I think if I had only 12 loans today, I’d probably consider doing as you are. I said ‘consider’ because back when I actually had 12 loans, I think only 2 of them were As. Most were Bs and Cs.
I’m trending away from A loans at this point because the ones I have/had keep paying off early. I just purchased another loan, so now I have 68, of which only 5 are A.
At that point, I had mostly B/C loans. I think my first A-class loan was about the 17th one. At present I’m heavily into B-class (44%), then A (29%), then C (18%), and a small handful of D-class loans.
Of my fully-paid notes: I have 3 A-class, 8 B-class, and 3 C-class.
Total notes issued: A-class 27, B-class 45, C-class 20, and D-class 5. The two chargeoffs were C-class.
So, my experience with A-class loans is NOT that they do early payoffs at a higher rate. 1/9 of my As paid off earlier, just over a fifth of my B-class loans paid off early.
This would be interesting to check on a larger sample set. I really do want to set up an Oracle database where I can load up the “all loans” file and crunch to my geeky heart’s content :).
I just finished reading all 9 pages of this (aging) thread and wanted to throw in a few comments. Wish I had kept quotes as I went, but I didn’t so just from memory:
It pains me to read about all the folks who have lost a bit of money here and there on defaults. I gotta ask though: Why didn’t you unload these notes on the trading platform before they got to that point? Before it even goes into ‘grace’ status you have a couple days in which to sell it as a “Current” note to the greater fool… Even if you have to give up a 1% discount (pennies!) that’s better than a 100% loss.
Speaking of the trading platform, there was talk here about it being so great because you can get your first payment in days sometimes. That is bunk. The accrued interest is already calculated into the discount rate of the note and so you’re paying for that interest when you buy it – assuming you are looking at the discount at all. There’s nothing to cheer about when you get your own money back a couple days later.
The word for the original amount of money still owed on a loan is spelled principal. Please.
Bankruptcy of LendingClub itself is the real risk with all this. The loans are assets of LendingClub – you don’t “own” them. It doesn’t matter that they have set up a backup company to service the loans; if LC had to be liquidated that would potentially include “your” notes and there would be nothing left that needed servicing. If you take a look at their prospectus, even their lawyers aren’t sure what would really happen in that case.
As for my own experience with LendingClub, I think it’s the best thing to come along since Chia Pets. The 15.10% Net Annualized Return is nothing to sneeze at (even with the work required) and 192% annualized return on trading activities is the real gold for me. There is real money to be made here.
I just hope it all lasts. But the little voice inside me is saying it can’t, long term.
Active.
In a few weeks I will be moving in with a family member at greatly reduced rent. I am planning on rolling a portion of the difference into LC.
For me, it’s sort of a matter of understanding that some defaults are going to happen, that some late loans DO get made current, and also watching the train wreck. I’ve been fortunate enough to not have this happen all that often. I suppose if it did, I’d either change my investment strategy or start trying to dump things. I’d think there’d be much more than a 1% discount required to unload them, however.
Yeah, but it’s got to be a big psychological boost (guessing; I haven’t done any trading platform purchasing).
Very true. I haven’t looked into their fiscal status in quite a while. But it is a concern, and that (plus the inherent risk of any loan) is a big part of why I haven’t done a lot, just a little “mad money” now and then.
What does your portfolio mix look like? How long have you been trading vs. doing original loans?
Under the current market conditions a note with 0 late payments will always sell for a 1% discount or better. What’s key here is you see the payment failed say on day 3-4, but the note doesn’t get flagged as ‘In Grace Period’ until the 6th day. Not everyone looks at the collection history, or if they do they sure don’t seem to care because I sell them all the time like that. However with only 2 days in which to sell it, yeah one would be wise to go straight for a 2-3% discount and that puppy is as good as gone by morning. The pain is you have to check your notes for potential failed payments each and every day and get them on the market before the big buying spree which occurs at around 17:00-18:30 Eastern Time.
I’m not sure “portfolio mix” is the term I’d apply to my own account since the majority of my holdings are in idle cash and a handful of notes that I’m trying to sell that week. I only hold notes for long enough to get rid of them. However I do have a small collection of about 120 “keepers” that meet my criteria: Borrower interest rate >= 16% (15% for me), no lates, 7+ payments, and credit score decent. Those are the ones averaging the 15.10%. If any of them start to drop in credit score I get rid of them at a 3-5% premium. People really pay that for them. Some will even pay 70% markup. I’ve stopped trying to understand why. 
I couldn’t do original loans because of my state so I was buying on the secondary platform from day one. Started in late January of this year with $2k and the account is now worth over $11k with no additional deposits, so I guess that’s around 6 months, to answer your question.
In general, I go for the “buy and hold” approach.
But today, just for giggles, I decided to post a note for sale on the trading platform. A class-D, 60-month loan, 48 payments left, credit score slightly up. I priced it at current principal, plus accrued interest, plus enough to cover the lending club fee, plus a bit extra to basically cover the next 3 months of interest (something like 90 cents). Someone else listed that same note, with a much higher (4 dollars higher) price. 27 dollars to my 23.
For folks who have sold notes in the past, what are your strategies for making sure they sell quickly and you benefit? Both for notes going bad, and for regular notes that you’re churning for a profit?
And - as we’ve noted before, there are notes that are way late - and the asking price is WAY over the principal+accrued interest. Why on earth would anyone buy such a note? Does anyone buy such notes?
I thought about offering my two defaults up for a buck apiece or something, but you can’t do that; looks like you used to be able to but they stopped it a year or so ago. No biggie. I did actually get some more money recovered from the first default - another 90 cents, I think - a few weeks ago.
I have a very simple strategy…I buy new high-interest notes (F and G) in $25 increments. Once the loan is issued I immediately put them on Folio with a couple of percent markup. Most of the notes, especially the highest interest notes, sell pretty quickly. I always have every note I own listed on Folio.
I look at other notes from the same loan on Folio, check the pricing of those, and make sure mine are the lowest priced, if reasonable. My goal is to sell every note prior to the first payment due date, taking almost all of the risk out of it. So I guess I have a trading strategy rather than investing. Ideally I don’t want to deal with payments at all.
If I get closer to the payment date and the loan is not sold, I generally mark down the note a bit and have no problems selling. This strategy has worked well so far, but I don’t have too much money in my account. As I put more money into my account, we will see how long this strategy lasts.
I try to ‘flip’ each note at least once a month, and my goal is to make at least a quarter on each note (after taking out the Folio fee), which has not been a problem at all. The way I see it, if I make $0.25 on each $25 note at least once a month, I am making 12% on my money. I could probably make more by investing or being more patient on selling, but the risk of holding and dealing with notes potentially going bad is not worth it to me, especially considering these are the riskiest notes.
So if I follow: when you purchase a note for 25, you’ll list it for something like 25.75 or so? (that would cover the 1% fee, plus a couple percent profit).
The note I listed yesterday is still out there; the corresponding one (same loan/note, higher markup) is not. I have to assume it was withdrawn, as (presumably) someone wouldn’t have paid more for the same loan.
How long in general do you find it takes for one to sell?
Exactly. It can take up to a couple of weeks to sell, but once the interest starts accruing they tend to go faster. I price most notes in the $25.60 - $25.75 range. After the interest starts accruing, the markup goes down and the yield goes up, and the note becomes more attractive. I’ve sold every note prior to the first payment and always at a profit (even after the fee is taken into consideration). Like I said, I could probably make more by being more patient, but this is more for fun than anything else. I think a lot of people are stuck buying notes on Folio since they live in states where they can’t invest directly, so it seems to me there is a market out there for new notes that are slightly marked up.
I don’t think this strategy would work well with the lower interest notes, since there are so many on Folio and they are impossible to find since the Folio browse feature is so limited.
For your situation, I think maybe the other note you mentioned expired and the seller did not renew it?
Yeah, that’s quite possible, makes more sense than the note selling before mine.
How do you account for the profits, at tax time? For interest payments, I add 'em up and enter the aggregate, though to be technically correct there’s some special kind of number-crunching you’re supposed to do to report profits from loans. Impossible for a civilian to do especially on such a small scale, and I figure it all works out so that the IRS gets the expected tax revcenue.
But a profit (or loss) on a sale gets into Schedule D territory in my mind.
I have not had to deal with taxes at this point, since I just started earlier this year. I will discuss with my accountant, hopefully there is a streamlined way to do it. I can imagine that completing a Schedule D on hundreds of notes would be a bit of a chore.
I thought you guys might be interested in this article on Bloomberg about P2P lending in China.
Some highlights:
No credit scoring system (FICO)
Most loans go toward small business loans
At least one P2P company has been exposed as a ponzi scheme while another one has shutdown due to lack of capital
No Chinese laws address the legality of P2P businesses (neither allowing or banning them)
Also I found this site which I’m not sure if anyone has mentioned yet. It has a bunch of tools for analyzing your portfolio. The most interesting thing on there has to be the Return Forecaster. I’ll just quote from the site.
As for me, I began doing this a few months ago investing small amounts and I’m almost ready to start putting some real money in. So far I have 28 loans spread among A, B, and C. I have had no defaults and 1 early payment (which dropped my return by 1% ouch). I’m currently earning 8.56%. My primary goal is capital preservation so I have been very strict with what loans I pick. I think I have developed a pretty solid set of criteria for picking loans.
My only problem so far has been the lack of what I consider to be quality loans, especially at the C level. My thinking is they get snapped up to fast or my standards are to high. I don’t even touch anything below C. I can’t believe some of the truly terrible E, F, and G loans that get fully funded. Otherwise I’ve been having fun and making a little money at the same time. I check my loans and buy more every 2 weeks or so.
In a way, this would be the easy part if you use Quicken. I record my loan purchases in aggregate at the end of each month as 1 dollar per share, each loan being 25 shares, and principal repayment is also $1/share (the interest I record separately).
So you buy a loan for 25.00. A month later you sell it for 26.50 before you earn any interest. You’d record a sale of 25 shares, total cost 26.50, per-share price of 1.12 (or whatever, I didn’t do the math), commission of 27 cents, and you’ve booked a capital gain of 1.13 (26.50 minus .27 is 26.13, minus basis of 25.00). You identify the lot at the time of sale to force Quicken to treat it correctly.
So I read a few posts in this thread and got encouraged to try this out and went to the site. I start registering as an investor and I read the investing agreement, or what ever it’s called, and it says that I must have assets or a net worth of $70,000. Realy? It’s denominations of $25. Why do I need to be worth $70,000?
I think it is a state requirement related to SEC registration. I know it is self-reported and they don’t ask for documentation. I doubt that all investors meet the criteria…I’m not recommending anything one way or the other, just my take on it.
I do use Quicken, so that sounds like a good idea, and I also do the monthly tracking. I also wonder if you can just put a single line on the 8949 form and just list the dates as ‘various’.
More insanity on the FolioFn platform.
First - that other instance of “my” loan was actually still there for the higher markup, I must have ordered things wrong when I looked yesterday.
The “last payment date” is flat-out wrong. I looked at one note that listed 723 as the “days since payment”. This actually appears to be the last full, regular payment but the title implies it’s the last time they got any money at all.
And the markups!! That same loan has a principal balance of about 5 dollars. Scheduled payment was 89 cents, the payment plan payment is just over a dollar (they were interest-only for a few months). Yet it’s being sold with an asking price of 5.60. Looking at recent payments, this is almost exactly what they’d add up to - which means the buyer would get no profit at all. OK, that one is at least not completely ridiculous.
But on another loan, the principal is 19 dollars, 10 months into a 36 month loan. They’re asking THIRTY THREE dollars. This is significantly more than the sum of the remaining payments. Why on EARTH would anyone buy such a loan??? I wonder if there’s some kind of money laundering going on when I see something like that.
Update after a couple of days of playing on the trading platform.
My first note (D-something, a year old, credit score had gone up, never late, 60 months). Balance was just under 22 dollars, and I sold it after a few days for 23 dollars. I’d have probably made more if I kept it long-term but figured that one would sell quickly and it was a way to try things out.
I had another, A4, 17 months old, 50 initial investment, principal balance was 27.74, but the credit score had plummeted and the 7/27/ payment hadn’t been made. I tried listing it for face value, but it didn’t sell quickly, so I reduced it to 26.00 (at that, I’d still make a net profit because of interest earned to date). And it sold… just after a payment was made (to me, apparently). So I think I’ll net just over 27 dollars (with the 26.00 sale, the 1.55 payment, minus the commission). A small loss but less than if I’d held on and it tanked, and I have a net profit counting the 18 months of payments so far.
I put a couple of others up, including one brand-new loan such as Brown520 mentioned doing. Listed it at 25.74 (others had the same loan for 25.75). That’ll pay my commission plus about a month and a half worth of interest. My thinking is that if I buy a loan that I’m planning to put on the trading board immediately, I’ll go for class D and E loans that meet my other usual criteria - income verified, less than 10% of income etc. so if I have to hang onto them, it won’t be so scary.
I also listed a couple of other loans in my portfolio, which have had credit score drops but are otherwise good. We’ll see how that goes.