The last three days have been odd for the types of loans available to invest in. My standard filter has one big item: Only 36-month loans. The last three days, there have been almost no 36-month loans. Yesterday, out of 1100 available, there were only 10 of them that were 36-month. This morning, out of 747, again 10 of them are 36-month. I wonder what happened to the 36-month loans?
Lending Club and online lending have been in the news a lot lately (LC CEO just abruptly stepped down). And now the Treasury dept is going to weigh in. What do the tea leaves say?
Whassup with the Treasury Department? I haven’t been paying attention - less so now that I’ve got it on auto-investment.
Things are mostly progressing as usual for me. I’ve had two chargeoffs in the past couple months: one, the loan had been paying on time for 2.5 years (5 year loan) then went bust. Another paid for 8 months then went chapter 6 bankruptcy.
A third loan is delinquent: they paid for 20 months, requested a payment date change, missed the first month of that, and are now nearly 30 days late.
I think they are mainly looking into the industry for purposes of regulation. I think LC had some shenanigans that might’ve benefited some unfairly so…regulations.
I did read at least one article but it’s been over a week so that’s as good as best I can remember.
I’m currently at 290 active notes. I’ve had 132 that have paid off. 5 charged off and 2 more headed that way (will be about $140 charged off total). However, I have sold off many over the last couple years that might’ve gone that way as well (all for a loss but they help at tax time). Adjusted net annualized return is 10.5%. I am 80% in C, 15% in B, 4% in D and 1% in A.
WSJ has been covering the alleged shenanigans at LC. The short story is that a basket of loans which they sold to an institutional investor had some falsified origination information, and this was allegedly ordered by a couple top execs. In addition, the CEO did not disclose that he had a personal investment in a company which purchased some of LC’s securitized loans, and also arranged for LC to make an investment in that same company. Three executives have been fired, and the CEO was ordered by his Board to resign.
Here are some juicy bits.
I’ve been out of the P2P lending game for a few years now (I was involved a lot in Prosper and LC to a lesser extent) but I follow the Fintech industry closely so I’ve been aware of these rumblings.
FWIW, I think the Board handled this about as best as they could, and LC will now be in clean-up mode under reform-minded executives. The punishment LC has seen in the market has been (I think) far too harsh. So I bought some LC shares at around three fiddy apiece.
Fascinating, thanks. So LC officials lied about the loans in order to sell them to institutional investors?
Since I put mine in automatic investment, I pay a lot less attention. I’ve got one G and one F loan (no H) both newly created and no payments yet. 4 E loans (one of which is going down the tube - they’ve been paying for something like a year but in March asked to have their payment date changed; the first payment then failed and none have been made since then.
What’s weird about it is their rating was 680 at issuance and has never dropped much - in fact it’s gone up since they quit paying on this loan.
My annual return remains just over 10%. I’m definitely small potatoes but my total investments of about 1880 are nominally worth 2980 right now - I started investing in fall 2009, so it’s been about 6.5 years a few bucks at a time. I’m getting between 25 and 30 dollars in interest each month.
I am getting out. It felt as if charge offs have been increasing, so I just analyzed them. In 2015 I had an average of 0.51% of my portfolio lost to charge offs each month. So far in 2016 it has averaged 0.84%
My returns have also fallen, but what LC reports is inaccurate. Their adjusted return is an improvement over the original methodology, but they report 7.5% I put my account details into Quicken each month. Quicken reports that my actual return is 5.5% Yes, I know I can edit the values LC uses for its adjustments, but the actual return is what counts.
5.5% is not enough return for what are basically junk bonds. If the return is 5.5% at times of close to full employment, what will happen when we hit the next recession?
Plus this 5.5% is highly taxed compared to some alternatives.
Add in the shenanigans of the executives, and I no longer feel that the return is worth the risk.
“what LC reports is inaccurate.”
That is so true. I’ve learned to just ignore their returns and just use a spreadsheet to track my rate of return. (I use XIRR against my cashflows (note purchases and inflows) and current portfolio value.)
Your comments about chargeoffs increasing is interesting - I’m not sure I understand how that’s happening unless LC is loosening their underwriting standards as the last few years have been pretty good for the economy as a whole. (Of course, chargeoffs might also be increasing because of your note selection criteria “evolving”.)
“5.5% is not enough return for what are basically junk bonds. If the return is 5.5% at times of close to full employment, what will happen when we hit the next recession?”
5.5% might be a great return, especially if it’s a risk free number. You won’t find any US gov’t bonds, AAA investment-grade bonds, or CDs that return that.
As far as taxes go, LC notes are no different from any other non-tax treatment favored bonds. I personally don’t view it as anything other than a very high yield CD that requires a little work to manage.
For all those lenders NOT bailing: LC shenanigans = less institutional demand = higher interest rates / lower origination fees / more transparency = WIN!
That is my fear. There has been high demand from institutional investors and LC has been growing and wants to keep doing so. They could be lowering their standards o diligence, or the institutions could be snapping up the best notes.
They have not changed. I use automated investing.
But it is far from a risk free number. Each individual loan is very risky, hence my junk bond comment. I would rather have 2 - 3% risk-free than a high risk 5.5% If the return really were LC’s quoted 7.5%, that would be a different matter.
Why only compare with non-tax treatment bonds? As it happens, I have had virtually identical returns so far this year with tax-free munis, although some of that is capital gain, which will be taxed but at only 15%. And dividends have a more favorable tax treatment.
It is a personal decision how to view the risk/reward position. For me, the risk aspect is so much higher than any CD, they are not comparable.
I’ve made 8.6% in the last year, overall. For the past few months, I’ve made:
-11.0%
3.6%
10.7%
11.7%
13.5%
11.7%
14.1%
12.7%
…annualized, of course. So things are picking up, I believe.
You’ll have to let us know how long it takes to sell all your notes.
A couple years back, I thought we might have to divest. My husband works for one of the Big 4 (or however many it is this year) accounting firms and there are VERY strict rules about whom you may invest with, borrow money from, lend money to, etc. They were about to force all their employees (and spouses) to divest peer-to-peer lending because you might inadvertently be lending to an audit client. Fortunately saner heads prevailed when they finally realized that a) the amounts are immaterial, and b) you truly have NO idea whom your loan is to.
Anyway, when that was going on I was afraid I’d have to start selling off the loans - and this was right after they instituted the rule where you can’t sell when a payment is pending - so it would have easily taken me a month or so to sell.
On rates of default etc.: Right now I have two loans that are “troubled”. One is in grace period - but its payment is due on the 6th and the payment has come in on the 16th or 17th like clockwork. Their score has dropped… to 790. I’m not too worried.
The other one is an E5 that has been paying steadily for 20 months, and their credit score is up (admittedly from 680 to 685 so that doesn’t say that much). They have not paid the last 2 payments. They’re in the middle of a bankruptcy process - guess they were juggling too many eggs and they’ve started to splat on the floor.
I had a chargeoff last month - borrower went Chapter 7. And another one a couple months earlier that was charged off but apparently LC is still trying to collect. I don’t expect much. That’s the first one in a year.
Supposedly my combined rate of return is 10.56 (adjusted for the late loans) but even if it’s 2 percent lower that is still OK by me. I’m also much smaller-potatoes than some of you all.
I am not selling them at the moment. I just stopped automated investment and will withdraw accumulated cash maybe once a month. At some point I will look into selling them. One question to give me an idea: if I have a note in good standing with $20 left on it, how much can I expect to sell it for?
Hard to say. I haven’t sold anything in a while, but usually I’d price it at current value (principal + interest) + enough to cover the commission plus maybe 1 additional month of interest - those would usually sell though sometimes it took a while.
It’s two months since I decided to withdraw. I have taken out 13% of my investment so far. Returns have continued to fall - from a reported 7.5% to 6.8% (some of the fall will be because some cash sits there until I take it out, once a month). I made a loss last month - more charge-offs than I made in interest. Happy with my decision to quit.
LC is back to very few loans available. One point, there was a whopping 27 available and that is with no filtering. It’s hard to reinvest money when there is so little available.
Charge offs continue to run 80% higher than last year at 0.9% of my investments per month. The last few months have all been over 1% My return as calculated by Quicken is down to 4.2% It was 5.5% when I started my exit. I am withdrawing cash as it accumulates, so the drop in return is not caused by having uninvested cash. Okay, a small amount is, as I do not withdraw every day.
LC has made it harder to see how much was charged off. The list of Charged off notes in the “view notes” page used to show the amount of principal remaining at the point of charge off. They now show $0. To see the amount lost, you have to click on each individual note and subtract the “principal paid” from the note amount to calculate what principal has been lost.
Oops - Quicken reports 5.47% annually, not 4.2% (the latter is year to date).
I enjoy reading the updates in this thread. I keep toying with directing some of my play-money at LC but it doesn’t sound like their interface is very good for someone with an obsessive yet amateurish and poorly organized spreadsheet habit. Let alone the tax headache each April.
I use Turbotax and it imports the 1099 from LC with no problems, so no tax headache that way.
Yeah - it was easy to import for me as well.
And I’m with you: I am seeing a high rate of late payments and charge offs. I have stopped investing at this point. Maybe I got to a critical number of notes (I have about $6000 invested) but it seems like too many go into grace period and then it’s over.
I am still reinvesting and staying hopeful that my crappy notes will correcting themselves at some point.