P2P Lending / NFT Lending Forum

Lending Club Discussion => Investors - LC => Topic started by: statslender on February 15, 2016, 11:00:00 PM

Title: How does Default status work?
Post by: statslender on February 15, 2016, 11:00:00 PM
I'm trying to figure out Lending Club basics, so I downloaded the LoanStats3c data (2013-2014 originations) from https://www.lendingclub.com/info/download-data.action

According to http://kb.lendingclub.com/investor/articles/Investor/What-do-the-different-Note-statuses-mean, defaulted loans haven't paid in 121 days. But I'm seeing 7 loans in Default with last payment in December 2015.

What gives? Are these notes truly in Default?

Apologies if this was answered somewhere else - I'm new.
Title: How does Default status work?
Post by: skierx on February 15, 2016, 11:00:00 PM
I am also interested to learn how LC handles these loans. I currently have two notes that are in default one has one payment received and the other has no payments received, both loans were for significant sums of money. Has anyone else experienced a default where there were little or no payments received? How does LC deal with these seemingly fraudulent borrowers?
Title: How does Default status work?
Post by: Fred93 on February 15, 2016, 11:00:00 PM
from: statslender on February 16, 2016, 09:46:47 PM
Title: How does Default status work?
Post by: TravelingPennies on February 15, 2016, 11:00:00 PM
from: skierx on February 16, 2016, 10:23:12 PM
Title: How does Default status work?
Post by: TravelingPennies on February 15, 2016, 11:00:00 PM
Thank you - makes perfect sense now.
Title: How does Default status work?
Post by: lascott on February 16, 2016, 11:00:00 PM
from: Fred93 on February 16, 2016, 10:48:37 PM
Title: How does Default status work?
Post by: TravelingPennies on February 16, 2016, 11:00:00 PM
from: lascott on February 17, 2016, 12:32:24 AM
Title: How does Default status work?
Post by: Fred on February 16, 2016, 11:00:00 PM
from: skierx on February 17, 2016, 12:56:47 AM
Title: How does Default status work?
Post by: rawraw on February 16, 2016, 11:00:00 PM
from: skierx on February 17, 2016, 12:56:47 AM
Title: How does Default status work?
Post by: TravelingPennies on February 16, 2016, 11:00:00 PM
from: rawraw on February 17, 2016, 05:58:39 AM
Title: How does Default status work?
Post by: yojoakak on February 16, 2016, 11:00:00 PM
from: statslender on February 16, 2016, 09:46:47 PM
Title: How does Default status work?
Post by: rj2 on February 17, 2016, 11:00:00 PM
"As a lender, the following is enough: Lending Club reports delinquent borrowers to credit bureaus every month."

Why is that enough? It takes what, seven years for bad debt to roll off a credit report? So if a fraudulent borrower hits up both LC and Prosper for, say, $70k, then just doesn't pay, they have effectively added $10k/yr to their income. Tax free.

Then they can do it again in seven years.

Doesn't seem like reporting is enough unless there is additional legal action being taken people will eventually come to see LC as a giant online ATM.
Title: How does Default status work?
Post by: TravelingPennies on February 18, 2016, 11:00:00 PM
from: rj2 on February 18, 2016, 03:31:42 PM
Title: How does Default status work?
Post by: TravelingPennies on February 18, 2016, 11:00:00 PM
from: rj2 on February 18, 2016, 03:31:42 PM
Title: How does Default status work?
Post by: TravelingPennies on February 18, 2016, 11:00:00 PM
from: Fred on February 19, 2016, 03:02:23 AM
Title: How does Default status work?
Post by: lascott on February 18, 2016, 11:00:00 PM
Quote"> from: Fred93 on February 19, 2016, 04:51:30 AM
Title: How does Default status work?
Post by: rj2 on February 18, 2016, 11:00:00 PM
Quote"> from: Fred93 on February 19, 2016, 04:48:16 AM
Title: How does Default status work?
Post by: DaveSch on February 18, 2016, 11:00:00 PM
If the loan investors were paid first, and the Lending Club (and Prosper) received their origination fee and payment fees at the end, I'll bet that more care would be taken in issuing the loans.

Now, LC & P only have incentive to offer as many loans as they can. The incentive for successful completion of the loans? Not so much.

Disclosure: My Prosper loans are nearly done, and LC in another year or so.

Dave
Title: How does Default status work?
Post by: Fred93 on February 18, 2016, 11:00:00 PM
from: DaveSch on February 19, 2016, 04:35:58 PM
Title: How does Default status work?
Post by: Peter on February 18, 2016, 11:00:00 PM
The real "sue" that you "sue 'em all" guys should think about is Single Unit Economics;  I don't want to sacrifice return to "feel better" or
"make a point".  The best way to feel better and make a point is to continue refining credit/risk models, weed on front end - and bank $.

I apologize if that sounds blunt, but some of you sound a little "emotional" about what LC should do as my fiduciary agent for my funds.
Their job is to make me money; their job is not to tax me to do something inoptimal with my money in order to appease emotional guys.

Fred93 has this one right and put it a lot more softly than I did, if you don't understand the nuances of the economics of debt collection.
Title: How does Default status work?
Post by: Rob L on February 18, 2016, 11:00:00 PM
from: nonattender on February 19, 2016, 06:59:08 PM
Title: How does Default status work?
Post by: rawraw on February 18, 2016, 11:00:00 PM
from: rj2 on February 19, 2016, 11:02:41 AM
Title: How does Default status work?
Post by: TravelingPennies on February 18, 2016, 11:00:00 PM
from: nonattender on February 19, 2016, 06:59:08 PM
Title: How does Default status work?
Post by: TravelingPennies on February 18, 2016, 11:00:00 PM
I logged into pacer.gov tonite and searched for all cases where "Lending Club" was a party.  78 cases appeared.  So apparently they do get involved!  I'll leave it to someone else to analyze.  Note that pacer doesn't cover all courts.

Here's the search results...
http://fred93.com/fbi/lendingclub_uspci.csv

If Excel doesn't fire up when you click on that link, try right clicking and doing a save as to create a local copy, then click on that.

On the other hand, I went to the San Francisco Superior Court web site and did the same search, and only found one case from 2010.  Somebody needs to do more searching and categorize the results.
Title: How does Default status work?
Post by: TravelingPennies on February 19, 2016, 11:00:00 PM

Those look like bankruptcies. I would assume that the bankrupt themselves filed documents making LC a party to the bankruptcy.

What I'm interested is some information about how aggressively LC pursues legal action as opposed to banks that lend from their own book. My guess is that LC doesn't--that it works far less hard to deter fraud and collect than other lenders do. That's because LC has far less incentive to do so. They make their money originating loans, and other than in some marketing/PR sense, don't really care a whole lot whether those loans get paid. As in, they pursue it to the level that would avoid bad press and scare off investors, but not to the level that they would if it was their own money.

But we don't know. Until LC provides some tracking data, we can't compare that. This is something LC should put in its filings somewhere.
Title: How does Default status work?
Post by: TravelingPennies on February 19, 2016, 11:00:00 PM
Just a thought but the decision to sue may never be one in which LC is directly involved.

It may be entirely at the discretion of their third party collectors. Someone who knows more please help out here, but I think there are two categories of collectors. One category is contracted by LC, while LC still owns the loan, to act in LC's behalf. These loans are in "default" and, depending on success or lack of it, payments may be received and the loan may exit default. The other category LC sells the loan to the third party for a negotiated price (typically very little), the loan is charged off by LC and LC has nothing more to do with it.
Title: How does Default status work?
Post by: rickhuizinga on February 19, 2016, 11:00:00 PM


Quote"> from: rj2 on February 20, 2016, 02:45:59 AM
Title: How does Default status work?
Post by: TravelingPennies on February 19, 2016, 11:00:00 PM
from: rickhuizinga on February 20, 2016, 12:13:20 PM
Title: How does Default status work?
Post by: Fred on February 19, 2016, 11:00:00 PM
from: rickhuizinga on February 20, 2016, 12:13:20 PM
Title: How does Default status work?
Post by: TravelingPennies on February 19, 2016, 11:00:00 PM
Quote"> from: Fred93 on February 19, 2016, 04:51:30 AM
Title: How does Default status work?
Post by: rickhuizinga on February 19, 2016, 11:00:00 PM
Quote"> from: Fred on February 20, 2016, 10:05:29 PM
Title: How does Default status work?
Post by: Fred on February 20, 2016, 11:00:00 PM
from: rickhuizinga on February 20, 2016, 11:11:40 PM
Title: How does Default status work?
Post by: rj2 on February 21, 2016, 11:00:00 PM
Quote"> from: Fred on February 20, 2016, 10:05:29 PM
Title: How does Default status work?
Post by: Peter on February 21, 2016, 11:00:00 PM
from: rj2 on February 22, 2016, 10:42:49 AM
Title: How does Default status work?
Post by: TravelingPennies on February 21, 2016, 11:00:00 PM


Quote"> from: nonattender on February 22, 2016, 11:08:29 AM
Title: How does Default status work?
Post by: TravelingPennies on February 21, 2016, 11:00:00 PM
from: rickhuizinga on February 22, 2016, 12:05:56 PM
Title: How does Default status work?
Post by: TravelingPennies on February 21, 2016, 11:00:00 PM
Quote"> from: nonattender on February 22, 2016, 12:16:19 PM
Title: How does Default status work?
Post by: TravelingPennies on February 21, 2016, 11:00:00 PM
I will leave it to others if they wish to go down that rabbit hole with you.  For my part, I reject your initial premise (as does the data from
the last 10 years or so) that LC has anything but positive incentive to iterate its credit models appropriately, as is.  Don't 'fix' what works.

And, with that, for the moment, I've got to get back to work... ;)
Title: How does Default status work?
Post by: AnilG on February 21, 2016, 11:00:00 PM
If LC invests origination fee in loans, what will be the source of money needed for company operations, engineering, marketing, and sales? Majority of LC revenues are from origination fees and most of these revenues are being used for LC expenses.

May be they should charge lenders like you, who want LC to invest in their own loans, 5% additional fees on top of 1% service fees and then turn around and lend collected 5% additional fees in to their own loans to make you happy.

from: rickhuizinga on February 22, 2016, 12:46:37 PM
Title: How does Default status work?
Post by: TravelingPennies on February 21, 2016, 11:00:00 PM
Quote"> from: AnilG on February 22, 2016, 02:12:19 PM
Title: How does Default status work?
Post by: yojoakak on February 21, 2016, 11:00:00 PM
I would prefer if LC took a percentage of it's origination fee every month, instead of upfront all at once. (Equivalent to no origination fee and a bigger service fee.)

The current situation is equivalent to Lenders paying LC's Origination Fee in return for the Borrower paying back more in principal than they actually receive. Because this is in fact exactly what happens.
Title: How does Default status work?
Post by: dompazz on February 21, 2016, 11:00:00 PM
from: yojoakak on February 22, 2016, 03:58:21 PM
Title: How does Default status work?
Post by: TravelingPennies on February 21, 2016, 11:00:00 PM
from: dompazz on February 22, 2016, 04:38:18 PM
Title: How does Default status work?
Post by: TravelingPennies on February 21, 2016, 11:00:00 PM
from: nonattender on February 22, 2016, 01:34:57 PM
Title: How does Default status work?
Post by: TravelingPennies on February 22, 2016, 11:00:00 PM
Based on latest quarterly earnings[1], revenue to origination ratio is 5.21%. Lending Club is making 5.21% (top line) on every dollar of origination while lenders on LC platform on average are making 7.84% (bottom line) [2].

It is already a bad business deal for Lending Club to make less in top line than the lenders on the platform (higher portion of economic profit going to lenders). Basically, Lending Club is borrowing funds from lenders at 7.84% to lend when it could easily borrow the same amount as debt at much lower interest rate. Recently, I was looking at a junk level corporate debt of a company, it's borrowing cost 3.8%. It makes no sense for Lending Club to be borrowing funds at 7.84% from lenders, when it could get same funds from a corporate debt at much lower rate. Or Lending Club could become a bank like Ally Bank which pays depositors 1% and lends majority of these funds at much higher rates to auto loans and keep all the profits for itself.

So, count your blessings that you are already getting extra returns. Sooner than later, this gravy train will need to stop for Lending Club to be a viable, standalone and scalable business and shareholders are going to demand that. Either Lending Club will have to become pure balance sheet lender or offer lenders a fixed return (or variable return within a fixed range) like some UK p2p platforms. In my estimates, if Lending Club becomes pure balance sheet lender, it can raise its top line from 5.21% to almost 10% with a combination of origination fees and interest received from loans.

[1] Lending Club Reports Fourth Quarter and Full Year 2015 Results and Announces $150 Million Share Buyback https://finance.yahoo.com/news/lending-club-reports-fourth-quarter-123000094.html

[2] Edited Transcript of LC earnings conference call or presentation 11-Feb-16 1:30pm GMT https://finance.yahoo.com/news/edited-transcript-lc-earnings-conference-210404329.html


from: yojoakak on February 22, 2016, 09:25:31 PM
Title: How does Default status work?
Post by: Fred on February 22, 2016, 11:00:00 PM
Quote"> from: yojoakak on February 22, 2016, 03:58:21 PM
Title: How does Default status work?
Post by: Ran on February 22, 2016, 11:00:00 PM

LC should never invest their own capital on the loans they originated. And I believe LC will not. Doing this will effectively skyrocket LC bankruptcy chances and investors will simply pull out in such a case. No one will trust a platform that may just blow up when it's own investment goes bad and capital is depleted in any given year. Investing it's own capital on risky loans is a much more risky business compared to charge a fixed fee for loan origination.

Quote"> from: AnilG on February 23, 2016, 12:14:12 AM
Title: How does Default status work?
Post by: rj2 on February 22, 2016, 11:00:00 PM
from: Fred on February 23, 2016, 01:36:14 AM
Title: How does Default status work?
Post by: Fred93 on February 22, 2016, 11:00:00 PM
from: rj2 on February 23, 2016, 11:07:02 AM
Title: How does Default status work?
Post by: yojoakak on February 22, 2016, 11:00:00 PM
from: Fred93 on February 23, 2016, 01:30:44 PM
Title: How does Default status work?
Post by: Rob L on February 22, 2016, 11:00:00 PM
from: yojoakak on February 23, 2016, 05:23:46 PM
Title: How does Default status work?
Post by: rawraw on February 22, 2016, 11:00:00 PM
I disagree that LC should earn higher profits than the balance sheet lenders (us) and that their shareholders want them to be a balance sheet lender.  LC doesn't want to be a specialty finance business; they want to be a tech business for several reasons.  But this is all my opinion
Title: How does Default status work?
Post by: TravelingPennies on February 22, 2016, 11:00:00 PM
from: rawraw on February 23, 2016, 07:37:51 PM
Title: How does Default status work?
Post by: TravelingPennies on February 23, 2016, 11:00:00 PM
from: yojoakak on February 23, 2016, 05:23:46 PM
Title: How does Default status work?
Post by: TravelingPennies on February 23, 2016, 11:00:00 PM
from: Rob L on February 23, 2016, 09:29:24 PM
Title: How does Default status work?
Post by: TravelingPennies on February 23, 2016, 11:00:00 PM
Quote"> from: Rob L on February 23, 2016, 09:29:24 PM
Title: How does Default status work?
Post by: jheizer on February 23, 2016, 11:00:00 PM
As a software dev I hate thinking of them as a tech company.  API sucks!  :)
Title: How does Default status work?
Post by: AnilG on February 23, 2016, 11:00:00 PM
Uber is somewhat controversial comparison as whether it is taxi company, transportation company or technology company is up for debate. Last year, there was interesting debate about valuation of Uber between valuation gurus including Aswath Damodaran http://aswathdamodaran.blogspot.com. My impression from that debate was in the end the valuation depended on who treated Uber as what.

LC is a lender because they are taking credit risk. While LC may claim member-dependent notes, the lenders are lending to LC and LC is lending those funds to borrowers. There is very tenuous connection, if any, legally between the two. Also, LC doesn't have network effect like Uber or AirBnb. LC has to go out and actively acquire new borrowers unlike Uber and AirBnb where the drivers/hosts and passengers/guests are mostly repeat users.

LC CEO likes to portray LC as Technology company with network effect as getting classified such get you much higher valuations. LC is nothing more than specialty finance company using similar processes and technology as traditional lending company (exclude lender management side).

  from: rawraw on February 24, 2016, 02:32:23 PM
Title: How does Default status work?
Post by: Peter on February 23, 2016, 11:00:00 PM
from: Rob L on February 23, 2016, 09:29:24 PM
Title: How does Default status work?
Post by: TravelingPennies on February 23, 2016, 11:00:00 PM
from: AnilG on February 24, 2016, 04:06:22 PM
Title: How does Default status work?
Post by: rawraw on February 23, 2016, 11:00:00 PM
I disagree. It's not credit risk if it's passed through to another entity.  And the Uber example was used on purpose, to illustrate how boxes are hard to define in a lot of these companies.  And I also disagree there is no network effects. In my mind the question is degree and how valuable are they. To assume every relationship is completely independent of another seems strange. Investors want loans and borrowers want to be funded. There are network forces on both of these variables. But who knows their strength or "moat".  I'm more confident on my belief about them not being a lender than on network effects, however

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