Author Topic: How liquid is Lending Club investment?  (Read 12356 times)

Watermen

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How liquid is Lending Club investment?
« on: March 20, 2013, 12:24:59 AM »
If one day, you suddenly need all your money in Lending Club, how fast can you get it out?

Say you have 800 notes with $20,000 investment. And you needed all $20,000 ASAP to do something really urgent.

Senario 1: all 800 notes are only about 1-2 months old.

Senario 2: all 800 notes are at least 12 months old with some charged off or late payment.

Senario 3: you have mixed portfolio, with some brand new notes, some few months old, some even more than 30 months...



DanB

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Re: How liquid is Lending Club investment?
« Reply #1 on: March 20, 2013, 04:05:18 AM »


Age of your portfolio is pretty much irrelevant, in terms of ease of liquidation or the discount which you will need to offer in order to liquidate. How much of a discount depends on how you define ASAP. Be specific & I'll be able to give you further info.

As far as your late notes are concerned, it's best to view them as total losses rather than quibble about whether you'll be able to get 10, 20 or 30 cents on the dollar on a quick liquidation.............regardless of how I define "quick".

rawraw

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Re: How liquid is Lending Club investment?
« Reply #2 on: March 20, 2013, 07:01:14 AM »
You shouldn't invest money in LC that you may potentially need ASAP.

AmCap

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Re: How liquid is Lending Club investment?
« Reply #3 on: March 20, 2013, 07:36:04 AM »
Oh how I wish more folio data were available.  If we knew what factors affected sale time (assuming there's any rhyme or reason to it), that would tell us more about the true FMV of the notes and therefore give the buyer/seller a better idea if they were getting a good deal or not.

Dan - I don't know that the age of the note is irrelevant.  Again, assuming there's any rhyme or reason to the secondary market (and significant anecdotal evidence suggests there isn't), my intuitive feeling is that an investor would be willing to pay more for a seasoned note, since the total yield would be less contingent (i.e., I know it's more likely I'll get all P&I due on a note that's paid on time for a year than a note that's only paid once).  That is just me brainstorming though...do you have a different experience?

I tend to compare an LC account and a 401K in terms of liquidity.  If you were willing to take a haircut equal to the tax and penalty you'd pay for an early withdrawal from a 401k (ouch, in some cases...), I'd suspect you'd be able to get your money out of the notes pretty quickly.  I doubt you'd need to discount that deeply even, if the notes were good performing ones...

Cliff_S

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Re: How liquid is Lending Club investment?
« Reply #4 on: March 20, 2013, 09:09:27 AM »
You shouldn't invest money in LC that you may potentially need ASAP.

Have to agree with rawraw here on this one.  To each his own, but I'd recommend another "pot" or "bucket" of money (call it an emergency fund if you want) that is immediately available to cover anything that springs up needing money ASAP.

I've sold notes (20-40 at a time) within a day or two, depending on my asking price.  Obviously if I discount them a tad they move quicker.  I would imagine unloading that many notes would take at least a week, maybe longer and then I assume it takes LC 4 business days to transfer funds back to your account.   A lot of assumptions here, but I could see it easily taking 2+ weeks until you were able to pull money out.

Cliff

lender_john

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Re: How liquid is Lending Club investment?
« Reply #5 on: March 20, 2013, 10:56:02 AM »
If one day, you suddenly need all your money in Lending Club, how fast can you get it out?

Say you have 800 notes with $20,000 investment. And you needed all $20,000 ASAP to do something really urgent.

Senario 1: all 800 notes are only about 1-2 months old.

Senario 2: all 800 notes are at least 12 months old with some charged off or late payment.

Senario 3: you have mixed portfolio, with some brand new notes, some few months old, some even more than 30 months...
While you probably shouldn't invest money that you need immediately, everyone can decide that for themselves.

Here is my opinion on these scenarios, assuming that you picked reasonably good notes.

Scenario 1: With a discount between 0 and 0.5%, you could probably liquidate the majority in under two days, and 95% in a week.

Scenario 2: With a discount between 0.5 and 2% you can liquidate anything decent within the week. Notes with decreased credit score will take a larger discount.  Late notes take a huge discount.. 

Scenario 3: Average 1 and 2.

Now if you buy loans with 6 credit inquiries and several public records.. You can't expect to liquidate your portfolio without a large discount.

SeanMcD

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Re: How liquid is Lending Club investment?
« Reply #6 on: March 20, 2013, 03:09:41 PM »
Interesting read: http://lcp2p.blogspot.com/  This guy blogged a short experiment with LC, investing only through FolioFn, then liquidated his account.  His account wasn't large (~150 notes) and it took him 2 months to cash everything out, but he sold most notes at a decent markup.  Selling notes closer to face value would speed the process up considerably.  I know when I have a bunch of notes priced too low (but still with a positive markup), they can disappear very quickly.

Simon

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Re: How liquid is Lending Club investment?
« Reply #7 on: March 21, 2013, 02:51:41 PM »
If you're thinking of eventually reselling your notes (and you want to stay more liquid), try to only have 25-75$ notes, as high value notes have a tough time selling on the secondary market.

See my post here: http://www.lendingmemo.com/diversify-your-account/
Writes at the peer to peer lending site LendingMemo.

SeanMcD

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Re: How liquid is Lending Club investment?
« Reply #8 on: March 21, 2013, 03:21:10 PM »
If you're thinking of eventually reselling your notes (and you want to stay more liquid), try to only have 25-75$ notes, as high value notes have a tough time selling on the secondary market.

See my post here: http://www.lendingmemo.com/diversify-your-account/

Simon, do you have much personal experience selling $100 - $500 notes on FolioFn?  I'd love to hear some actual numbers about how long sales take and markup/discount required as compared to $25 notes for the same loan.

flyp52

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Re: How liquid is Lending Club investment?
« Reply #9 on: March 21, 2013, 03:39:08 PM »
In my experience, age of a note, payment history and credit rating trend all impact how quickly a note will sell and at what markup/discount.  Notes (mostly C1, C2) that have 8-12+ month payment history, never been late and have a rising credit score trend will sell within a day or two at a several percent markup.  A similar note, but with a declining credit score trend will languish even with a 0-1% markup.  These are notes where even though the credit score trend has a down arrow, the actual chart shows a very stable trend and only a tiny downtick on the credit score.

My impression is that there are a fair number of Folio buyers out there that don't look beyond the Folio listing at the Loan Performance or Original Listing when purchasing notes.  If they did, they'd find some pretty good deals.  Conversely I've also sold, at a healthy discount, notes that were never late, but would be recognized as clearly distressed if the Loan Performance were examined.

I don't think note size has nearly as much impact as payment history and credit score trend.  I have sold lots of quality notes in the $200-400 range with a several percent markup.  There are buyers out there with substantial portfolios for whom cobbling together lots of $25 notes is very laborious.  They'll jump at a good looking $300 dollar note.

SkaXc0re77

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Re: How liquid is Lending Club investment?
« Reply #10 on: March 21, 2013, 04:03:31 PM »
My impression is that there are a fair number of Folio buyers out there that don't look beyond the Folio listing at the Loan Performance or Original Listing when purchasing notes.  If they did, they'd find some pretty good deals.  Conversely I've also sold, at a healthy discount, notes that were never late, but would be recognized as clearly distressed if the Loan Performance were examined.

True that - I sold a note that made one payment before collection history said "deceased".  I sold it for .5% less then the remaining principle.  Sold the same day!

The note wasn't even that good... IR01 - 385, IR04 - M, 2 inquiries,

Simon

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Re: How liquid is Lending Club investment?
« Reply #11 on: March 21, 2013, 05:40:56 PM »
If you're thinking of eventually reselling your notes (and you want to stay more liquid), try to only have 25-75$ notes, as high value notes have a tough time selling on the secondary market.

See my post here: http://www.lendingmemo.com/diversify-your-account/

Simon, do you have much personal experience selling $100 - $500 notes on FolioFn?  I'd love to hear some actual numbers about how long sales take and markup/discount required as compared to $25 notes for the same loan.

I have not had the pleasure of owning high value notes, but Peter has, and reports difficulty selling them in a comment on this page: http://www.lendacademy.com/how-much-diversification-is-enough/

That said, I would not be surprised if this situation is changing. Some time has passed since Peter wrote that comment, and as Lending Club's loan volume goes up each year, the threshold should inch higher and higher.
Writes at the peer to peer lending site LendingMemo.

AnilG

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Re: How liquid is Lending Club investment?
« Reply #12 on: March 21, 2013, 10:43:28 PM »
With not so liquid state of secondary market, I doubt you will get full fair value for your loans. You will land up taking major haircut to move your loans quickly.

With lot of the lenders from states that don't allow purchasing new loans on the current secondary market, you most probably will take much smaller haircut with new loans (scenario 1).

If secondary market was close to efficient market, you could have moved loans in all scenarios close to fair value. The new loans have higher default and duration risk than old loans but this risk is compensated by smaller spread between current market interest rate and loan interest rate. The older loans have lower default and duration risk but depending on inflation and interest rate environment may have larger interest rate spread.


If one day, you suddenly need all your money in Lending Club, how fast can you get it out?

Say you have 800 notes with $20,000 investment. And you needed all $20,000 ASAP to do something really urgent.

Senario 1: all 800 notes are only about 1-2 months old.

Senario 2: all 800 notes are at least 12 months old with some charged off or late payment.

Senario 3: you have mixed portfolio, with some brand new notes, some few months old, some even more than 30 months...
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Anil Gupta
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