheet lender) that specializes in car loans.  Here are some words from their most recent quarterly report  http://www.nicholasfinancial.com/PressRel/pr179.htm
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Our net earnings for the three months ended June 30, 2016 were adversely affected primarily by an increase in the provision for credit losses due to higher charge-offs and a reduction in the gross portfolio yield due to a decrease in the weighted average APR of purchases. Our net earnings were positively affected by a reduction in operating expenses as a percentage of average net receivables from 10.92% to 10.40%, for the three months ended June 30, 2015 and 2016, respectively.

During our first quarter, new loan originations were below Company expectations. We experienced a greater number of potential loans, which did not translate into acquired loans because they did not meet the Company’s risk pricing criteria. The market continues to be highly competitive and we have seen some large competitors reduce their originations as a result of tightening underwriting guidelines; however, other large competitors have increased their appetite for new loan acquisitions.” stated Ralph T. Finkenbrink, the Company’s President and CEO.

SLCPaladin

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Re: Car refis
« Reply #8 on: October 29, 2016, 11:53:26 AM »
I glanced briefly at the Nicolas Financial 1st quarter results and something stood out to me: Weighted APR is 22.39% for the 3 months ending as of June 30th. The info we have received from LC is that their program is going to target interest rates ranging from 2.49 per cent a year to 19.99 per cent. If that is true, I would imagine the weighted interest rate is somewhere in the middle, say 12-13%.

Based on just interest rate alone, I think that LC is targeting a much different credit profile with their auto refinancing program than what Nicolas Financial is going after. I think it is also smart for LC to go the refi route first. If they can capture customers who have already have a decent history of payment, thus reducing likely defaults, and who also an asset that is relative intact (<7 years old and < 80,000 miles), they will have a winner.

Defaults are really killing me right now. I'm still getting a healthy return (not what I initially expected, but still okay), but I've maxed out my IRA contributions and so the tax implications of net interest minus charge-offs are really starting to drag down my total return. I have the feeling that an asset backed loan would boost overall returns when taxes are accounted for.

fliphusker

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Re: Car refis
« Reply #9 on: October 29, 2016, 12:09:36 PM »
If my understanding is correct, these will not be available to retail on LC for around 2-3 years?
Is there a market for retailers who are fine with returns maybe as low as 5%?  Or lower?
I am pretty sure I missed where LC makes their money on this.  How is that factored in with no origination fees?
As far as getting into mortgages down the road, would not see as high-interest rates as can be expected in auto refinances, right?

I am fine with LC tossing the initial onto their balance sheet, will they remain there or sold off?  Guess I never saw if the loans that LC took onto the balance sheet earlier this year were going to remain or if they were going to be spun off.  I think it was something like 20 mil, is this right?

I applaud LC for diversifying and expanding in a time where some may worry about them. 

rawraw

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Re: Car refis
« Reply #10 on: October 29, 2016, 02:54:03 PM »
I still don't see how mortgage is a good product for LC. 

And the auto market is very competitive.  I'm not sure if it is more competitive recently.  Anecdotally, I think capital flows into consumer lending when business borrowing is weak.  Which is currently the case with our slow-and-steady GDP growth.  Seems like your company is a subprime lender -- I think that space has gotten extremely crowded by lots of new entrants searching for yield.

nonattender

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Re: Car refis
« Reply #11 on: October 29, 2016, 03:13:16 PM »
I still don't see how mortgage is a good product for LC.

Huge volumes and "everyone knows" how to securitize it already and tiny cranks to orig/serv fees would xlate on those huge volumes.

On cars, yes, I think that was in the works for a while.  (I owned NICK up until a couple of years ago - they do the lower end of auto...)

On the high-end of credit spect for auto, dunno why LC would want to pick a fight with STI's LightStream product - currently the best...
« Last Edit: October 29, 2016, 03:18:21 PM by nonattender »
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jz451

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Re: Car refis
« Reply #12 on: October 29, 2016, 11:06:55 PM »
Does anyone know if these refinance loans are collateralized by the car? I'de assume yes but I can't find anywhere that says collateral is used.

fliphusker

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Re: Car refis
« Reply #13 on: October 30, 2016, 02:50:30 AM »
I would only assume so, but my questions still exist. 
Nonattender it has already been stated there will be no origination fees.  Thus my questions.  How does LC make money? 
High end?  Where I see LC competing is low end actually.  I just do not see a lot of high end.  I absolutely could be wrong though. 
Does anyone know if these refinance loans are collateralized by the car? I'de assume yes but I can't find anywhere that says collateral is used.

Fred93

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Re: Car refis
« Reply #14 on: October 30, 2016, 03:12:20 AM »
Does anyone know if these refinance loans are collateralized by the car? I'de assume yes but I can't find anywhere that says collateral is used.

Its in the LC press release.

http://ir.lendingclub.com/file.aspx?IID=4213397&FID=36375453
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"This is Lending Club's first offering of access to a secured loan with an overall risk and return profile that's complementary to the unsecured loans available through our platform. It's a big step in the evolution of our platform, a win for consumers, and will give our investors access to another proven asset," Sanborn said.