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Old 07-06-2010, 11:01 PM
Mama Zappa is offline
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Join Date: Feb 2003
Posts: 12,412
Originally Posted by Chessic Sense View Post
I took loans that were over a year old. LendingClub doesn't do that. I think they only count 6-month old loans. So they're boosting their numbers. Then I added in the late loans, assuming they'll go bad. Since LendingClub doesn't do that either, they get to back up another 6 months. So if you took out a loan 364 days ago, and never paid a dime on it, you still wouldn't show up in their "default" rate. I put it in quotes because it's really just some math wizardry they use to come up with a nice-looking number.

I talked to Jeff, a sales associate, and he told me that they count Charge Offs as defaults as well. "It's just an accounting term," he said, "an industry standard." I'm not sure I believe him. Nowhere on the site does it mention charge offs being counted as a default. I mean, come on - historical default rates of less than 1%? Are you joking?

Go to the statistics page and put in custom dates of July, 2007, and any date in 2008. I used Sep 30. You'll see those bright, shiny returns drop like rocks. And it confirms what I've said here - A is the best grade because they never default, especially if you also pick by purpose.

I'm also told that the largest investor on the platform has over $7 million invested. Jeff told me some magic number of loans you can have that will "guarantee" a profit, whether large or small. I think it was, like, 75 loans. He said no one that has that many loans has lost money so far. I'll get back to you on that too.

The one quibble / question I have is: why are you questioning that a charge-off is counted as a default? Presumably they only charge off a loan that has gone well into default (or do you think they're double-counting?).

I'm raising an eyebrow on the "size that guarantees profit" since, after all, a portfolio of 75 G class loans might well lose money!


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