Dear LC

[CircleT009]

Been a while since I last posted, but have been following the forum and reading.

It seems like this is the only thing I post (when I do), but maybe just maybe one time LC will hear me.

So your investors have seen significant decreases in returns and for quite a few of those investors they are experiencing a loss.  HELLO.

Your new credit model is great, but it is not going to change anything until you raise interest rates to the levels they used to be.  And I am referring to 09/10 level interest rates.  I would have a hard time believing your volume of originations would decrease in any meaningful manner if you raised rates.  Most of these borrowers need to refi from a higher rate.  A savings on the interest they pay is a savings, I doubt they have an alternative.

Just my .02.

[Rob L]

Doesn't seem they are listening, but who knows. There's always hope.

This past quarter LC originations by self-managed individuals dropped from 13% to 9% of total originations.
Managed account originations dropped from 31% to 24% of total.
Banks dropped from 44% to 42% of total.
Only Other institutional rose from 12% to 15% of total.
And, oh yeah, almost forgot, loans originated and held by LC on their books rose from 0% to 9% of total.

LC's stock is trading at this moment at $4.08 per share, down another -2.16% on the day.
It has not traded at this level since 7/12/2016, after the "discrepancies" in mid-May were revealed and the CEO was fired.

Meanwhile LC recently dropped the interest rates of two A subgrade loan categories.
I remember you posted "Once interest rates on A's fell below 8%, I stopped buying A grade loans."

Seems that neither the stock investors nor most categories of lenders are doing well.
Sorry, but I wanted to put my .02 in too. As a consistent nattering-nay-bob-of-negativism my response may do more harm than good.

[storm]

From where I'm sitting, LC needs to really improve their underwriting and collection efforts.  My last statement shows 58% of my YTD interest is negated by charge-offs.  I am well diversified in the middle grades.  I would rather have fewer quality low-interest loans to pick from than the garbage they are peddling now.  The ROI guidance is complete fiction.

[rawraw]

I recently took out a peer loan. LendingClub has lots of competition and their rate offered to me was much higher with an origination fee. I went with an alternative. I think you guys have been net savers for too long and don't understand what the consumer loan market place looks like. That's my two cents

[Ran]

I regularly receive mails from discover bank, chase or AMEX offering personal loans. Do not know how their rate compares to LC, but the terms are very similar. I always think traditional banks have stronger client relationship so their marketing cost is lower than LC, but their branches are way more costly. But a lot of us are wrong thinking LC can easily beat traditional banks just by lower operating cost. One side though is that China p2p companies almost entirely rely on Apps for consumer lending, but LC never saw the need to let borrower take out loans using App. Why not?.

I recently took out a peer loan. LendingClub has lots of competition and their rate offered to me was much higher with an origination fee. I went with an alternative. I think you guys have been net savers for too long and don't understand what the consumer loan market place looks like. That's my two cents

[Fred93]

I recently took out a peer loan. LendingClub has lots of competition and their rate offered to me was much higher with an origination fee. I went with an alternative.

Yep.  LC lowered rates because of competitive pressure (on the borrow side).  Unless that pressure magically disappears, or they make some great marketing discovery, LC's loan rates aren't gonna go back up any time soon.

If they had been more transparent, and just admitted this, it would have saved many retail lenders a lot of pain and doubt as returns fell.

[Lovinglifestyle]

I wouldn't care about returns falling if I didn't have any charge-offs!

[rawraw]

I wouldn't care about returns falling if I didn't have any charge-offs!

These things are cyclical. We have had several years of hardly any losses and things got loose, especially in the low FICO stuff

[CircleT009]

I hear you guys, but I guess my main point is that LC will never work if people are losing money.  Eventually the institutional guys will start to lose money as well.  Once word starts getting around that if you invest on LC you will lose money, you will have no new funds coming in the door and all current funds slowly leaving. 

I agree that these losses could be cyclical (I only have 3 months in last 8 years with loses), but I do not think trying to improve underwriting or the credit model is going to work.  You have to get interest rates back to where they were so that the losses can be absorbed.

I have said it before and will say it again, once LC started focusing on going public and crazy growth, the loan quality went down and the interest rates followed.  More risk and less return, it will never work. 

I will add that it seems like most of the loans I am selling off over the last year are loans that have repaid 50-75% of the principal balance, compared to a few years ago it seemed like most loans I would sell off only had paid bacK 10-20%, anyone else noticing this?  Problem is I used sell off a lot fewer loans and now I am selling off a ton.

[Fred93]

I will add that it seems like most of the loans I am selling off over the last year are loans that have repaid 50-75% of the principal balance, compared to a few years ago it seemed like most loans I would sell off only had paid bacK 10-20%, anyone else noticing this?

I think you're saying in a different way what I've been saying about vintage.  Loan quality was poor during 2015 and leading into 2016. 

[Rob L]

I will add that it seems like most of the loans I am selling off over the last year are loans that have repaid 50-75% of the principal balance, compared to a few years ago it seemed like most loans I would sell off only had paid bacK 10-20%, anyone else noticing this?

I think you're saying in a different way what I've been saying about vintage.  Loan quality was poor during 2015 and leading into 2016.

Do you think loan quality (as measured by say NAR by vintage) since the poor vintage period you cited has improved?
Perhaps improvements in lower risk categories but not higher ones, or in 60 but not 36 month term, etc.? I dunno.
Seems CircleT009 might think that the poor performance was/is a calendar period period problem, not a vintage one. Did I get that right?

I can't readily tell from https://www.lendingclub.com/info/demand-and-credit-profile.action.
The chart "NET ANNUALIZED RETURN BY VINTAGE" would be helpful but it is a full year out of date. It has no data for 2017 (LC has released data through 2017 Q3).
That's curious since the table "LOAN PERFORMANCE DETAILS" just above it does contain data through 2017 Q3. Unfortunately there's no way to segregate 36 and 60 month term loans in this table! IMO that makes it pretty useless. Would be nice if LC would remedy these two problems and we would have a bit more visibility into this question.

[Fred93]

Do you think loan quality (as measured by say NAR by vintage) since the poor vintage period you cited has improved?
Perhaps improvements in lower risk categories but not higher ones, or in 60 but not 36 month term, etc.? I dunno.
Seems CircleT009 might think that the poor performance was/is a calendar period period problem, not a vintage one. Did I get that right?

Well, NAR is particularly ill-suited for this sort of comparison, because it means a different thing at different points in a loan's life.

LC publishes delinquency & default data broken out by vintage and age, and in that data you can see that different vintages have performed differently.

I believe there is some component of BOTH vintage and calendar period in the results.  I just think the vintage differentiation is stronger.


I can't readily tell from https://www.lendingclub.com/info/demand-and-credit-profile.action.[/quote]

Agreed.  Not enough breakout.  Try this alternative...
https://www.insikt.com/#/invest/mycro/vintage/cumLoss?po=Partner&or=LendingClub&fr=Quarterly&tY=2017&tM=10&fY=2016&fM=1&fi=creditRating&sGO=B&lt=36,60

This web site lets you break out the data various ways.  You have to play with it awhile to get familiar with the UI.  I think you can see that in 2015 and much of 2016, newer vintages were worse than the one before them, and this has stopped.  Depends of course on which grades and terms you break out, which measure you look at (late 30, late 60, default).  It is very easy to get so many curves that you can't see the more recent ones, so you have to set it for a large date range to get context, and then set it for a narrow date range to see the relative position of recent quarters.

You can also download the delinquency and chargeoff by vintage spreadsheets from LC.  The links are quietly hidden at the bottom of one of the statistics pages.  The spreadsheet lets you choose grades, and displays a matrix with vintage columns and month (payment) number rows.  I copy & paste this to another spreadsheet where I draw charts from it.  I haven't updated in a long time.  Another thing you can do is simply look at a row.  For example, pick the 12 month row, and just look across vintages to see if newer vintages are worse or better at 12 months, etc.

[sensij]

For what its worth, here is an update of the a chart @Fred93 has presented before (and is mentioning in the post just above this one, from the downloadable chargeoffs spreadsheet), suggesting 2016 Q2 and Q3 are the worst and some improvement since then, although there is some grade dependency.

It look like 2012 Q4 was that last *great* time to be an investor in the higher risk grades.  I didn't plot earlier than that because volume was so thin (only 432 notes in 2011 Q4, grades D-G, for example, increasing to 753 in 2012 Q1)

[Fred93]

Thanks Sensij.  Another thing you can see from those charts is that not enough time has elapsed to really know how 2017 loans are going.  It looks like things are headed in the right direction, but its a noisy data series, so we really would like to see more data.  Just have to be patient.

[CircleT009]

No doubt 2015 and 2016 are bad vintages.

I guess what I do not understand is how low of a return is LC willing to advertise before something changes.  I am referring to the banner they post all over the place.  Attached.

It used to say 8-10, then 7-9, then 6-8, then 5-7 and now 4-6.  How low will they go, before they realize people are not willing to invest in this asset class for that return.