I've been picking my own notes with LC since 2011, and I haven't changed my selection formula for the last 2 years. Until recently my orders usually ended up with average note rates around 15% with expected chargeoffs of 7% for a net return of 8%. Over the last month I've seen the expected chargeoffs spike to 9-10% with net returns around 5%. Has anyone else seen this happen, and if so do we have an explanation (other than LC adjusting loss statistics based on new data)? If 5% is the best I can hope for I think I'll start looking closer at corporate and municipal debt rather than P2P.
Lending Club certainly thinks so because if you use their Automated Investing tools, they have drastically reduced the expected returns. For the allocation that I use (10% B, 20% C, 30% D, and 40% E) they previously projected a 9% return based on historical charge off rates. Now they project 7.37% return for the same allocation because they project an increase in the number of charge-offs.
I posted about this on another thread where I noted I had seen a dramatic spike in late payments in the past few months, and a lot of members here chimed in to say that I must not be looking at statistically valid data, blah blah blah.
Well, while it's true that I didn't have a sample size large enough to be statistically valid (none of us do) it's evident now that something is happening.
Theories? I think that crooks have learned you can get a loan from LC and just not pay. I see an increasing number of "straight rollers" who make no or only a few payments and then just stop paying. My guess is that the only reason for the few payments they do make is that they are waiting for additional loans to go through with Prosper, perhaps other lenders, before walking off with the cash.
I think rj2 may get the point. And now I'm assigning more investment to higher ranked loans, as I think these borrowers would care more about their FICO scores and less inclined to be "straight rollers".
I should have added that I'm pulling from C, D and E notes only, so an expected net return of 5% seems absurdly low. I just rolled over an IRA to LC, so I've picked 123 notes over the last few weeks, which should be a big enough sample size to generate a representative "expected return" from LC. I'm praying that rj2 isn't right about the straight rollers, but I'm afraid he is. Maybe I should be shorting LC stock at the same time I'm investing in their notes as a hedge? <only somewhat joking>
From February to April, the real charge-offs in my account have been stable and is about the average of past twelve months. The same is the Adjusted Loss that includes lates.