I think it's not exactly that reinvestment is assumed but that the principal invested in the loan decreases with each monthly payment. That amount of principal is returned to you each month. You may or or may not decide to reinvest; YTM doesn't care. YTM just knows that, per the monthly amortization schedule, you are loaning less and less money (outstanding principal) each month. That being true then clearly the YTM interest rate will be higher to return the same $0.60 over a years time than your example "ROI" which is based on the full $9.00 remaining invested the entire year. Since LC loans are amortizing then YTM is best measure for comparison of returns.

The same is true for freshly bought new loans. If I purchase a new 36 month $25 note with a 10% APR that is faithfully paid back each month for 3 years I will receive $4.04 interest. If you compute "ROI" on the entire $25 given $4.04 interest it's a total return of about 16.2% or roughly 5.4% annualized.

For apples-to-apples ROI should be computed on the amount of money you actually have invested each month and not the starting amount. In that case I think ROI and YTM are the same.