P2P Forum

Lending Club Discussion => General Lending Club Discussion => Topic started by: Rob L on December 07, 2017, 12:00:00 AM

Title: Lending Club Exists for the Profits of Whom?
Post by: Rob L on December 07, 2017, 12:00:00 AM
I've been an unrepentant LC pessimist over the past two years, should anyone be unaware (few are I'm sure).
Each quarter shareholder equity is diluted by non-GAAP compensations to management (big time). Hey, it's not cash so why worry?
When all that money the exuberant IPO buyers gave the company has been distributed to management what will be LC's fate? My guess is that it isn't pretty.
I will leave it up to the optimists to counter. Strong language, but is thinking LC is a dead man walking ...  If not dead zombie like.

http://www.insider-monitor.com/trading/cik1409970.html

Title: Lending Club Exists for the Profits of Whom?
Post by: rawraw on December 07, 2017, 12:00:00 AM
I personally think we need to be careful on this forum to keep several items separate.  LendingClub the stock investment, LendingClub the platform,and LendingClub notes. A lot of the newer people have trouble understanding how they are different and yet related.  I agree with you about the LendingClub stock.  But dead man walking may be a bit much, I think they probably could be profitable if they just stopped spending as much.  Didn't they say in an email couple years ago they could function just based off of the servicing income if they gutted the place?  At any rate, I think LC is similar to a mortgage broker - and that's not necessarily a very attractive business to invest in.
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 08, 2017, 12:00:00 AM
Yeah, I agree this thread is in the wrong place.
Should be in the General Lending Club Discussion Topic. Most of the stock related posts are there.

Hey Zach -- If you happen to see this post would you move the whole thread as above?

And yeah I guess dead man walking was a bit over the top. I'm sure there are plenty of companies with troubles far worse than LC that have come back, survived and done very well.

Title: Lending Club Exists for the Profits of Whom?
Post by: Zach on December 09, 2017, 12:00:00 AM
from: Rob L on December 08, 2017, 10:47:20 AM
Title: Lending Club Exists for the Profits of Whom?
Post by: dr.everett on December 09, 2017, 12:00:00 AM
from: rawraw on December 07, 2017, 07:50:04 PM
Title: Lending Club Exists for the Profits of Whom?
Post by: AnilG on December 09, 2017, 12:00:00 AM
So you have decided that LC notes are not good investment but LC stock is a good investment. Interesting juxtaposition. I wonder what part of LC business you are excited about to put more money into LC stock.

from: dr.everett on December 09, 2017, 02:00:40 AM
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 09, 2017, 12:00:00 AM
from: AnilG on December 09, 2017, 07:16:38 AM
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 09, 2017, 12:00:00 AM
from: dr.everett on December 09, 2017, 02:00:40 AM
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 09, 2017, 12:00:00 AM
We are blessed to live in interesting times. A cursory but by no means serious look at insider buying and selling (see link above) appears to suggest that the last round of nearly free stock options to corporate management have not been sold after this last downturn into the mid $3's. Not one share. There's even some buying by insiders on the open market, but it's very small money. Seems there is a lot of stock held with a cost basis in the $4.25 range (including the Chinese investor Chen). Not many sellers in the mid $3's, but maybe the $4.25 level will be hard to break on the upside. Anybody want to get out even? The market will tell us in due time.
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 09, 2017, 12:00:00 AM
from: rawraw on December 09, 2017, 05:24:04 PM
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 09, 2017, 12:00:00 AM
+1. I remember in 2013/2014 when I talked about risk with LC lending, people laughed at me as they were consistently getting 8-10% return for several years and couldn't believe someone will think LC lending is risky. Even on this forum, people were discussing borrowing from other sources to lend on LC. How times have change. I am pretty sure same will happen to the next new shiny investment people are excited about. It is behavioral investing 101. Common-sense is not common enough. For majority, "return" tail seem to wag the dog.

from: rawraw on December 09, 2017, 05:24:04 PM
Title: Lending Club Exists for the Profits of Whom?
Post by: pourts on December 09, 2017, 12:00:00 AM
from: rawraw on December 09, 2017, 05:24:04 PM
Title: Lending Club Exists for the Profits of Whom?
Post by: Half Right on December 13, 2017, 12:00:00 AM

"Fundrise has better returns with a lot less effort and risk. Yes the money is stuck for 5 years, but at 10% a year, oh noes... ;D
For me, it was virtually riskless because I could see the late notes before they showed up as late. 
Are you still able to do this?  If so, how?"


Fundrise will gladly take your money. However please note that the Net asset value for the Income Fund is now $9.80 as opposed to $10 when the fund started. A loss of 2% in the past year. Take that off your 10% distribution and you are inline with most other crowdfunded real estate loans. However your liquidity is restricted and comes with a penalty for early withdrawal.
IMHO better deals exist
Title: Lending Club Exists for the Profits of Whom?
Post by: jrr6415sun on December 18, 2017, 12:00:00 AM
from: Half Right on December 13, 2017, 01:59:50 PM
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 18, 2017, 12:00:00 AM
Not to say that the biggest is always the best but i like these 2 the most and they are some of the biggest:

1) Cadre- it doesn't hurt to have the current President as a family member (through marriage and blood). At least you get the Tax Code  changed for your benefit.
2) Lending Home- Although they have become way too aggressive in terms of "Loan to Cost" while attempting to retain some some restraint in terms of "Loan to Value", I think this has been caused as a result of their ENORMOUS growth. IMHO the best fix and flippers use them because of their super quick loan funding which gets the properties completed quickly and out on the market in the shortest time possible. What I most appreciate is that if the borrower is late or in default, they will not waste a second foreclosing and auctioning off the property.

Either way as they say in the Real estate biz Caveat Emptor
Title: Lending Club Exists for the Profits of Whom?
Post by: rawraw on December 19, 2017, 12:00:00 AM
Quote"> from: dr.everett on December 09, 2017, 07:11:55 PM
Title: Lending Club Exists for the Profits of Whom?
Post by: dr.everett on December 21, 2017, 12:00:00 AM
from: rawraw on December 19, 2017, 07:34:04 PM
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 21, 2017, 12:00:00 AM
I figured it was C&D or ADC lending, which is one of the riskiest loan types that exist (outside of subprime stuff).  There are a few things that you need to think about.  First, why is a loan with collateral yielding the same as an unsecured consumer loan?  There is only two answers to this.  The first is that even with the collateral, the risk is similar to the unsecured consumer.  The second is that it is an inefficient loan category that will disappear as the risk is priced more effectively.   While both are likely at play, I suspect the first explanation is the majority.

The second is  what is your actual collateral?  How do they measure the loan to value?  I could get a loan to build a golf course.  I spend $500k to buy the land and the appraisal says that when it is completed, it is worth $10 mil.  What value should I use in my loan to value?  In an ADC loan, what if I'm buying over valued real estate.  If I sell you swamp land for $50 mil. and you get a $10 mil. loan against it.  Is that a safe loan because it is 20% LTV? 

What is the legal structure of the loans?  Do the loans have recourse against the developer or is the project the sole source of repayment? 

The other question is what determines real estate value?  Well its a combination of the income produced and the multiple paid for that income.  Why do real estate values drop?  It is typically because the success of the projects and their cash flow no longer look as attractive as expected.  So the collateral's value and the borrower's ability to pay (assuming the loans are recourse, which may not be the case given they are construction yielding such high levels) are directly correlated.  So when things go poorly,  it all happens at once.

Hope this helps.
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 21, 2017, 12:00:00 AM
from: rawraw on December 21, 2017, 07:30:49 PM
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 22, 2017, 12:00:00 AM
Does it give you the definition of the full recourse completion guarantees? If they guarantee, the question then becomes what the financial strength the borrower has outside of the project. Just to give you some frame of reference, these loans at a bank cost 5% or so. Why isn't these borrowers going to a bank? It may be they actually aren't sources of financial strength.

The appraised value is too broad to be useful. In our golf course example, that appraisal says we are fine too. The first thing is to find out what loan to value is that? Value as completed, value as is, loan to cost, etc. In our golf course example, loan to cost will be much different than loan to value.

I think you are looking at the right places. It's just we need more details to understand what's going on
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 22, 2017, 12:00:00 AM
from: rawraw on December 22, 2017, 06:56:08 PM
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 23, 2017, 12:00:00 AM
Prior development does that let us know much about financial strength, since real estate people are often highly leveraged. But it does give insight into experience.

Another area that is important to understand is how loan proceeds are disbursed. Does it address their process for draws at all?
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 23, 2017, 12:00:00 AM
from: rawraw on December 23, 2017, 10:27:13 AM
Title: Lending Club Exists for the Profits of Whom?
Post by: TravelingPennies on December 23, 2017, 12:00:00 AM
At any rate, my broader point is that the things you need to know and think about when there is collateral is much more complex than unsecured consumer credit. You are trusting that these guys are doing it all right. But I think that's a risky proposition given the characteristics of the loans. They may be all star lenders, or they could be structuring things so poorly that you are making virtually unsecured loans without realizing it. This is why I suspect many of the people in real estate lending don't understand the risks they are taking. I still fear real estate peer lending is going to be what blows up and results in the sector getting regulated (and potentially kicking people out if they aren't accredited investors).