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Post by: Fred93 on February 18, 2017, 11:00:00 PM
Post by: Fred93 on February 18, 2017, 11:00:00 PM
We've all looked at the deterioration in LC loan performance over 2015 & 2016 in a variety of ways. We've charted delinquencies, chargeoffs, by time, by vintage, used different return measures, etc. Here's something really simple.
I used numbers from LC's chart with all those dots, https://www.lendingclub.com/info/statistics-performance.action
This chart shows the performance of INVESTORS rather than performance of loans, so is therefore close to investor's hearts. One downside is that this chart uses ANAR to measure investor performance. I won't detail all the characteristics of ANAR here, but one is important enough that I have to say it. ANAR measures your performance since you opened your account. Those of us who have been investing with LC for a long time, have higher ANARs, just because ANAR averages over all the time our accounts have been open, and returns were higher in past years than they are now. My account is 9 years old, so this is painfully clear to me. I suspect that many accounts have been open just a few years, so perhaps this effect isn't so bad on the average. Just be aware. If Joe's ANAR is 7%, he may be earning only 4% now, for example.
This chart has been changing vs time. Lets look at what this chart NOW says.
I made the following selections...
Adjustment for past-due notes: ON
Min number of notes per account: 500 (Lets look at well diversified accounts, so we know the numbers are not noise)
Max note size less than 0.5% (Same thing, ie well diversified accounts)
Now, there's one more selection, the weighted-average-interest-rate WAIR. This, like credit grade, is just a measure of the riskiness of the loan, as LC sees it.
In the middle of the graph, LC highlights accounts with average age of loans in the portfolio of 12 to 18 months. This is a reasonable definition of a steady-state account, so lets use that selection. LC displays 10th percentile, median, and 90th percentile ANAR for accounts in this range.
Finally, here's how the median ANAR varies with WAIR.
Code: [Select]
I used numbers from LC's chart with all those dots, https://www.lendingclub.com/info/statistics-performance.action
This chart shows the performance of INVESTORS rather than performance of loans, so is therefore close to investor's hearts. One downside is that this chart uses ANAR to measure investor performance. I won't detail all the characteristics of ANAR here, but one is important enough that I have to say it. ANAR measures your performance since you opened your account. Those of us who have been investing with LC for a long time, have higher ANARs, just because ANAR averages over all the time our accounts have been open, and returns were higher in past years than they are now. My account is 9 years old, so this is painfully clear to me. I suspect that many accounts have been open just a few years, so perhaps this effect isn't so bad on the average. Just be aware. If Joe's ANAR is 7%, he may be earning only 4% now, for example.
This chart has been changing vs time. Lets look at what this chart NOW says.
I made the following selections...
Adjustment for past-due notes: ON
Min number of notes per account: 500 (Lets look at well diversified accounts, so we know the numbers are not noise)
Max note size less than 0.5% (Same thing, ie well diversified accounts)
Now, there's one more selection, the weighted-average-interest-rate WAIR. This, like credit grade, is just a measure of the riskiness of the loan, as LC sees it.
In the middle of the graph, LC highlights accounts with average age of loans in the portfolio of 12 to 18 months. This is a reasonable definition of a steady-state account, so lets use that selection. LC displays 10th percentile, median, and 90th percentile ANAR for accounts in this range.
Finally, here's how the median ANAR varies with WAIR.
Code: [Select]
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Post by: rawraw on February 18, 2017, 11:00:00 PM
Post by: rawraw on February 18, 2017, 11:00:00 PM
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Post by: Rob L on February 18, 2017, 11:00:00 PM
Post by: Rob L on February 18, 2017, 11:00:00 PM
Nice work as always! In Nov 2015 jheizer provided a web based tool used by those who contribute to the "Understanding Your Returns" thread (after P2P Quant discontinued the tool). His tool makes use of the "dots" data set and he may have archived some of this data over time. If so and if he could provide you a few historic samples it would be interesting to see how the numbers you've provided have changed over time. Even one sample in Jan 2015 would be neat. Of course he may not have data sets by WAIR so all you could compute would be the "all" numbers.
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Post by: smihaila on February 18, 2017, 11:00:00 PM
Post by: smihaila on February 18, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 18, 2017, 11:00:00 PM
Post by: TravelingPennies on February 18, 2017, 11:00:00 PM
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Post by: jheizer on February 18, 2017, 11:00:00 PM
Post by: jheizer on February 18, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 18, 2017, 11:00:00 PM
Post by: TravelingPennies on February 18, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 18, 2017, 11:00:00 PM
Post by: TravelingPennies on February 18, 2017, 11:00:00 PM
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Post by: fliphusker on February 18, 2017, 11:00:00 PM
Post by: fliphusker on February 18, 2017, 11:00:00 PM
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Post by: jasondhsd on February 19, 2017, 11:00:00 PM
Post by: jasondhsd on February 19, 2017, 11:00:00 PM
It's simple common sense that something just ain't right anymore. The economy is a lot better then it was 5-10 yrs ago but now D-G loans are performing worse. Makes no sense.
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Post by: TravelingPennies on February 19, 2017, 11:00:00 PM
Post by: TravelingPennies on February 19, 2017, 11:00:00 PM
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Post by: newstreet on February 19, 2017, 11:00:00 PM
Post by: newstreet on February 19, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 19, 2017, 11:00:00 PM
Post by: TravelingPennies on February 19, 2017, 11:00:00 PM
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Post by: M0lina on February 19, 2017, 11:00:00 PM
Post by: M0lina on February 19, 2017, 11:00:00 PM
I recommend going to the following for data for time series regional trend analysis by credit type
https://www.newyorkfed.org/microeconomics/databank.html
Specifically:
All 50 states : https://www.newyorkfed.org/medialibrary/Interactives/householdcredit/data/xls/area_report_by_year.xls (Q4 2015)
Largest States: https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/HHD_C_Report_2016Q4.xlsx (Q4 2016)
https://www.newyorkfed.org/microeconomics/databank.html
Specifically:
All 50 states : https://www.newyorkfed.org/medialibrary/Interactives/householdcredit/data/xls/area_report_by_year.xls (Q4 2015)
Largest States: https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/HHD_C_Report_2016Q4.xlsx (Q4 2016)
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Post by: yojoakak on February 19, 2017, 11:00:00 PM
Post by: yojoakak on February 19, 2017, 11:00:00 PM
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Post by: Fred93 on February 19, 2017, 11:00:00 PM
Post by: Fred93 on February 19, 2017, 11:00:00 PM
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Post by: DLIFVOIP on February 20, 2017, 11:00:00 PM
Post by: DLIFVOIP on February 20, 2017, 11:00:00 PM
I am not disagreeing with anyone and think most who have posted have valid points.
However, to me it is very clear why returns have declined. I have said it before and will say it again.
The lowering of the interest rates has done the most damage. We as investors were forced to either accept lower returns and maintain our risk appetite (meaning we use filters to choose which loans to invest in and the return was the return) or in order to try and maintain returns we increased our risk appetite and invested in loans that would not have met our previous filters in order to chase the interest rate higher.
However, to me it is very clear why returns have declined. I have said it before and will say it again.
The lowering of the interest rates has done the most damage. We as investors were forced to either accept lower returns and maintain our risk appetite (meaning we use filters to choose which loans to invest in and the return was the return) or in order to try and maintain returns we increased our risk appetite and invested in loans that would not have met our previous filters in order to chase the interest rate higher.
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Post by: apc3161 on February 20, 2017, 11:00:00 PM
Post by: apc3161 on February 20, 2017, 11:00:00 PM
The correct strategy should have been this: You have your filters (with their known returns), and you stick with them. If lending standards got worse and/or interest rates were lowered, this would have resulted in a lot of unused cash in your account. This cash should have then been withdrawn and put in stocks, bonds, real estate etc. If/once your filters started to find matches again, you can bring that cash back into LC.
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Post by: Emmanuel on February 20, 2017, 11:00:00 PM
Post by: Emmanuel on February 20, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 20, 2017, 11:00:00 PM
Post by: TravelingPennies on February 20, 2017, 11:00:00 PM
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Post by: SLCPaladin on February 20, 2017, 11:00:00 PM
Post by: SLCPaladin on February 20, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 20, 2017, 11:00:00 PM
Post by: TravelingPennies on February 20, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 20, 2017, 11:00:00 PM
Post by: TravelingPennies on February 20, 2017, 11:00:00 PM
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Post by: storm on February 20, 2017, 11:00:00 PM
Post by: storm on February 20, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 20, 2017, 11:00:00 PM
Post by: TravelingPennies on February 20, 2017, 11:00:00 PM
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Post by: rawraw on February 20, 2017, 11:00:00 PM
Post by: rawraw on February 20, 2017, 11:00:00 PM
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Post by: Rob L on February 20, 2017, 11:00:00 PM
Post by: Rob L on February 20, 2017, 11:00:00 PM
Just checked my account balance and I'm up $7 for the month of February (0.008%). Better than the alternative.
All the effects of halving my portfolio size should be in the rear view mirror by now, but my adjustment amount in dollars is roughly the same as it was before I sold. Yeah, it's that bad ...
All the effects of halving my portfolio size should be in the rear view mirror by now, but my adjustment amount in dollars is roughly the same as it was before I sold. Yeah, it's that bad ...
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Post by: lascott on February 20, 2017, 11:00:00 PM
Post by: lascott on February 20, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 21, 2017, 11:00:00 PM
Post by: TravelingPennies on February 21, 2017, 11:00:00 PM
It's easy to be a Monday morning quarterback but the reasons could just be this simple. At the end of 2014 consumer loan charge offs were at an all time historic low. Beginning around that time LC embarked on a series of interest rate reductions. In hindsight dramatically lowering rates just when chargeoffs were at historic lows was a really really bad idea (at least for lenders). It was an easy thing to do as it increased LC's originations at the expense of OPM (ours). Fast forward over the next couple of years and chargeoffs began to rise back to more normal levels while interest rates were ratcheted down. This double whammy is what we are living through now. Presently LC has increased interest rates but charge offs are still on the rise (possibly just back to more normal levels) and we investors are still behind the curve so to speak.
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Post by: newstreet on February 21, 2017, 11:00:00 PM
Post by: newstreet on February 21, 2017, 11:00:00 PM
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Post by: apc3161 on February 21, 2017, 11:00:00 PM
Post by: apc3161 on February 21, 2017, 11:00:00 PM
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Post by: Fred93 on February 21, 2017, 11:00:00 PM
Post by: Fred93 on February 21, 2017, 11:00:00 PM
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Post by: Rob L on February 21, 2017, 11:00:00 PM
Post by: Rob L on February 21, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 21, 2017, 11:00:00 PM
Post by: TravelingPennies on February 21, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 21, 2017, 11:00:00 PM
Post by: TravelingPennies on February 21, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 21, 2017, 11:00:00 PM
Post by: TravelingPennies on February 21, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 21, 2017, 11:00:00 PM
Post by: TravelingPennies on February 21, 2017, 11:00:00 PM
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Post by: rawraw on February 22, 2017, 11:00:00 PM
Post by: rawraw on February 22, 2017, 11:00:00 PM
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Post by: AnilG on February 22, 2017, 11:00:00 PM
Post by: AnilG on February 22, 2017, 11:00:00 PM
I believe you are correct. Typically, managed accounts are the ones where clients don't do their own investing instead a representative manages all activity inside the account. Otherwise it will be difficult to attribute account performance/actions to a single entity. At least for PeerCube, we don't prevent our users lending/trading on their own in same account. We are not money managers. I doubt that we are clubbed in managed accounts. Though Lending Club requires us to send a unique token (issued to PeerCube) along with user credentials for any lending/trading so who knows how Lending Club uses and classifies transactions through our platform.
from: apc3161 on February 22, 2017, 02:52:04 PM
from: apc3161 on February 22, 2017, 02:52:04 PM
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Post by: TravelingPennies on February 22, 2017, 11:00:00 PM
Post by: TravelingPennies on February 22, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 22, 2017, 11:00:00 PM
Post by: TravelingPennies on February 22, 2017, 11:00:00 PM
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Post by: TravelingPennies on February 22, 2017, 11:00:00 PM
Post by: TravelingPennies on February 22, 2017, 11:00:00 PM
Here's yet another way to look at the LC loan performance data. I start with the chargeoff by vintage data that LC publishes. In the past I've used delinquency data rather than chargeoff, because delinquency comes before chargeoff, so you get an earlier view. There are difficulties with that choice. In particular, nobody knows quantitatively what delinquency predicts. Chargoff on the other hand, is pretty final, so we know its quantitative impact.
We can't wait until loans are "done" to look at chargeoff, because that would be years after we've invested. I'm going to look at chargeoff during early months of loans. I start at month 5 because that's when the action begins. The first payment is due 1 month after origination, and the loan can be 4 months late and therefore eligible for chargeoff at 5 months. I end at month 10 because I don't want to show too many curves, and also because this is the last age that is available for vintage 16Q1. I could plot more months, but they would be shorter curves.
I'm going to plot the numbers the "other way". Ie, instead of the usual way of plotting one curve for every vintage, and making the horizontal axis be months since origination, I'm going to draw one curve for each "months after origination" and make the horizontal axis be the vintage. Then as you scan from left to right you can see how loan behavior has changed vs date of origination.
The first chart is all LC 36 month loans. Data is from the Feb2017 chargeoff file.
You can see that as we move from 2012 to 2016 things got worse. Frankly in this view, it doesn't look all that bad. Things are still much better than they were back in 2008/9. You can see tho that the curves jump up a significant fraction of the distance up to where we were in 2008/9. This is different than say the federal reserve consumer loan data where there is a bump up as we hit 2016, but its very very small relative to the big bump back in 2008/9.
So now lets look at this by grade. I'm not going to do a separate chart for each grade. I'm just gonna plot "E" loans. The data for F&G is very noisy, and I'm not very interested in F&G because I have always avoided them. So lets let "E" be our proxy for the riskier end of the spectrum at LC...
Well! That's a horse of a different color. We can see that performance is getting worse as we move from 2011 thru 2016 vintages, and it is getting worse in a much more dramatic way than the numbers for all loans. Depending on which curve you like to look at and your starting point, it appears that chargeoffs have doubled or tripled! That's a pretty damn big change. And get this... At month 10, the recent vintages are worse than 2008/2009 vintages!
For many years, I used the 2008/2009 crisis as my benchmark for a worst case recession. We are at present not even in a recession, and yet E grade notes of recent vintage are performing worse than 2008/2009.
And note that this behavior is strongly associated with vintage. What would make behavior strongly correlated to vintage? Well of course the underwriting rules the originator had in place at the time of loan acceptance. This is the sort of thinking that leads me to believe that a 2015/6 "E" is not the same animal as a 2011/12/13/14 "E".
I am not saying rawraw is wrong about consumer loan performance on the whole getting some worse in 2015/6. I suspect that many things have contributed, so perhaps we're debating degree of each contribution.
By the way, I suppose some of you have seen Peter Renton's blog this week about performance. Its a bit of a confusing read, because he headlines all-history performance, but inside the article he mentions several other metrics, including trailing 12 month, and most-recent-quarter. When thinking about how returns have changed vs time, I the most recent quarter data is most revealing, so I suggest as you read his blog you concentrate on that, and don't get confused by the other numbers.
At one point he says
Quote
We can't wait until loans are "done" to look at chargeoff, because that would be years after we've invested. I'm going to look at chargeoff during early months of loans. I start at month 5 because that's when the action begins. The first payment is due 1 month after origination, and the loan can be 4 months late and therefore eligible for chargeoff at 5 months. I end at month 10 because I don't want to show too many curves, and also because this is the last age that is available for vintage 16Q1. I could plot more months, but they would be shorter curves.
I'm going to plot the numbers the "other way". Ie, instead of the usual way of plotting one curve for every vintage, and making the horizontal axis be months since origination, I'm going to draw one curve for each "months after origination" and make the horizontal axis be the vintage. Then as you scan from left to right you can see how loan behavior has changed vs date of origination.
The first chart is all LC 36 month loans. Data is from the Feb2017 chargeoff file.
You can see that as we move from 2012 to 2016 things got worse. Frankly in this view, it doesn't look all that bad. Things are still much better than they were back in 2008/9. You can see tho that the curves jump up a significant fraction of the distance up to where we were in 2008/9. This is different than say the federal reserve consumer loan data where there is a bump up as we hit 2016, but its very very small relative to the big bump back in 2008/9.
So now lets look at this by grade. I'm not going to do a separate chart for each grade. I'm just gonna plot "E" loans. The data for F&G is very noisy, and I'm not very interested in F&G because I have always avoided them. So lets let "E" be our proxy for the riskier end of the spectrum at LC...
Well! That's a horse of a different color. We can see that performance is getting worse as we move from 2011 thru 2016 vintages, and it is getting worse in a much more dramatic way than the numbers for all loans. Depending on which curve you like to look at and your starting point, it appears that chargeoffs have doubled or tripled! That's a pretty damn big change. And get this... At month 10, the recent vintages are worse than 2008/2009 vintages!
For many years, I used the 2008/2009 crisis as my benchmark for a worst case recession. We are at present not even in a recession, and yet E grade notes of recent vintage are performing worse than 2008/2009.
And note that this behavior is strongly associated with vintage. What would make behavior strongly correlated to vintage? Well of course the underwriting rules the originator had in place at the time of loan acceptance. This is the sort of thinking that leads me to believe that a 2015/6 "E" is not the same animal as a 2011/12/13/14 "E".
I am not saying rawraw is wrong about consumer loan performance on the whole getting some worse in 2015/6. I suspect that many things have contributed, so perhaps we're debating degree of each contribution.
By the way, I suppose some of you have seen Peter Renton's blog this week about performance. Its a bit of a confusing read, because he headlines all-history performance, but inside the article he mentions several other metrics, including trailing 12 month, and most-recent-quarter. When thinking about how returns have changed vs time, I the most recent quarter data is most revealing, so I suggest as you read his blog you concentrate on that, and don't get confused by the other numbers.
At one point he says
Quote
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Post by: jheizer on February 22, 2017, 11:00:00 PM
Post by: jheizer on February 22, 2017, 11:00:00 PM
Thank you all again that really crunch the numbers and provide so much data on this forum. As someone who joined here and LC January of 2015 with no credit experience or anything I think at this point I'm just happy I've stayed positive, let alone still squeezing out ~6% returns. I look at your second chart Fred93 and think about all the nights and hours upon hours I spent backtesting what turned into many different strategies all the while not knowing that the data was about to have a huge spike and most of my research would be worthless. Or at least not nearly as profitable as I had first thought. As of this moment I'm sitting at around a 6% charge off rate (not counting late lows that were sold). Hopefully things improve soon. I took all of Q4 2016 off from funding loans. I hope Feb 2017 and on are better.
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Post by: SLCPaladin on February 23, 2017, 11:00:00 PM
Post by: SLCPaladin on February 23, 2017, 11:00:00 PM
I don't really have much to add here other than I'm sort of perplexed with where to go. My historical returns have dropped now and my recent returns are not good. My portfolio is pretty mature and I'm hesitant to reinvest the new proceeds because I can't seem to get any clarity as to whether the ship is being righted or if there is a second shoe yet to drop. I'd appreciate some comments from other users as to how they are playing this. For instance, what are you all doing in light of what you know? What filters do you see working in this new environment or are you waiting it out altogether.
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Post by: TravelingPennies on February 23, 2017, 11:00:00 PM
Post by: TravelingPennies on February 23, 2017, 11:00:00 PM
I had changed to B loans only a short while back. Then, in light of the 2016Q4 results, I stopped reinvesting completely. Not doing any Folio selling just letting cash build up. My reading of the 8k was that LC doesn't plan any additional steps in favor of retail lenders so I don't expect things to get better for us any time soon. If they do I'll resume investing; if not I'll cash out in phases. Might look into Folio selling another half the portfolio if I get around to it but I'm in no hurry.
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Post by: SLCPaladin on February 23, 2017, 11:00:00 PM
Post by: SLCPaladin on February 23, 2017, 11:00:00 PM
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Post by: Fred93 on February 23, 2017, 11:00:00 PM
Post by: Fred93 on February 23, 2017, 11:00:00 PM
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Post by: AnilG on February 23, 2017, 11:00:00 PM
Post by: AnilG on February 23, 2017, 11:00:00 PM
If inflation is your concern, look into I-series bonds from TreasuryDirect. We max out our allocation of I-series bond every year ($10,000 per SSN per year). You don't have to pay taxes on interest until bond matures or you cash out and interest rate adjusts for inflation every six months.
from: SLCPaladin on February 24, 2017, 12:23:52 PM
from: SLCPaladin on February 24, 2017, 12:23:52 PM
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Post by: TravelingPennies on February 23, 2017, 11:00:00 PM
Post by: TravelingPennies on February 23, 2017, 11:00:00 PM
Thanks for the suggestion Anil. I do have quite a few I-series bonds, as it happens. I need to look at those again. I haven't invested in them in some time. The ones that I picked up in the early 2000's were making 6-7% though, which was incredible. The current fixed rate portion of these bonds is set at 0%. Many years ago, I remember picking up these I-bonds when the fixed ratio portion was about 3%+, plus the CPI inflation portion added on top of that. Needless to say, those bonds are still sitting in my Treasury Direct account.
from: AnilG on February 24, 2017, 07:30:31 PM
from: AnilG on February 24, 2017, 07:30:31 PM
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Post by: TravelingPennies on February 23, 2017, 11:00:00 PM
Post by: TravelingPennies on February 23, 2017, 11:00:00 PM
Lucky you! I wish I had those 3%+ I-series bonds. I am sure those bonds are still generating 4.5+% for you with minimal risk. No investment will come close to offering risk-adjusted return of those bonds. Right now the fixed portion is 0% but I still buy them as they offer inflation-protection and deferred taxes on interest.
from: SLCPaladin on February 24, 2017, 10:48:41 PM
from: SLCPaladin on February 24, 2017, 10:48:41 PM
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Post by: SeattleSun on March 08, 2017, 11:00:00 PM
Post by: SeattleSun on March 08, 2017, 11:00:00 PM
.
.
Wow, rare to see a discussion of I-Bonds IMO most times I bring them up I just get blank stares.
Back in the "good old days" me and the Mrs bought our annual limit of $30,000 per SSN and have the 2001 $60k tranche with a fixed component of 3.0%, the 2003 $60k tranche has a fixed component of 1.1% and the 2005 $60k tranche has a fixed component of 1.0% And yes they are so old they are "paper bonds".
Add to that the current semi-annual inflation rate (CPI-U) 1.38% and you get a yield of : 2001 +5.20%, 2003 +3.35% and 2005 +3.17% and all is "tax deffered" so far. Sometimes I lament having those three plus % returns on those 2003 and 2005 returns so it was comforting to see AnilG say, "No investment will come close to offering risk-adjusted return of those bonds". I think "risk adjusted return" must be the key words there.
Since I do this investing stuff as a "hobby" maybe one of you "smart finance guys" would tell me what you think about my I-Bond returns to date. Note the return gets adjusted every six months so I am just quoting the interest earned over the time I have held the I-Bonds.
1) An Oct 2001 $10,000 I-Bond have earned interest of $11,872 as of 1/1/17 - 15 years + 3 Months or 183 months. Good, bad or average investment.
One of my reference is the gold bullion I bought in the fall of 2001 at $299/oz and is up 400% as today's close at $1,200 an ounce.
2) A July 2003 $10,000 I-Bonds has earned interest of $5,660 as of 1/1/17.
3) A Nov 2005 $10,000 I-Bonds has earned interest of $4,202 as of 1/1/17.
SOMETIMES I FEEL I OVER PAID FOR HAVING THE US GOVERNMENT INFLATION PROOF $180,000 OF MY CASH STASH.
When I did my retirement planning in 2005 I ran senerios at 4%, 6%, 8%, 10% and 12% inflation. LOL
That's what living through the 1970's does to your mind!
================================================================
More on the topic of this thread I decided to stop investing in P2P (Propser)in June of 2016 since I had an investment opportunity that did in fact have a 21% return last year. Priority day trading strategy, so sorry can't tell. High "pucker factor" as one might imagine.
I have just been letting my P2P account "decay" naturally and harvest the cash quarterly. So far have withdrawn $38k
The family has two accounts one yielding 10.1% and mine yielding 9.1%
Edit: after reading this full thread, note that the two account are "old" and full of 36 month loans.
All "Debt Consolidation"
A 12%
B 48%
C 28%
Cash 12% which I will pull out at the end of March
So maybe I got "lucky" being "conservative" with my "self directed" selection criteria.
SeattleSun
from: AnilG on February 24, 2017, 07:30:31 PM
.
Wow, rare to see a discussion of I-Bonds IMO most times I bring them up I just get blank stares.
Back in the "good old days" me and the Mrs bought our annual limit of $30,000 per SSN and have the 2001 $60k tranche with a fixed component of 3.0%, the 2003 $60k tranche has a fixed component of 1.1% and the 2005 $60k tranche has a fixed component of 1.0% And yes they are so old they are "paper bonds".
Add to that the current semi-annual inflation rate (CPI-U) 1.38% and you get a yield of : 2001 +5.20%, 2003 +3.35% and 2005 +3.17% and all is "tax deffered" so far. Sometimes I lament having those three plus % returns on those 2003 and 2005 returns so it was comforting to see AnilG say, "No investment will come close to offering risk-adjusted return of those bonds". I think "risk adjusted return" must be the key words there.
Since I do this investing stuff as a "hobby" maybe one of you "smart finance guys" would tell me what you think about my I-Bond returns to date. Note the return gets adjusted every six months so I am just quoting the interest earned over the time I have held the I-Bonds.
1) An Oct 2001 $10,000 I-Bond have earned interest of $11,872 as of 1/1/17 - 15 years + 3 Months or 183 months. Good, bad or average investment.
One of my reference is the gold bullion I bought in the fall of 2001 at $299/oz and is up 400% as today's close at $1,200 an ounce.
2) A July 2003 $10,000 I-Bonds has earned interest of $5,660 as of 1/1/17.
3) A Nov 2005 $10,000 I-Bonds has earned interest of $4,202 as of 1/1/17.
SOMETIMES I FEEL I OVER PAID FOR HAVING THE US GOVERNMENT INFLATION PROOF $180,000 OF MY CASH STASH.
When I did my retirement planning in 2005 I ran senerios at 4%, 6%, 8%, 10% and 12% inflation. LOL
That's what living through the 1970's does to your mind!
================================================================
More on the topic of this thread I decided to stop investing in P2P (Propser)in June of 2016 since I had an investment opportunity that did in fact have a 21% return last year. Priority day trading strategy, so sorry can't tell. High "pucker factor" as one might imagine.
I have just been letting my P2P account "decay" naturally and harvest the cash quarterly. So far have withdrawn $38k
The family has two accounts one yielding 10.1% and mine yielding 9.1%
Edit: after reading this full thread, note that the two account are "old" and full of 36 month loans.
All "Debt Consolidation"
A 12%
B 48%
C 28%
Cash 12% which I will pull out at the end of March
So maybe I got "lucky" being "conservative" with my "self directed" selection criteria.
SeattleSun
from: AnilG on February 24, 2017, 07:30:31 PM
Title:
Post by: TravelingPennies on March 08, 2017, 11:00:00 PM
Post by: TravelingPennies on March 08, 2017, 11:00:00 PM
Title:
Post by: TravelingPennies on March 09, 2017, 11:00:00 PM
Post by: TravelingPennies on March 09, 2017, 11:00:00 PM
Title:
Post by: Peter on March 10, 2017, 11:00:00 PM
Post by: Peter on March 10, 2017, 11:00:00 PM
Title:
Post by: TravelingPennies on March 11, 2017, 11:00:00 PM
Post by: TravelingPennies on March 11, 2017, 11:00:00 PM
Quote
Title:
Post by: Larry321 on March 15, 2017, 11:00:00 PM
Post by: Larry321 on March 15, 2017, 11:00:00 PM
For the past couple of months, I have not been buying new loans, and instead I am moving money out of Lending Club and over to Fidelity.
My returns have dropped, and write offs have been increasing. In 4 years, as loans mature, I will have moved all my money out of LC. I will have made money, but not as much as I would have liked.
My returns have dropped, and write offs have been increasing. In 4 years, as loans mature, I will have moved all my money out of LC. I will have made money, but not as much as I would have liked.
Title:
Post by: TravelingPennies on March 15, 2017, 11:00:00 PM
Post by: TravelingPennies on March 15, 2017, 11:00:00 PM
LC is not to blame for defaults. They ARE to blame for not analyzing historical data about defaults and not providing us with complete data on the probability of which loans might default.
I am slowly pulling my funds out of LC and investing elsewhere.
I am slowly pulling my funds out of LC and investing elsewhere.
Title:
Post by: TravelingPennies on March 15, 2017, 11:00:00 PM
Post by: TravelingPennies on March 15, 2017, 11:00:00 PM
Sometime, it is good to look back in time and see what were your expectations when you started and why? The written thoughts and published articles always help with such exercise. Just came across an old Lending Memo article from 2013 in which Simon (Where is he now?) surveyed some people about their "sustainable" return expectations. I thought it was interesting to look back on the optimistic outlook in 2013.
P2P Lending: What is an Expected Return? A Survey of Industry Voices
http://www.lendingmemo.com/peer-to-peer-lending-return/
P2P Lending: What is an Expected Return? A Survey of Industry Voices
http://www.lendingmemo.com/peer-to-peer-lending-return/
Title:
Post by: TravelingPennies on March 15, 2017, 11:00:00 PM
Post by: TravelingPennies on March 15, 2017, 11:00:00 PM
Best part of that article ... we got to see a photo of Anil Gupta! Now we know what you look like.
Title:
Post by: jheizer on March 15, 2017, 11:00:00 PM
Post by: jheizer on March 15, 2017, 11:00:00 PM
That is a good point. I believe when I started I thought that 7% was almost idiot proof, 8-9% was doing good, and my golden hope was 10%. Lately my ANAR is sitting just below 7 so I guess I am/was an idiot.
Title:
Post by: AnilG on March 15, 2017, 11:00:00 PM
Post by: AnilG on March 15, 2017, 11:00:00 PM
You can also hear how I sound like by listening to Peter's podcast in 2014 with me http://www.lendacademy.com/lap19-anil-gupta-of-peercube-on-p2p-lending-analysis/. 
Quote"> from: Fred93 on March 16, 2017, 06:05:51 PM
Quote"> from: Fred93 on March 16, 2017, 06:05:51 PM
Title:
Post by: Lovinglifestyle on March 15, 2017, 11:00:00 PM
Post by: Lovinglifestyle on March 15, 2017, 11:00:00 PM
Here's what I'm doing.
I withdrew all my capital in 2016. Now my mission is to withdraw cash to reimburse myself for taxes I've paid for prior years through the end of '16. Add $500 for lost cash equivalent interest, and I'll be even except for '17 and thereafter taxes. Meanwhile, I am still also reinvesting in new notes if there doesn't seem to be any reason not to. Philosophy: I want a return of my money while it's still there to grab back. Am parking it in short term treasuries and credit union money market.
I withdrew all my capital in 2016. Now my mission is to withdraw cash to reimburse myself for taxes I've paid for prior years through the end of '16. Add $500 for lost cash equivalent interest, and I'll be even except for '17 and thereafter taxes. Meanwhile, I am still also reinvesting in new notes if there doesn't seem to be any reason not to. Philosophy: I want a return of my money while it's still there to grab back. Am parking it in short term treasuries and credit union money market.
Title:
Post by: TravelingPennies on March 16, 2017, 11:00:00 PM
Post by: TravelingPennies on March 16, 2017, 11:00:00 PM
Sounds a reasonable strategy. It reminded me of my adventures in stock market in late 90s during dot com bubble. I used to buy momentum stocks that were appreciating too fast. When such stocks used to split or gain 100+%, I sold half and recovered my investment and let rest of them ride. Those were some adventurous times. I learnt a lot about stock market, trading and investing between 1993 and 2001. Only hobby still with me till now.
from: Lovinglifestyle on March 16, 2017, 10:50:28 PM
from: Lovinglifestyle on March 16, 2017, 10:50:28 PM
Title:
Post by: rawraw on March 16, 2017, 11:00:00 PM
Post by: rawraw on March 16, 2017, 11:00:00 PM
Title:
Post by: mchu168 on March 18, 2017, 11:00:00 PM
Post by: mchu168 on March 18, 2017, 11:00:00 PM
If you start with unrealistic expectations, you will surely be disappointed in the end.
Long run equity returns are expected to be mid to high single digit (5-8%). Most people expect longer-duration fixed income assets to have negative returns over the next couple of years. Real estate prices are in bubble territory in many markets. What do you expect from P2P loans?
I used to think investing was about pushing all assets into one or two bets to maximize returns. 100% tech stock, 100% junk bonds, etc. But I've learned that being wrong with such concentrated bets can/will lead to disaster. So a better approach is to spread the risks around to many asset classes. Most will have positive returns over time and hopefully generate decent long-run risk adjusted returns. Trying to time any market is perilous and will almost always lead to regret and disappointment. Diversification says I don't have to make the right bets all the time but I will be right in the long run.
P2P lending is definitely in a soft patch right now but therefore isn't this the right time to raise allocation to a struggling asset? I don't have the answers and I'm not going to try to time this market either. But with diversification I can afford to be a little wrong in the short run...
Long run equity returns are expected to be mid to high single digit (5-8%). Most people expect longer-duration fixed income assets to have negative returns over the next couple of years. Real estate prices are in bubble territory in many markets. What do you expect from P2P loans?
I used to think investing was about pushing all assets into one or two bets to maximize returns. 100% tech stock, 100% junk bonds, etc. But I've learned that being wrong with such concentrated bets can/will lead to disaster. So a better approach is to spread the risks around to many asset classes. Most will have positive returns over time and hopefully generate decent long-run risk adjusted returns. Trying to time any market is perilous and will almost always lead to regret and disappointment. Diversification says I don't have to make the right bets all the time but I will be right in the long run.
P2P lending is definitely in a soft patch right now but therefore isn't this the right time to raise allocation to a struggling asset? I don't have the answers and I'm not going to try to time this market either. But with diversification I can afford to be a little wrong in the short run...
Title:
Post by: TravelingPennies on March 18, 2017, 11:00:00 PM
Post by: TravelingPennies on March 18, 2017, 11:00:00 PM
Title:
Post by: TravelingPennies on March 18, 2017, 11:00:00 PM
Post by: TravelingPennies on March 18, 2017, 11:00:00 PM
The value of most P2P loans once defaulted goes to zero with no chance of that value to ever recovering to pre-default value. The "buy low sell high" assets (majority) sooner or later will rise to the implicit value of those assets after their "struggle" phase is over. Though few such assets do become worthless before they had chance to recover. This is the main difference between P2P loans versus the "struggling" assets that you want to buy low and sell high.
P2P loans are discontinuous assets, they exist for fixed period (much shorter duration than typical "buy low sell high" assets) and then expire and new ones are created. There is no relationship between an old "struggling" P2P loans with new "promising" P2P loan. You will not be rewarded for buying and holding "struggling" old P2P loans as once their life expires they can't be resuscitated. In this scenario, you will prefer to avoid buying during struggling phase and wait until you believe the "struggle phase" has passed and then you enter P2P loans market by buying new P2P loans.
from: mchu168 on March 19, 2017, 01:28:40 PM
P2P loans are discontinuous assets, they exist for fixed period (much shorter duration than typical "buy low sell high" assets) and then expire and new ones are created. There is no relationship between an old "struggling" P2P loans with new "promising" P2P loan. You will not be rewarded for buying and holding "struggling" old P2P loans as once their life expires they can't be resuscitated. In this scenario, you will prefer to avoid buying during struggling phase and wait until you believe the "struggle phase" has passed and then you enter P2P loans market by buying new P2P loans.
from: mchu168 on March 19, 2017, 01:28:40 PM
Title:
Post by: .Ryan. on March 19, 2017, 11:00:00 PM
Post by: .Ryan. on March 19, 2017, 11:00:00 PM
Title:
Post by: Fred on March 19, 2017, 11:00:00 PM
Post by: Fred on March 19, 2017, 11:00:00 PM
Title:
Post by: TravelingPennies on March 19, 2017, 11:00:00 PM
Post by: TravelingPennies on March 19, 2017, 11:00:00 PM
Title:
Post by: TravelingPennies on March 19, 2017, 11:00:00 PM
Post by: TravelingPennies on March 19, 2017, 11:00:00 PM
Title:
Post by: TravelingPennies on March 19, 2017, 11:00:00 PM
Post by: TravelingPennies on March 19, 2017, 11:00:00 PM
Title:
Post by: TravelingPennies on March 19, 2017, 11:00:00 PM
Post by: TravelingPennies on March 19, 2017, 11:00:00 PM
What makes you think that ~5-6% return is the bottom for P2P loans?
Some of the best performance (low default or loss rate) of P2P loans was encountered during recovering economy from loans issued during and just after recession. This is typical for all type of debt. During recession, credit criteria tend to be strict so debt gets issued to fewer and best quality borrowers. As borrower's financial situation improves with rising economy, fewer debt to borrowers go bad resulting in best performance for lenders.
Some of the worst performance (high default or loss rate) of P2P loans will be encountered as we slide into recession from the loans just before recession. This is typical for all type of debt. During good economic times, credit criteria tend to be loose so debt gets issued to large number of and marginal borrowers. As borrower's financial situation deteriorates with declining economy, more debt to borrowers go bad resulting in worst performance for lenders.
As we haven't gone through a downturn with Lending Club loans yet, we don't have handle on how bad things can go. A good way to visualize the worst case performance is to use 20+% default/loss rates of Prosper loans issued between 2005 and 2008 and apply to your loans.
from: .Ryan. on March 20, 2017, 12:45:47 AM
Some of the best performance (low default or loss rate) of P2P loans was encountered during recovering economy from loans issued during and just after recession. This is typical for all type of debt. During recession, credit criteria tend to be strict so debt gets issued to fewer and best quality borrowers. As borrower's financial situation improves with rising economy, fewer debt to borrowers go bad resulting in best performance for lenders.
Some of the worst performance (high default or loss rate) of P2P loans will be encountered as we slide into recession from the loans just before recession. This is typical for all type of debt. During good economic times, credit criteria tend to be loose so debt gets issued to large number of and marginal borrowers. As borrower's financial situation deteriorates with declining economy, more debt to borrowers go bad resulting in worst performance for lenders.
As we haven't gone through a downturn with Lending Club loans yet, we don't have handle on how bad things can go. A good way to visualize the worst case performance is to use 20+% default/loss rates of Prosper loans issued between 2005 and 2008 and apply to your loans.
from: .Ryan. on March 20, 2017, 12:45:47 AM
Title:
Post by: JohnnyP on March 19, 2017, 11:00:00 PM
Post by: JohnnyP on March 19, 2017, 11:00:00 PM
Anil, it sounds like you believe we are on the weak side of a credit cycle. How would this (or how is it presenting itself)? You mentioned competition and loosening. It seems that LC is affected by both. When I look at performance on existing loans, I see that ALL of them are taking a hit. Even 60 month loans in the 2014 vintage have come way off in performance. It is not just the 2015 and 2016 vintages that everybody complains about. That seems to tell me that there is a lot of competition for LC customers these days. Maybe LC competitors have loosened up to the point that LC customers pile on more debt until it becomes default time. We hear fears that borrowers are stacking. We also hear from Lending Club that they see issues with people that have a penchant for taking on too much debt. We also see prepayments rising. In my mind, prepayments are a relatively small hit. These two things are just indicators of the real problem. The real hits seems to be additional borrowing by people that I have already loaned money to.
Title:
Post by: jheizer on March 19, 2017, 11:00:00 PM
Post by: jheizer on March 19, 2017, 11:00:00 PM
Every single time I log into my amex account they are harassing me to take out a loan.
Title:
Post by: investny on March 20, 2017, 11:00:00 PM
Post by: investny on March 20, 2017, 11:00:00 PM
2016 worst vintage
http://www.peeriq.com/assets/MPL%20Loan%20Performance%20Monitor%20(PeerIQ_March%202017).pdf
http://www.peeriq.com/assets/MPL%20Loan%20Performance%20Monitor%20(PeerIQ_March%202017).pdf
Title:
Post by: AnilG on March 20, 2017, 11:00:00 PM
Post by: AnilG on March 20, 2017, 11:00:00 PM
I don't make any assertion of which side of credit cycle we are in, only that we most likely have passed the strongest performance vintages for P2P loans during this economic cycle. Anyone else's guess is as good as mine about where we are and what to expect.
I am glad to see that you brought up prepayment rate. It is often an overlooked statistics compared to default, loss and delinquency rate. When prepayment rate goes up, it indicates that we are in credit expansion phase, i.e. the new credit is available to borrowers for refinancing existing debt most probably at better terms. Once prepayment rate stagnates or decline, credit expansion may have stopped. In the table below, that vintage seems to be 2014 and later. At that point onward delinquency, default and loss rate should start to go up. If you quint at the table, you might see somewhat inverse relationship between prepayment rate and delinquency/loss rate.
I don't believe this trend is unique to Lending Club considering most high yield unsecured consumer lending platforms have come out with bad news in last year or so - Lending Club, Prosper, Avant, Marlette, SoFi, Upstart just a few I remember. Similar trends are also being seen in collateralized market, specifically auto, motorcycle, boat type small amount high yield loans.
36 month loans at 12 month
Quote"> from: JohnnyP on March 20, 2017, 10:45:38 PM
I am glad to see that you brought up prepayment rate. It is often an overlooked statistics compared to default, loss and delinquency rate. When prepayment rate goes up, it indicates that we are in credit expansion phase, i.e. the new credit is available to borrowers for refinancing existing debt most probably at better terms. Once prepayment rate stagnates or decline, credit expansion may have stopped. In the table below, that vintage seems to be 2014 and later. At that point onward delinquency, default and loss rate should start to go up. If you quint at the table, you might see somewhat inverse relationship between prepayment rate and delinquency/loss rate.
I don't believe this trend is unique to Lending Club considering most high yield unsecured consumer lending platforms have come out with bad news in last year or so - Lending Club, Prosper, Avant, Marlette, SoFi, Upstart just a few I remember. Similar trends are also being seen in collateralized market, specifically auto, motorcycle, boat type small amount high yield loans.
36 month loans at 12 month
| Vintage | Prepayment Rate | Delinquency Rate | Loss Rate |
| 2016 | 6.38% | 0.00% | 0.66% |
| 2015 | 12.18% | 2.01% | 2.31% |
| 2014 | 12.62% | 1.77% | 1.99% |
| 2013 | 10.85% | 1.61% | 1.87% |
| 2012 | 9.57% | 2.09% | 2.44% |
| 2011 | 10.40% | 1.57% | 1.70% |
| 2010 | 10.35% | 2.62% | 2.37% |
| 2009 | 9.78% | 3.82% | 3.89% |
| 2008 | 7.35% | 6.79% | 2.68% |
Quote"> from: JohnnyP on March 20, 2017, 10:45:38 PM
Title:
Post by: TravelingPennies on March 21, 2017, 11:00:00 PM
Post by: TravelingPennies on March 21, 2017, 11:00:00 PM
I came across this 30 minutes YouTube video on Reddit. I thought it is relevant to discussion in this thread. Check it out to understand short and long term debt cycles.
https://youtu.be/PHe0bXAIuk0
How The Economic Machine Works by Ray Dalio
https://youtu.be/PHe0bXAIuk0
How The Economic Machine Works by Ray Dalio
Title:
Post by: rawraw on March 21, 2017, 11:00:00 PM
Post by: rawraw on March 21, 2017, 11:00:00 PM
Title:
Post by: SLCPaladin on March 21, 2017, 11:00:00 PM
Post by: SLCPaladin on March 21, 2017, 11:00:00 PM
Title:
Post by: Fred93 on April 26, 2017, 11:00:00 PM
Post by: Fred93 on April 26, 2017, 11:00:00 PM
Well, here's another way to look at the situation. We usually look at returns. Many of us calculate returns different ways, but all of them involve interest rates, chargeoffs, fees, and sometimes other factors. Tonite I'm going to look at just one factor. Its the factor that has the little problem ... chargeoffs.
I've calculated a chargeoff rate for two portfolios. These happen to be two portfolios that I have access to. The first is my own Fred93 portfolio. The second is Lending Club's Broad-Based Consumer Credit Fund (which I refer to as BBQ).
For my own account, each month I take the net chargeoff $ (which means chargeoffs minus recoveries) and divide by the account balance at the beginning of the month. This produces a monthly chargeoff rate. I then multiply it by 12 to get an annual rate. Nothing fancy. No freaky math like IRR or ANAR. Everybody can follow along.
Since the beginning of 2016, the BBQ fund has published their monthly net chargeoff rate. I've multipled this by 12 and plotted it on the same chart as the Fred93 chargeoff rate.
I'm very happy that my chargeoff rate is lower than LC's, but that's not the main point of this note.
You can see that both of these curves used to run along sorta flat, and then in mid 2016, they both started climbing. That's the cause of the degradation of loan performance that I've often talked about.
The first thing I notice is that the net chargeoff rate for both these portfolios are moving up together. That gives me some confidence that it isn't my bad loan selection that made the bend in the red curve. I don't have the data for all of your portfolios, but I suspect that if you plotted net chargeoff rate vs time, you'd get a similar looking curve, with a bend up.
You can see that neither of these curves looks like it is leveling off. I hope they're leveling off! I suspect that they're leveling off. But... there just isn't data yet to demonstrate that. So far its a wish and a supposition.
One nice thing about this annualized net chargeoff rate is that you can compare it directly to the average interest rate of your portfolio. They have the same denominator. Each month interest comes in, and chargeoffs go out. You can subtract one from the other. Lets try that...
Lets do it for the LC fund. LC's BBQ fund has an average interest rate of 12.96%, and in March had a net chargeoff rate of -13.68%. Oops. They're losing money. They also charged a fee of -0.09%/month, which annualizes to -1.08%. (The fund charges different size customers different sized fees, and this is their published number for the fund average.) The result was that they lost money on a cash basis. Annualized cash basis performance in March was 12.96% - 13.68% -1.08% = -1.8%
I say "cash basis", because when LC calculates returns on their fund, they throw in an additional term, which they call "adjustment". In accounting lingo this adjustment is a "non cash item". The adjustment marks the portfolio down when market interest rates go up and vice versa, when credit quality goes down, and vice versa, and they also adjust for loan age. They have this scheme where loans are given a haircut at birth because some of them are expected to default later in life. As life goes on, there is less life left in which to default, so the value goes up. This may be a perfectly rational system of accounting for some, but it isn't the way most of us value our own portfolios, so I've removed the adjustment, leaving the terms which actually measure movement of cash. Their adjustment for March was +0.59% which annualizes to +7.08%, so when you add that in, that makes the return they report come out positive.
The adjustments are big, and kinda random looking. Now let me be clear: I'm not accusing them of anything. These adjustments are calculated by an outside firm so that we won't have to worry about insiders making up positive adjustments to hide bad stuff. I do think that outside firm might employ too many guys with green eyeshades and not enough people with common sense, but that's just my opinion. I should also mention that the adjustments are negative in some months and positive in others. I just prefer to ignore the adjustment. Its hilarious... I charted the BBQ fund returns and the curve jumps up and down like crazy. Looks ridiculously noisy. I took out all their adjustments, and got a nice smooth curve!
The BBQ fund is losing money on a cash basis. We have every reason to believe that it will continue to do so. Unless some magical thing makes the net chargeoff rate go down, it will continue to exceed the interest rate, and the fund will lose money. ...no matter what the adjustments say.
But enough about the BBQ fund. Back to the shape of the curves.
Both of these portfolios have seen an increase in chargeoff of around +6% over the period we observe here. That's huuuge!
You hear LC from time to time say they've increased interest rates so everything is fine, but the increases in interest rates have been very small compared to the increases in chargeoffs. I haven't done the math, but you know LC took interest rates down and then up again, and the net change isn't much. Yea, I know they made some larger increases in the high risk grades, but both these portfolios are similarly middle-grade, centered on "C" grade.
I've charted vintage chargeoff rates various ways in the past. These show that recent vintages are performing worse than older vintages, which is nice to know, but doesn't relate directly to cash going in and out of our accounts. Many of us have published charts of the ratio of monthly chargeoffs to interest received. That does something similar to what I've done here, but it's a ratio, which doesn't so easily combine with interest rates. If you compute the chargeoff rate, you can directly subtract it from your portfolio average interest rate, which seems a little more intuitive.
Portfolio chargeoff rate is my new favorite thing to track.
I've calculated a chargeoff rate for two portfolios. These happen to be two portfolios that I have access to. The first is my own Fred93 portfolio. The second is Lending Club's Broad-Based Consumer Credit Fund (which I refer to as BBQ).
For my own account, each month I take the net chargeoff $ (which means chargeoffs minus recoveries) and divide by the account balance at the beginning of the month. This produces a monthly chargeoff rate. I then multiply it by 12 to get an annual rate. Nothing fancy. No freaky math like IRR or ANAR. Everybody can follow along.
Since the beginning of 2016, the BBQ fund has published their monthly net chargeoff rate. I've multipled this by 12 and plotted it on the same chart as the Fred93 chargeoff rate.
I'm very happy that my chargeoff rate is lower than LC's, but that's not the main point of this note.
You can see that both of these curves used to run along sorta flat, and then in mid 2016, they both started climbing. That's the cause of the degradation of loan performance that I've often talked about.
The first thing I notice is that the net chargeoff rate for both these portfolios are moving up together. That gives me some confidence that it isn't my bad loan selection that made the bend in the red curve. I don't have the data for all of your portfolios, but I suspect that if you plotted net chargeoff rate vs time, you'd get a similar looking curve, with a bend up.
You can see that neither of these curves looks like it is leveling off. I hope they're leveling off! I suspect that they're leveling off. But... there just isn't data yet to demonstrate that. So far its a wish and a supposition.
One nice thing about this annualized net chargeoff rate is that you can compare it directly to the average interest rate of your portfolio. They have the same denominator. Each month interest comes in, and chargeoffs go out. You can subtract one from the other. Lets try that...
Lets do it for the LC fund. LC's BBQ fund has an average interest rate of 12.96%, and in March had a net chargeoff rate of -13.68%. Oops. They're losing money. They also charged a fee of -0.09%/month, which annualizes to -1.08%. (The fund charges different size customers different sized fees, and this is their published number for the fund average.) The result was that they lost money on a cash basis. Annualized cash basis performance in March was 12.96% - 13.68% -1.08% = -1.8%
I say "cash basis", because when LC calculates returns on their fund, they throw in an additional term, which they call "adjustment". In accounting lingo this adjustment is a "non cash item". The adjustment marks the portfolio down when market interest rates go up and vice versa, when credit quality goes down, and vice versa, and they also adjust for loan age. They have this scheme where loans are given a haircut at birth because some of them are expected to default later in life. As life goes on, there is less life left in which to default, so the value goes up. This may be a perfectly rational system of accounting for some, but it isn't the way most of us value our own portfolios, so I've removed the adjustment, leaving the terms which actually measure movement of cash. Their adjustment for March was +0.59% which annualizes to +7.08%, so when you add that in, that makes the return they report come out positive.
The adjustments are big, and kinda random looking. Now let me be clear: I'm not accusing them of anything. These adjustments are calculated by an outside firm so that we won't have to worry about insiders making up positive adjustments to hide bad stuff. I do think that outside firm might employ too many guys with green eyeshades and not enough people with common sense, but that's just my opinion. I should also mention that the adjustments are negative in some months and positive in others. I just prefer to ignore the adjustment. Its hilarious... I charted the BBQ fund returns and the curve jumps up and down like crazy. Looks ridiculously noisy. I took out all their adjustments, and got a nice smooth curve!
The BBQ fund is losing money on a cash basis. We have every reason to believe that it will continue to do so. Unless some magical thing makes the net chargeoff rate go down, it will continue to exceed the interest rate, and the fund will lose money. ...no matter what the adjustments say.
But enough about the BBQ fund. Back to the shape of the curves.
Both of these portfolios have seen an increase in chargeoff of around +6% over the period we observe here. That's huuuge!
You hear LC from time to time say they've increased interest rates so everything is fine, but the increases in interest rates have been very small compared to the increases in chargeoffs. I haven't done the math, but you know LC took interest rates down and then up again, and the net change isn't much. Yea, I know they made some larger increases in the high risk grades, but both these portfolios are similarly middle-grade, centered on "C" grade.
I've charted vintage chargeoff rates various ways in the past. These show that recent vintages are performing worse than older vintages, which is nice to know, but doesn't relate directly to cash going in and out of our accounts. Many of us have published charts of the ratio of monthly chargeoffs to interest received. That does something similar to what I've done here, but it's a ratio, which doesn't so easily combine with interest rates. If you compute the chargeoff rate, you can directly subtract it from your portfolio average interest rate, which seems a little more intuitive.
Portfolio chargeoff rate is my new favorite thing to track.
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Post by: ThinleyWangchuk on April 26, 2017, 11:00:00 PM
Post by: ThinleyWangchuk on April 26, 2017, 11:00:00 PM
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Post by: TravelingPennies on April 26, 2017, 11:00:00 PM
Post by: TravelingPennies on April 26, 2017, 11:00:00 PM
Thanks for sharing Fred! Just one quirk in your calculation, that probably isn't an issue but figured I would share. Your interest rate assumes that everyone is paying I think. But you actually aren't getting interest on the past due notes which aren't in your charge offs yet. This isn't a big deal for our loans since they charge off relatively quick, but for other loan types they can be nonaccrual for a very long time. So when banks have problem loans, their yields look low because they stay in the denominator but no income is in the numerator. Didn't know if you knew this quirk.
Sent from my SAMSUNG-SM-G935A using Tapatalk
Sent from my SAMSUNG-SM-G935A using Tapatalk
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Post by: TravelingPennies on April 26, 2017, 11:00:00 PM
Post by: TravelingPennies on April 26, 2017, 11:00:00 PM
Here is a simple summary of returns for beginning of 2016
http://screencloud.net/v/Egaqn
Also,
another way to look a defaults
http://screencloud.net/v/25biR
The around 7% return on C grade loans does not look bad to me.
http://screencloud.net/v/Egaqn
Also,
another way to look a defaults
http://screencloud.net/v/25biR
The around 7% return on C grade loans does not look bad to me.
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Post by: mrwhizzard on April 26, 2017, 11:00:00 PM
Post by: mrwhizzard on April 26, 2017, 11:00:00 PM
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Post by: jheizer on April 26, 2017, 11:00:00 PM
Post by: jheizer on April 26, 2017, 11:00:00 PM
I'll join the party. Mine excludes recoveries though as I don't have that in my spreadsheet currently.
Also my late 16 and late 31 categories both have less than half the number of notes as they did 6 months ago. All my slopes are starting to improve.
Also my late 16 and late 31 categories both have less than half the number of notes as they did 6 months ago. All my slopes are starting to improve.
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Post by: rubicon on April 26, 2017, 11:00:00 PM
Post by: rubicon on April 26, 2017, 11:00:00 PM
1. I understand the charge-off methodology but I don't really like it since if you hit a bump in your portfolio you only know 9 months later. Also you need to make sure you are comparing against the balance from 9 months ago when calculating the %. This is a cash method as it compares cash interest against actual charge-offs taken.
2. Instead I prefer to use an accrual method, using the monthly change in adjustments for late loans and adding back the cash interest paid as well change in accrued interest. This gives a more real-time read on the portfolio. You also don't have to mess about with the denominator.
Hence I saw that Jan was an absolutely awful month but Feb, Mar and April have improved. Possibly a seasonal impact (tax returns).
2. Instead I prefer to use an accrual method, using the monthly change in adjustments for late loans and adding back the cash interest paid as well change in accrued interest. This gives a more real-time read on the portfolio. You also don't have to mess about with the denominator.
Hence I saw that Jan was an absolutely awful month but Feb, Mar and April have improved. Possibly a seasonal impact (tax returns).
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Post by: TravelingPennies on April 26, 2017, 11:00:00 PM
Post by: TravelingPennies on April 26, 2017, 11:00:00 PM
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Post by: TravelingPennies on April 26, 2017, 11:00:00 PM
Post by: TravelingPennies on April 26, 2017, 11:00:00 PM
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Post by: TravelingPennies on April 26, 2017, 11:00:00 PM
Post by: TravelingPennies on April 26, 2017, 11:00:00 PM
Here are LC management's public statements about loan quality during the past couple of years. They consistently attempt to minimize the problem by describing changes as affecting only a small fraction of borrowers. ... at the same time that the charegoff rate on their own fund tripled.
Quote
Quote
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Post by: JohnnyP on April 26, 2017, 11:00:00 PM
Post by: JohnnyP on April 26, 2017, 11:00:00 PM
I appreciate the conversation. A recent post brought up the Orchard Index which I have attached. This is fascinating to me.
https://www.orchardindexes.com/
The Orchard Index represents all outstanding principle on consumer loans for the largest companies (Lending Club, Prosper, etc.). It also reduces returns based upon estimated defaults on late loans, so it does not wait for charge offs to occur before affecting the returns.
When you look at the web site, you see scary negative slope from 0.45% monthly return in July, 2016 to 0.04% monthly return in December. How can this happen? The numbers are not by vintage. The numbers represent the entire universe of outstanding principle. That means there could not be much "portfolio" turnover in 6 months. This was not caused by underwriting changes! What does the Forum think?
https://www.orchardindexes.com/
The Orchard Index represents all outstanding principle on consumer loans for the largest companies (Lending Club, Prosper, etc.). It also reduces returns based upon estimated defaults on late loans, so it does not wait for charge offs to occur before affecting the returns.
When you look at the web site, you see scary negative slope from 0.45% monthly return in July, 2016 to 0.04% monthly return in December. How can this happen? The numbers are not by vintage. The numbers represent the entire universe of outstanding principle. That means there could not be much "portfolio" turnover in 6 months. This was not caused by underwriting changes! What does the Forum think?
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Post by: SLCPaladin on April 27, 2017, 11:00:00 PM
Post by: SLCPaladin on April 27, 2017, 11:00:00 PM
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Post by: Fred93 on April 27, 2017, 11:00:00 PM
Post by: Fred93 on April 27, 2017, 11:00:00 PM
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Post by: TravelingPennies on April 27, 2017, 11:00:00 PM
Post by: TravelingPennies on April 27, 2017, 11:00:00 PM
This trend is not our friend. Nice graph though!
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Post by: RaymondG on April 27, 2017, 11:00:00 PM
Post by: RaymondG on April 27, 2017, 11:00:00 PM
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Post by: rawraw on April 28, 2017, 11:00:00 PM
Post by: rawraw on April 28, 2017, 11:00:00 PM
Fred, you seem pretty savvy -- do you calculate vintage past due and loss curves? It may be more useful for you to spot trends
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Post by: TravelingPennies on April 28, 2017, 11:00:00 PM
Post by: TravelingPennies on April 28, 2017, 11:00:00 PM
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Post by: brycemason on April 29, 2017, 11:00:00 PM
Post by: brycemason on April 29, 2017, 11:00:00 PM
Nice alternative graph, Fred93. I like the iso-time-through concept.
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Post by: TravelingPennies on April 30, 2017, 11:00:00 PM
Post by: TravelingPennies on April 30, 2017, 11:00:00 PM
Thanks Bryce. Glad somebody understood what I was trying to do.
As we know, the recent deterioration is heaviest on the high risk end. With that in mind, I've charted the same thing, but this time for "E" grade 36-month only loans...
The thing I find interesting about this chart is that it shows that E loans are ALREADY doing as poorly as they did in 2008! We called that time "the financial crisis" or the "great recession". Today economic indicators today are MUCH better than in 2008/9, but "E" grade loan performance is back to what it was at that time, and are heading toward even worse. I don't claim to understand this, but the data is clear.
As we know, the recent deterioration is heaviest on the high risk end. With that in mind, I've charted the same thing, but this time for "E" grade 36-month only loans...
The thing I find interesting about this chart is that it shows that E loans are ALREADY doing as poorly as they did in 2008! We called that time "the financial crisis" or the "great recession". Today economic indicators today are MUCH better than in 2008/9, but "E" grade loan performance is back to what it was at that time, and are heading toward even worse. I don't claim to understand this, but the data is clear.
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Post by: Rob L on April 30, 2017, 11:00:00 PM
Post by: Rob L on April 30, 2017, 11:00:00 PM
I'd like to second the very nice work. A fresh perspective, but paints an ugly picture and for now it's only getting worse.
It's pretty clear by contrasting your two charts that the erosion is most pronounced on the high risk end.
What is it with borrowers these days? It's not just LC but consumer debt in general (autos, etc.).
It's pretty clear by contrasting your two charts that the erosion is most pronounced on the high risk end.
What is it with borrowers these days? It's not just LC but consumer debt in general (autos, etc.).
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Post by: AnilG on May 01, 2017, 11:00:00 PM
Post by: AnilG on May 01, 2017, 11:00:00 PM
The implicit assumption in your analysis is that the credit and loan profile of E Grade loans has stayed similar across vintages. Lending Club has expanded credit criteria several times since 2008 in attempt to increase volume but still assigns these newly eligible borrowers to same 7x5 Grade buckets. I don't believe today's E Grade loans are same as the E Grade loans of 2008-2012, they are more like E+F+G+H of yesteryears ...
from: Fred93 on May 01, 2017, 05:37:20 PM
from: Fred93 on May 01, 2017, 05:37:20 PM
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Post by: TravelingPennies on May 01, 2017, 11:00:00 PM
Post by: TravelingPennies on May 01, 2017, 11:00:00 PM
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Post by: TravelingPennies on May 01, 2017, 11:00:00 PM
Post by: TravelingPennies on May 01, 2017, 11:00:00 PM
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Post by: TravelingPennies on May 02, 2017, 11:00:00 PM
Post by: TravelingPennies on May 02, 2017, 11:00:00 PM
Shoot... I lost everything I wrote before, my desktop reset on its own. Anyway, the gist is averages don't always tell the whole story. I quickly looked at box plot for a few credit attributes for E Grade 36 month loans. Annual Income, DTI, Bankcard Utilization, and Accounts opened in last 24 months stood out. The inflection point seems to be in 2012 which kind of agrees with your charts. I also seem to recall that these were the time when LC started expanding some of these credit attributed for loan eligibility. Whatever model LC switched to 2012 may not be working.
from: Fred93 on May 02, 2017, 03:49:10 PM
from: Fred93 on May 02, 2017, 03:49:10 PM
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Post by: lascott on May 02, 2017, 11:00:00 PM
Post by: lascott on May 02, 2017, 11:00:00 PM
April statements are on your LC site now: https://www.lendingclub.com/account/lenderDocuments.action
I was negative on my Taxable acct and positive on my ROTH acct ... and overall negative. And I thought I was one of the more conservative investors here.
I was negative on my Taxable acct and positive on my ROTH acct ... and overall negative. And I thought I was one of the more conservative investors here.