Author Topic: I'm thinking of pulling the plug on this experiment  (Read 23956 times)

Rob L

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Re: I'm thinking of pulling the plug on this experiment
« Reply #30 on: February 14, 2017, 11:07:40 AM »
As much as I don't like low returns, what has been upsetting me more is the disconnect between LC's interests and investor interest. For me, the prime example is LC's own re-financing of high interest rate loans.

Basically, we took risk on these high interest rate loans, with the idea that some would default, but the interest rates from the those who don't will make up for this. However, LC then goes and sends emails to all these on-time borrowers and says "hey, want to refinance at a lower rate? No pre-payment fee!". They then collect another 6% processing fee, take away your performing loan (leaving you with non-performing loans), and then charge you a 1% fee just to get your principal back. This is why something like 10% of LC loans go to completion. Honestly, it's total bullshit. It's a total disconnect between your interests and theirs. They literally benefit at your expense.

Until they address this and fix it (prepayment fees, sharing the new origination fee, dropping the 1% fee altogether, etc.), I'm basically not investing any more money and am slowly withdrawing my money as it comes in.

I agree this is a valid concern. But its a hard one to quantify how big of a deal it is. I'm not aware of market place lenders not subject to this problem. Perhaps real estate has less likelihood given the nature of the transaction.

Let me point out that it's only hard to quantify since LC intentionally makes it difficult if not impossible to so. Each new loan has a new member ID, even if the loan is to the same party. Were this not the case we could easily determine the prevalence of this practice. What reason, other than its own self interest, does LC have to do this? If one is looking for transparency this is ain't it.

I agree but it also could have been a decision made without much thought before they even had borrowers to begin with. I wish we had this data, as it's an important concern

Yeah, it may have been a decision without much thought; we will never know. I would bet it was not. It would have been a much more natural decision to assign a single member ID, not the other way around. For its own purposes LC has gotta be able to identify repeat applicants and borrowers. It follows that they have to keep a list of all the member ID(s) they assign to each applicant. In the interest of transparency, they could always provide this list as part of their downloadable data. I'm not holding my breath (and doubt you are either).

RT45

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Re: I'm thinking of pulling the plug on this experiment
« Reply #31 on: February 14, 2017, 12:21:47 PM »
Quote
Let me point out that it's only hard to quantify since LC intentionally makes it difficult if not impossible to so. Each new loan has a new member ID, even if the loan is to the same party. Were this not the case we could easily determine the prevalence of this practice. What reason, other than its own self interest, does LC have to do this? If one is looking for transparency this is ain't it.

This. It is clearly intended to conceal the practice and how many loans are being refinanced by other loans.

newstreet

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Re: I'm thinking of pulling the plug on this experiment
« Reply #32 on: February 14, 2017, 12:58:04 PM »
Quote
Let me point out that it's only hard to quantify since LC intentionally makes it difficult if not impossible to so. Each new loan has a new member ID, even if the loan is to the same party. Were this not the case we could easily determine the prevalence of this practice. What reason, other than its own self interest, does LC have to do this? If one is looking for transparency this is ain't it.

This. It is clearly intended to conceal the practice and how many loans are being refinanced by other loans.

They are reaching for short term earnings at the expense of investor returns. Short sighted of course, I imagine they are trying to pump earnings to get sold. 

fliphusker

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Re: I'm thinking of pulling the plug on this experiment
« Reply #33 on: February 14, 2017, 01:17:00 PM »
Quote
Let me point out that it's only hard to quantify since LC intentionally makes it difficult if not impossible to so. Each new loan has a new member ID, even if the loan is to the same party. Were this not the case we could easily determine the prevalence of this practice. What reason, other than its own self interest, does LC have to do this? If one is looking for transparency this is ain't it.

This. It is clearly intended to conceal the practice and how many loans are being refinanced by other loans.
I assume you think this is quite a large number?

MarinBB

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Re: I'm thinking of pulling the plug on this experiment
« Reply #34 on: February 14, 2017, 02:01:23 PM »
I assume you think this is quite a large number?

I suspect that it's much larger than we suspect. Has anyone done a statistical match on listing attributes to try and find repeat borrowers? For example, match on Zip Code, First Credit Line Date, Occupation, Income Range, etc.?

Rob L

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Re: I'm thinking of pulling the plug on this experiment
« Reply #35 on: February 14, 2017, 02:36:17 PM »
I assume you think this is quite a large number?

I suspect that it's much larger than we suspect. Has anyone done a statistical match on listing attributes to try and find repeat borrowers? For example, match on Zip Code, First Credit Line Date, Occupation, Income Range, etc.?

Fred93 took a very cursory look at this and found a small sample of "statistical" matches last October:
http://forum.lendacademy.com/index.php/topic,3551.msg37887.html#msg37887
There's a pretty good discussion about this topic above and below this post.

Maybe a year ago I ran an analysis of the percentage of loans paid off early versus age of the loan (MOB). I was interested in determining if there was a sudden bump up just after 12 months age. Within the 1st 12 months LC only charges the lender a 1% fee of the payment due that month; not 1% of the entire payment. Clearly that's very important for any loans full paid off early within that 12 month window and prevents lenders from actually losing money on those loans. If there was a sudden bump up in month 13 and beyond it would probably indicate LC purposefully waited for the 12 months to pass before soliciting the borrower for a new reduced rate loan. I saw no bump at all and concluded LC does not do this. Can't remember if I posted this information here or not. It was a pretty quick and dirty analysis, and was a long time ago.


AnilG

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Re: I'm thinking of pulling the plug on this experiment
« Reply #36 on: February 14, 2017, 04:09:44 PM »
This Bloomberg article didn't get much traction on forum when originally published. The guy in the article did some work to identify repeat borrowers on Lending Club.

How Lending Clubís Biggest Fanboy Uncovered Shady Loans
https://www.bloomberg.com/news/features/2016-08-18/how-lending-club-s-biggest-fanboy-uncovered-shady-loans

I assume you think this is quite a large number?

I suspect that it's much larger than we suspect. Has anyone done a statistical match on listing attributes to try and find repeat borrowers? For example, match on Zip Code, First Credit Line Date, Occupation, Income Range, etc.?
---
Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

rawraw

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Re: I'm thinking of pulling the plug on this experiment
« Reply #37 on: February 14, 2017, 04:13:52 PM »
Yeah that's the best analysis I've seen. Not sure if it supports the frequency some here are suggesting

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RT45

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Re: I'm thinking of pulling the plug on this experiment
« Reply #38 on: February 14, 2017, 05:40:11 PM »
The other piece to factor in - the larger the borrower base, the larger the pool for simultaneous borrowers and repeat borrowers so it should be assumed those go up.

LendingClub begins soliciting borrowers at month 8 on a 36 month loan.

rawraw

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Re: I'm thinking of pulling the plug on this experiment
« Reply #39 on: February 16, 2017, 10:04:08 AM »
Note out today from bank of America. It says this. Not sure how much of this stuff it'll take to sway Fred

Newer vintages performing worse than older vintages
Exhibit 10: Non-Prime Auto Loan Performance 18% 14% 11% 7% 4% 0% 2003 2005 2007 2009 2011 2013 2015 2017
Non-Prime 30+ DQ Non-Prime Net Loss
Source: BofA Merrill Lynch Global Research Auto ABS team, Intex Note: Dashed line represent seasonally adjusted rates
BofAMLís Auto ABS team notes that cumulative net losses (CNL) for the 2015 vintage of both prime and non-prime auto loan ABS are higher than post-recession lows and are near (prime) or above (non-prime) the 2001-recession levels. Both prime and non-prime losses remain well below the 2007-recession levels.
Interestingly the CNL curves suggest that lending standards have weakened every year since 2011 as cumulative net-losses have tracked higher in each subsequent year. This is in-line with what we have heard from management teams and found in our own channel checks. The easing of lending standards should continue to push losses higher.

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newstreet

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Re: I'm thinking of pulling the plug on this experiment
« Reply #40 on: February 16, 2017, 11:16:20 AM »
Yeah that's the best analysis I've seen. Not sure if it supports the frequency some here are suggesting

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That analysis was prior to the desperation in the last 2 quarters to keep "originations" near 2 bil. 

Rob L

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Re: I'm thinking of pulling the plug on this experiment
« Reply #41 on: February 16, 2017, 06:33:07 PM »
Yeah that's the best analysis I've seen. Not sure if it supports the frequency some here are suggesting

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That analysis was prior to the desperation in the last 2 quarters to keep "originations" near 2 bil.

I gotta admit I found it oddly convenient that the banks stepped back up and provided almost the exact additional funding that walked away from other sources. What a remarkable coincidence.

.Ryan.

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Re: I'm thinking of pulling the plug on this experiment
« Reply #42 on: February 16, 2017, 11:09:13 PM »
I get it, it's emotional, however I do feel very similarly to the OP here. When we are in a strong and growing economy, and consumer defaults (overall) are at very low levels, is 6% really the new expectation that you are comfortable with?

We're not talking about 6% being the long term average. We're talking about 6% being the average when conditions are not only strong, but not likely to significantly improve. What is going to happen when these conditions deteriorate? We're starting to cut profits pretty thin in a market with already arguable liquidity (selling at a significant loss in folio doesn't make it liquid IMO), and I'm not interested in taking a bath here.

If the best upside is 6% (+~2% for you master pickers), and the downside is yet to be seen(but most likely not pretty), what is it that you are hoping for here? Not trying to be inciting, just genuinely curious.

apc3161

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Re: I'm thinking of pulling the plug on this experiment
« Reply #43 on: February 17, 2017, 03:02:53 AM »
I get it, it's emotional, however I do feel very similarly to the OP here. When we are in a strong and growing economy, and consumer defaults (overall) are at very low levels, is 6% really the new expectation that you are comfortable with?

We're not talking about 6% being the long term average. We're talking about 6% being the average when conditions are not only strong, but not likely to significantly improve. What is going to happen when these conditions deteriorate? We're starting to cut profits pretty thin in a market with already arguable liquidity (selling at a significant loss in folio doesn't make it liquid IMO), and I'm not interested in taking a bath here.

If the best upside is 6% (+~2% for you master pickers), and the downside is yet to be seen(but most likely not pretty), what is it that you are hoping for here? Not trying to be inciting, just genuinely curious.

If you look at the most recent investor presentation, 38% of individual investor money has been withdrawn in the past year. Perhaps LC doesn't care (since we represent only 10-20% of their funding). But they know individual investors are not happy. I think that is why we are getting barraged with IRA offers. That money is a lot more "sticky" and can't be pulled out as easily.

rawraw

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Re: I'm thinking of pulling the plug on this experiment
« Reply #44 on: February 17, 2017, 03:21:58 AM »
I get it, it's emotional, however I do feel very similarly to the OP here. When we are in a strong and growing economy, and consumer defaults (overall) are at very low levels, is 6% really the new expectation that you are comfortable with?

We're not talking about 6% being the long term average. We're talking about 6% being the average when conditions are not only strong, but not likely to significantly improve. What is going to happen when these conditions deteriorate? We're starting to cut profits pretty thin in a market with already arguable liquidity (selling at a significant loss in folio doesn't make it liquid IMO), and I'm not interested in taking a bath here.

If the best upside is 6% (+~2% for you master pickers), and the downside is yet to be seen(but most likely not pretty), what is it that you are hoping for here? Not trying to be inciting, just genuinely curious.
The risk free rate is 140bps.  A 500bp spread to the risk free rate isn't enough for you?  This is strange to suggest the long run return is 6%, because as rates rise consumer loan rates rise as well.  And the downside?  It is very measurable, we have lots of data on it.  Just depends on the risk you put in the portfolio.  I stress test my portfolio to quantify my downside.  This is required in any sound process to evaluate LC IMO