Title: Changes to Interest Rate and Expected Return
Post by: Lloigor on June 19, 2013, 11:00:00 PM
Post by: Lloigor on June 19, 2013, 11:00:00 PM
This week LC adjusted the interest rates on various grades. I think A is unchanged, some in the B-D range were lowered, but the ones on the "junk" side of the spectrum got higher. And when purchasing new notes in the D-G range their "expected default" rates are significantly higher. It has moved my "expected return" numbers offered by LC from around 13% to around 10%, despite the higher rates. Anyone know how they come up with those numbers and if I should care?
Title: Changes to Interest Rate and Expected Return
Post by: joshh on June 19, 2013, 11:00:00 PM
Post by: joshh on June 19, 2013, 11:00:00 PM
Yes, I noticed changes to the expected default rate, but not to the charged interest rates. It started late 6-18 or early 6-19. I archive off the browseNotes.csv files and these are the differences I'm seeing in expected default rate:
I'd expect LC to constantly be refining these expected default rates, but the amount of the increase does surprise me.
| --Credit Grade-- | --Old Expected Default Rate-- | --New Expected Default Rate-- |
| A1 | 0.75 | 0.85 |
| A2 | 0.95 | 1.05 |
| A3 | 1.35 | 1.40 |
| A4 | 1.55 | 1.70 |
| A5 | 1.75 | 2.00 |
| B1 | 2.30 | 2.45 |
| B2 | 2.8 | 2.85 |
| B3 | 3.2 | 3.3 |
| B4 | 3.5 | 3.6 |
| B5 | 3.7 | 3.9 |
| C1 | 3.85 | 4.25 |
| C2 | 4.15 | 4.7 |
| C3 | 4.4 | 5.2 |
| C4 | 4.7 | 5.7 |
| C5 | 4.95 | 6.3 |
| D1 | 5.3 | 6.95 |
| D2 | 5.55 | 7.6 |
| D3 | 5.7 | 8.15 |
| D4 | 5.9 | 8.8 |
| D5 | 5.9 | 9.4 |
| E1 | 6.75 | 9.8 |
| E2 | 7 | 10.1 |
| E3 | 7.35 | 10.25 |
| E4 | 7.6 | 10.55 |
| F1 | 8.25 | 11.4 |
| F2 | 8.51 | 11.8 |
| F3 | 8.79 | 12.1 |
| F4 | 8.9 | 12.4 |
| F5 | 8.95 | 12.6 |
| G1 | 9.65 | 12.8 |
| G2 | 9.75 | 12.85 |
| G3 | 9.91 | 12.95 |
| G4 | 10.1 | 13.0 |
| G5 | 10.2 | 13.05 |
I'd expect LC to constantly be refining these expected default rates, but the amount of the increase does surprise me.
Title: Changes to Interest Rate and Expected Return
Post by: LonghornSF on June 19, 2013, 11:00:00 PM
Post by: LonghornSF on June 19, 2013, 11:00:00 PM
As long as LC has investors throwing money at them and not enough borrowers, you should expect interest rates on a risk-adjusted basis to continue decreasing.
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 19, 2013, 11:00:00 PM
Post by: TravelingPennies on June 19, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: Rob L on June 19, 2013, 11:00:00 PM
Post by: Rob L on June 19, 2013, 11:00:00 PM
+1 Treasury yields have been screaming upwards. 10Y has gone from 1.68% to 2.42% in less than 8 weeks. 30Y from 2.8% to 3.5% same time frame.
Title: Changes to Interest Rate and Expected Return
Post by: Cries on June 19, 2013, 11:00:00 PM
Post by: Cries on June 19, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 19, 2013, 11:00:00 PM
Post by: TravelingPennies on June 19, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 19, 2013, 11:00:00 PM
Post by: TravelingPennies on June 19, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 19, 2013, 11:00:00 PM
Post by: TravelingPennies on June 19, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: viking on June 19, 2013, 11:00:00 PM
Post by: viking on June 19, 2013, 11:00:00 PM
Have Lending Club published how they calculate the Expected Default Rate?
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 19, 2013, 11:00:00 PM
Post by: TravelingPennies on June 19, 2013, 11:00:00 PM
Can someone post a link to the lending club yields by note grade? Having trouble finding it 
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 20, 2013, 11:00:00 PM
Post by: TravelingPennies on June 20, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: rawraw on June 20, 2013, 11:00:00 PM
Post by: rawraw on June 20, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: Fred on June 20, 2013, 11:00:00 PM
Post by: Fred on June 20, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: Randawl on June 20, 2013, 11:00:00 PM
Post by: Randawl on June 20, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: pplinvestor on June 26, 2013, 11:00:00 PM
Post by: pplinvestor on June 26, 2013, 11:00:00 PM
So Lending Club lowered interest rate while increasing expected default rate at the time Mortgage and Bond rate are sharply increased. Lending Club is loosing attractiveness quick
Title: Changes to Interest Rate and Expected Return
Post by: rawraw on June 27, 2013, 11:00:00 PM
Post by: rawraw on June 27, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 27, 2013, 11:00:00 PM
Post by: TravelingPennies on June 27, 2013, 11:00:00 PM
Try closed end levered muni funds. 7% tax free looks pretty good right now.
Title: Changes to Interest Rate and Expected Return
Post by: Rob L on June 27, 2013, 11:00:00 PM
Post by: Rob L on June 27, 2013, 11:00:00 PM
Funny, but I didn't hear this was mentioned at the Lendit conference?
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 27, 2013, 11:00:00 PM
Post by: TravelingPennies on June 27, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 27, 2013, 11:00:00 PM
Post by: TravelingPennies on June 27, 2013, 11:00:00 PM
If you think you can predict movements in the yield curve, more power to you...
Overall, I think most people should try to hold a diversified portfolio with some allocation to stocks, bonds, alternative investments etc. If you choose to have some fixed income in your portfolio, there are many options besides P2P lending, and all of them got more attractive in the past month (besides P2P it appears) ...
Overall, I think most people should try to hold a diversified portfolio with some allocation to stocks, bonds, alternative investments etc. If you choose to have some fixed income in your portfolio, there are many options besides P2P lending, and all of them got more attractive in the past month (besides P2P it appears) ...
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 27, 2013, 11:00:00 PM
Post by: TravelingPennies on June 27, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 27, 2013, 11:00:00 PM
Post by: TravelingPennies on June 27, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: LonghornSF on June 27, 2013, 11:00:00 PM
Post by: LonghornSF on June 27, 2013, 11:00:00 PM
Quote
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 27, 2013, 11:00:00 PM
Post by: TravelingPennies on June 27, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: Peter on June 28, 2013, 11:00:00 PM
Post by: Peter on June 28, 2013, 11:00:00 PM
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 28, 2013, 11:00:00 PM
Post by: TravelingPennies on June 28, 2013, 11:00:00 PM
Very good points Peter. Investors are fickle though (just look at fixed income fund flows over the past month), and bringing down expected returns in this environment does not seem wise in my opinion... (nor is it good for my portfolio performance 
)
)
Title: Changes to Interest Rate and Expected Return
Post by: brycemason on June 28, 2013, 11:00:00 PM
Post by: brycemason on June 28, 2013, 11:00:00 PM
Lowering rates attracts more borrowers, which is probably their chief concern at the moment.
Title: Changes to Interest Rate and Expected Return
Post by: TravelingPennies on June 29, 2013, 11:00:00 PM
Post by: TravelingPennies on June 29, 2013, 11:00:00 PM
Okay, I perfectly understand LC's ability to set interest rates for whatever reasons and however they choose. They want more borrower demand so they lower rates. We set our own levels of acceptable risk/reward.
I don't understand the change in expected default rates. Does this mean "our earlier estimates were wrong, and they really should have been these new numbers"? Or, "we have loosened our underwriting standards going forward; the old numbers were correct and were our best estimates for loans before our underwriting changes, and now these new numbers are our best estimates for loans going forward"? Or, "we would rather under-promise and over-deliver rather than visa versa so we have tightened our model"? Does anyone know (or does everyone know but me)? Maybe I just didn't get the memo.
I don't understand the change in expected default rates. Does this mean "our earlier estimates were wrong, and they really should have been these new numbers"? Or, "we have loosened our underwriting standards going forward; the old numbers were correct and were our best estimates for loans before our underwriting changes, and now these new numbers are our best estimates for loans going forward"? Or, "we would rather under-promise and over-deliver rather than visa versa so we have tightened our model"? Does anyone know (or does everyone know but me)? Maybe I just didn't get the memo.
Title: Changes to Interest Rate and Expected Return
Post by: Randawl on June 29, 2013, 11:00:00 PM
Post by: Randawl on June 29, 2013, 11:00:00 PM