Lending Club Experiences

In My Humble Opinion
602

If I were the CEO it would make little sense to me spending the manpower doing all that verification stuff beforehand when the notes are going to sell quickly anyway. The effort is best spent on troublesome loans which are running out of time. Of course there still needs to be some token blessing/approval after they get funded.

Which raises its own issues: Borrowers seem to get mighty angry after they wait through the funding phase only to get an email from LC later on saying they are denied. Lots of nasty gripes out there to read. I don’t know if this is due to the borrowers just not understanding the process, or maybe LC really is telling the borrower they’ll have the money soon and simply cancelling later. Either way, bad PR.

Interesting related tidbit from the prospectus:
Of those borrowers LC selects for income verification, 40% don’t even provide “satisfactory responses”.

That either says something good about LC’s selection algorithm, or something very bad about the honesty of these borrowers.

603

Just found in the prospectus: " We cannot assure investors that we will continue performing income and employment verifications".

I actually emailed LC to ask if they’d quit doing this. We’ll see what they say. May be time for me to withdraw now, which is annoying as hell.

604

So have I.

605

As LC is going to be catering to institutional investors and wealth managers, I’d be hard pressed to think of why they would risk enlarging the pool of lousy loans. And yes, I think think a ton of the loans are just preposterous, regardless of whether the income is verified.

Example: I saw a monthly income of $50K verified and the person was going for a $35K five year loan. Credit line utilization was < 10%. Very fishy.

At this point I don’t even bother looking at non-verified income loans, even if I thought it would add a few %.

606

And here is their reply:

[QUOTE=Lending Club]
We income verify more than half of the loans and this number has remained and continues to be stable as it is driven by our standard processes. The reason you see less of these loans is because the process of income verification takes an average of 5-8 days, and the loans are becoming fully funded and disappearing from the visible inventory before income verification is complete (i.e, investors are funding the loan prior to our verification process being completed). It is important to note that – if these loans have been conditioned for income verification – they will NOT issue to the borrower, even if fully funded, until the verification process is complete. The loans will just cease to be visible online as there is no need to attract funds. It is also worth adding that, while the data would indicate that the performance of loans that have been income verified is equivalent to those that have not, some investors have a preference for income verified loans and the loans can be fully subscribed more quickly.
[/quote]

Interesting comment that verified income loans are no better than the others.

607

Thanks for posting that. That was a surprisingly relevant response. From their competitor Prosper I just get canned responses that have nothing to do with what I asked. Kudos to LC.

Makes sense that we wouldn’t see income verified loans then. My new question is why did they ever show up so often in the first place? 8 days seems like a long time to go without being funded.

I guess this is the new normal. Some investors prefer income verified loans, but the loan won’t be income verified until after it no longer matters. Catch 22. And if you complain about it then that’s proof that you’re sane and thus you have to fly more missions. Or something.

608

From the response it seems that LC itself requires that certain borrowers must pass income verification before LC will allow the loan. I wonder what criteria they use to flag which borrowers must have income verified. It also means that even if we do not use the income-verified filter, there is a better than 50% chance the borrower will go through income verification anyway.

609

I got a fairly similar response, though not quite as informative:

I do wonder why the sudden drop-off in verified loans. Is there a massively bigger pool of investors competing for the same loans?

610

Well, I took the plunge and threw money at a number of non-verified loans. I hate that.

But I’d been making a concerted effort to sell off anything that had a credit score drop of more than a couple of notches. With the exception of one loan that had gone into its grace period and that I discounted about 20%, all were for at least some profit (though in some cases, with the fees, they were a net loss).

I feel bad about one sale that went through today. Its rate had been dropping, but I listed it at my now-usual formula (current P+I + one month interest + enough to cover the fee). I was sure the sale was going to bust because the payment was due yesterday - but nope, the sale went through and the loan is still unpaid - and is now in grace period. Ugh. Not my problem, I made my profit, though I feel a bit bad for the buyer since they paid a “premium” and it’s now threatening nonperformance.

Oh yeah: I’m still “up” for the year, profit-wise, though it’s only 5% (that major loss in January wiped out my profit). Feb/Mar were about 12% per Quicken. April, too soon to tell since I record all my regular loan work (lending, repayments) as aggregated transactions. I’ve said before but worth repeating: Quicken will use your last sale transaction to generate its valuations, so a sale at a profit or loss skews the apparent earnings. I have to periodically edit the “stock price” to set it to 1.00 to get reasonable holdings figures.

611

Yes, LC itself has always required this in cases as far as I know. Here are the criteria they list in the prospectus:

For the 12 month period ended September 30th 2012, LC reports 60% of applicants got verified. But remember that when free-form Q&A was allowed, one of the common “questions” was to tell the borrower to get verified even if LC didn’t request it. (I’m sure this drove LC absolutely mad, by the way.) But my point here is the historical numbers are seriously skewed: A non-trivial percentage of the potential borrowers who got verified wanted to be verified. Gee, ya think they’re gonna pass?

This is 60% of applicants though. And since 40% of those didn’t provide “satisfactory responses” only a subset made it through to loan issuance. That seems to indicate 36% of issued loans got verified, including all those that asked for it.

So when this year’s numbers come out I think there’s no way that the data will show that 50% of new loans had been income verified. No way in heck.

612

Has anyone noticed this change just recently? The accrued interest now goes to $0.00 on the date the payment is due. Since the buyer is going to get the payment, the markup is all out of whack as a result.

I don’t yet know if this happens all the time or just certain notes.

613

Huh - no, I haven’t seen that. Or more accurately, I’ve seen that behavior in the distant past, but when I’m looking on the FolioFn platform to sell something, the interest still seems to be there even when the payment is pending. What view are you looking in? I might be looking in a different spot.

614

Something I’ve noticed: a lot more loans are failing to go to issuance. Something that hasn’t already been verified stands a higher chance of getting refused, I guess. Before, I had maybe 2-3 total that wouldn’t fund, but I’ve had 2 or 3 in the past week now.

I’ve been making an effort to sell anything that’s dropped more than a couple notches lately so I’ve had a fair bit of cash to reinvest, also. Mostly I mark it up by adding the fee and a month interest to the current value (principal and accrued interest) and that’s been working; if something’s really plummeted I’ll lower that.

I listed one like that - and it happened to sell before the payment… and then it went late. Still in grace period even now. I feel a tiny bit bad for the buyer, s/he paid my usual markup to immediately get burned. I hope it makes good soon.

615

At least two places: When the note was already for sale, the accrued interest column on FolioFN’s ‘My Account’ page where it lists your notes for sale. And then also on the ‘Sell notes’ page, same column. And make that a third place: On LendingClub’s own site on the ‘My Notes’ report, that also shows $0.00.

All three examples I’m looking at today are newly issued notes. First due date was today and interest is now $0 for all. Could just be coincidence that mine are all newly issued ones.

Normally I use accrued interest dropping to zero as the fastest indication that the payment is about to post, and cancel my sales then so I don’t have to trust the unreliable busting algorithm. So much for that.

My scheme-sniffer tells me there’s a way to make some money here. Definitely a way to lose some, no question about that.

616

Allan Roth has just done a fairly short review of Lending Club on cbsnews.com.

Part of his conclusion:

617

OK - I noticed this as well (and I think I had spotted it before), if a note has a payment due today its accrued interest temporarily sets to zero. That should reset to something reasonable in a day or so.

I’m looking forward to seeing what Quicken thinks my rate of return is lately. I’ve been making a significant effort to list anything where the rate has dropped by more than a couple of notches, and I’ve usually been able to sell them for my usual “current P + accrued interest, plus last month’s interest, plus enough to cover the 1% commission” formula. A couple that looked really iffy I put just to current-value plus commission. I’ll need to wait until I get my 4/30 month-end summary of regular LC purchases before Quicken gives me anything like reasonable figures.

I’ve currently got 19 loans at Issued status as a result of re-investing. And another 77 or so in cash at LC to invest, plus the proceeds of 3 or so loans that are in the process of selling. It’s actually hard to find the right loans to reinvest in now!! My current LC inventory is down as well - at one point I had 90+ loans I think, but now it’s 65 or so.

618

I just read it. He calls this a “review”? He wrote 4 introductory sentences explaining what LendingClub was and then spent the entire rest of his “review” complaining about the NAR calculation. Not a single thing else was mentioned! Wow.

I’m not sure what Mr. Roth expects LC to do. Once a note goes into grace period, treat it as a 100% loss? Guess whether the borrower is going to pay up and adjust your account value accordingly? Loans are only going to be in this limbo for 120 days – once they’re charged off things will start to even out the longer you’ve been invested.

I think we all understand the NAR you see the first month isn’t exactly realistic. It’s better than not having any number at all, I think. If you want to calculate a better number yourself you’ll have the exact same dilemma.

Of all the things he could have brought up… sheesh.

In other words, if LC makes it too easy to make a 9-10% return then he’s out of a job. He’s gotta put an end to that right quick. Now that’s “the rest of the story”.

619

Interesting thread. I happened to find it with a google search. And appears that I have a far different strategy than most of you guys.

When I first started a few months back, I invested mostly in the ABC range, basically to get a block of steady loans, and because they are more available than DEFG. But now my focus is on the lower grade loans. I currently have 200 loans, and am about 50/50 between high and low grade loans. 26% in D, 10% in E, 5% in F&G. I pretty much only invest in credit card refinancing/debt consolidation loans.

I’m currently showing net annualized return of 13.21%

My reasoning for the lower grade loans is simple, I pick up the “better” lower grade fund - no delinquencies, long employment, long credit history, high income. Therefore the difference from a A loan to a D loan is basically a lower credit score, which is due to high credit card balances and a larger loan amount. Other than these two (large) factors, there isn’t a difference between an A loan and a DEF loan if you use the criteria mentioned above. Those two factors is what turns an A rated loan to a D rated loan.

Once a loan payment doesn’t go through, I immediately list it on folio for a small loss. I haven’t tracked failing loans, but I’ve had a total of 3 A rated loans go into grace period. 1 loan didn’t even make any payments, and the other two were 2 payments in. The lower grade loans have a better payment record so far… I think A loans aren’t very good in terms of risk to reward. Low rate of return doesn’t cushion you as much from an eventual default.

I also use folio to divest in my A-C rated loans. I’ve been listing them for a couple percent above current value and scoring some hits. I think a couple percent profit is reasonable on folio for current loans because after a loan is sold, then you have to try to originate a new loan, which isn’t earning you interest, and can be rejected, so you might go a month without earning anything.

Lendingclub claims an 85% repayment even for loans in grace period. But this includes pennies on the dollar gotten in settlement, etc etc. I’m thinking the true 100% repayment on loans that have dropped into grace period at some point might be 50%. Therefore, it’s better to immediately dump the loan for a 5% loss on folio than to wait and see if they become current. No sense take a 50% chance of losing 100% of the remaining loan when you can walk away at 5% loss.

I saw a comment wondering why some borrowers don’t simply borrow from the bank for a cheaper than 20% rate. The fact is that if you carry a high credit card balance, banks won’t lend to you. Credit card companies are charging you the max rate of 29.99%, and you’re barely getting by making the minimum payment (which adds to your balance.) Therefore, the borrower is better off consolidating their loan into a LC loan at 20%, and the have an easy, guided approach towards paying off their debts in 3 or 5 years. As long as the borrower doesn’t fall back into his old habits or lose his job, it’s a win-win situation.

620

Forgot to mention that I also believe that LC does more income verification on the lower rated loans due to the higher loan amount and lower credit scores. If an applicant lies or throws red flags in the review, the loan doesn’t get originated. Whereas these type of bad borrowers can slip through if they’re A rated (high credit score, lower loan amount).

621

The verification & funding are done concurrently because it doesn’t make sense to verify first, then fund because of the length of time that will take. If you take a month to go through a process to originate a loan, the borrower will likely just walk away because he found another option.

There has to be a review because if LC lets a ton of crappy loans slip through, people are going to lose a ton of money, then close up their accounts.

If LC attempts to verify income, and the borrower lied and doesn’t really have the income, then they might be upset, but understand that it’s their fault. And in all honesty, LC is for borrowers that don’t qualify for bank loans for one reason or another, so these borrowers likely are no stranger to being denied on loan applications.

LC fills a gap between a bank loan and credit card debt/loan consolidation companies. It only services 10% of these “below than bank” quality borrowers, which is as it should be. Everyone else gets rejected.

And regarding “honesty of the borrowers”… we live in a society where it’s ok to tell a lie (if we get away with it). How many people aren’t in a state that allows you to apply for LC? how many people didn’t report interest income since they didnt’ receive a 1099? How many people lied regarding the 70k/annual income?

pot.kettle.black. just saying…