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Messages - cfb

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Investors - LC / Deadbeats
« on: February 22, 2017, 12:00:00 AM »
I've actually had quite a flurry of those, 0-4 payments and then bankruptcy and it was across all credit grades.

It was funny, I said the word 'deadbeats' in an email to lending club (this was maybe 3.5-4 years ago) and the guy totally flipped out, insisting that I not call them that because LC doesn't pass through any "deadbeats".

Investors - LC / When are deadbeats reported to credit agencies
« on: September 07, 2014, 11:00:00 PM »
Just don't mention the word 'deadbeats'.  I had an LC guy get all offended when I used that term regarding people who stop paying on a loan.  :D
Investors - LC / Convenience Check Arbitrage
« on: September 07, 2014, 11:00:00 PM »
If you own a car with no loan on it or have a car with a higher blue book value than what you owe on it, then it might be a legit finance or 'refinance' of the vehicle.  It'd certainly be a more legit usage than what the majority of our LC loans actually get put to vs what they say they're going to use it for.  If LC doesn't check to see if you paid down loans or credit cards with your LC loan, not sure how these guys would check into how you spent your lightstream loan.

That having been said, a <2% unsecured loan seems to land on the too good to be true button.  That's below the rates for a secured heloc.  I could see that rate on a dealership financed loan where the dealer or automaker is subsidizing it.  There's a catch.
Investors - LC / LendingClub Files S-1 with SEC
« on: August 28, 2014, 11:00:00 PM »
The other part that bears consideration is that this means that many of the things LC has been doing lately (good and bad) are window dressing for an IPO.

Main things I've noticed is being a lot less optimistic about returns and defaults, making more of an effort to collect money from default loans, and raising some fees.
Investors - LC /
« on: July 23, 2014, 11:00:00 PM »
20,000 researchers examined thousands of terabytes of data gathered since January of 2009.  In every analysis Obama was president, he was alive, and the stock market went up on an annualized basis.

Researchers concluded that based on the long trend of evidence, Obama would always be president, he would live forever, and as long as he was president the stock market would always go up.  An alternate theory was developed that the rising stock market caused Obama to be president, and also gave him immortality.
Investors - LC / What would make you switch P2P investing service?
« on: July 22, 2014, 11:00:00 PM »
That pretty well nails it.  If treasuries were around 5% then high yield corporate debt would be in the 10% range for pretty good quality stuff and 12-14% for debt I'd feel was close to equal risk to p2p.

My reason for going to p2p was "I have a lot of cash, I already own a @#$%load of equities, I'd like the cash to be semi liquid and provide an income stream."  Not a whole lot of options right now that exceed real inflation other than leave it in a checking account or buy more equities.
Investors - LC / Consensus question
« on: September 20, 2013, 11:00:00 PM »
Returns?  They'll depend.  I see many investors that swear by buying "safe" A and B grade notes.  With all things being equal, they've pretty much limited their upside returns to something in the 4-12% range before taxes, making assumptions that everything (the economy, job situations, etc) are the same for the next 5 years as they've been for the last 5.  I say that because every bit of data used and all the automated systems are using historic data from a statistically small slice of time during which borrowers faced an extremely difficult economic/jobs situation.  And we have no idea whats going to happen going forward.  This is not as bad as looking at the stock markets performance for the last 5-6 years and presuming that the next 5-6 will be about the same, but its in the ballpark.

Investors that go for high risk/high default rate loans will probably come out ahead.  But asking what they have now depends on when they started, their note selection criteria (which probably changed over time), whether they're buying notes just to resell to take advantage of the shortage of notes and states that don't allow new loan purchases, etc.  Things that may be resolved sooner or later.  Many are also taking advantage of what I'm guessing are poorly educated buyers on the secondary market.  That might "improve" or not.  Many also have a bulk of their portfolio that was assembled when decent notes were available almost around the clock, or they've added risk by employing a 3rd party buying service.  Now "good" notes are less available, only for short times, and only if you have fast fingers or use an automated tool, although those haven't even been fast enough at times recently.

When I first evaluated LC as an asset class I did look at the historical data but frankly discounted it to a good degree because it was negatively tilted as having occurred during the worst economic period in decades, because the systems and investors were very new, and because lenders and borrowers weren't as savvy to the process as they are now.  Consider selling on ebay the first two years it was around vs today, if you have that experience. 

So after having a look at the longer term effects such as the number of people likely to die while you're holding their unsecured loan, the lean towards people who think consolidating ALL of their debt to get "one payment" when the interest rates on some of it was lower or the people who think paying 25% for a car loan is a good idea (these folks are financial idiots, and they'll manage their money appropriately), the odds of a second dip in the economy or continued sideways malaise like we had in the 60's-mid 80's, the likelihood of a surge in inflation, etc...I came to the conclusion that even a pedestrian lender should be able to make at least 5-6% and someone doing it for 20 years with a decent education in note picking could probably do as well as 12 or 13%.  I think anything over that would involve lots of work exploiting the inefficiencies in the system and keeping up with those as they'll change over time and the window may become narrower and narrower, and the competition for those inefficiencies greater.

So IMO this is akin to asking people who just started investing in the stock market in 2008 or 2009 and only have data going back that far what their returns are and what they expect.  Probably not a whole lot like what its going to be for the next 5-6, and probably not the same as the 5-6 after that.

The current darling strategy of E-G notes that meet certain criteria may turn badly if some aspects of the economy go south.  If inflation comes roaring in, the Fed has absolutely not one thing to use except driving up interest rates, and costs may force many people to decide whether to buy food and pay the rent or pay their LC loan.  Businesses will reduce head count, raise prices, and many that are just barely making it will go under.  Unemployment will surge.  You may see 30-40% default rates on those 'on the edge' borrowers.  That may be a low estimate.

My feeling is that I can get at least 5-6% out of this even if things go badly, and that's just way better than anything else out there given the current levels of the stock market, persistent low interest rates on fixed income, rising real estate prices in my region, etc.  Sucks to take on this much risk, but that's a much better return than I can get with a bond or a cd.  If I do better I'll be happy, but I also have taken this on as a shorter term investment and don't plan to do it for more than another 4-5 years.  In fact, given the lousy performance of the web site, the poor availability of notes, the reported errors in processing correct payment amounts, etc...I'm just going to let what I own age out and hope I can get a lower risk fixed income asset class to replace it in the next 3-5 years.  I'm doubtful of seeing that as I think it'll take 7 or 8 years to normalize interest rates without killing the economy, but LC is starting to look like a ship that's taking on water.  Things usually look at their best when a company is approaching an IPO.  This doesn't look that great considering the range of problems but without reading this site I might not even be aware of some of them, although they do have an effect.

Plus like rlv99 I've used this as a bit of a hobby as well, so there's that...
Investors - LC / Default rate seems to be busted
« on: September 13, 2013, 11:00:00 PM »
I put two loans in my cart, an E and an F and the suggested default rate was 4.9%...hmmmm...

I also may have figured out why more than half of my notes don't fill.  It seems that the amount the borrower requests is a maximum amount and when the note fills, they ask the borrower how much (up to that amount) they REALLY want, and frequently the actual loan is lower than the 'shopped' amount.  My bet is the last orders that come in get canceled if the loan amount is less than the original requested amount.
Investors - LC / "employment: N/A"
« on: September 11, 2013, 11:00:00 PM »
I always took the "n/a" to mean self employed.  While the recent LC data may say one thing, longer term unsecured consumer debt analysis told me that self employed were more likely to pay late, but defaulted less.

Couple of cases in point on 'where does the money come from', I make about 4k a month in largely passive income activities, and my girlfriend gets 80k a year in child support, both of which are considered income.  Of course, her child support income stops in about 3 years, after which her income will take a huge drop if she doesn't go back to work full time.
Investors - LC / Questioning borrowers
« on: September 10, 2013, 11:00:00 PM »
Yep, no chance to ask borrowers anything; the note is long gone before they'd answer if it was any good.

I found that if a note looked squirrely enough for me to want to ask a question, it was best left for someone else.  In the days when I could ask questions, the answers split one of two ways.  Either the answer made me not want to invest, or it didn't answer the question.  I had no end of people with 5k in revolving debt that wanted $35k and when asked "what do you plan to do with the money" or "how will you apportion the funds" would reply "To pay off all my debt".  Gee...thanks.

I think that at this point, any educated borrower knows to say nothing, use a vanilla title for the loan, and hold off answering questions until the loan funds, because then you won't have to.

What would be nice is if you could ask questions and invest and if on the basis of the answers you changed your mind, you could back out of the purchase before it fills.  Leave a queue of interested buyers who might take your place or relist it.  I had several notes that looked great, I invested, someone else asked a question and the answer basically violated the terms of the loan, showed fraud or otherwise made you reconsider.  For example, one guy with incredibly great looking stats (750 credit, made lots of money, not too deep in debt, no payment issues) replied to a question 4 days after I bought the note admitting that he was taking the loan out and giving it to someone else that didn't qualify for any loans and they were going to pay him back.  Then he paid for a while and declared bankruptcy.  Probably because despite his good looking credit, he was a moron with money.

Or as an alternative to backing out, float the loans for a week in a pre-buy situation, let lenders ask questions, require the borrower to answer them before listing, and then place the note up for sale.  Or have them fill in an actual description for every loan and pre-answer all the canned questions so there would be no doubt.  If someone doesn't want to type a few sentences to describe the loan and answer a few questions, they don't really want it that badly.
Investors - LC / New FOLIO Trading Agreement
« on: September 10, 2013, 11:00:00 PM »
Not a lawyer either, but its a statement to protect lending club and nobody else.  Its the standard CYA for "What?  I lost money?!?  Nobody warned me!!!1!  I'll sue!"

Its also why they stopped saying that nobody with 800+ notes lost money, and why they cut the expected returns by ~3%.  CYA.
Investors - LC / Funds Returned
« on: September 06, 2013, 11:00:00 PM »
I get a ton of canceled notes.  In fact, it was running to half or more while the notes were thin and I didn't know anything about the four 'drop times'.  Interestingly enough, none of the notes I've written in the past ~ 2 weeks has issued at all or been canceled.

Between the canceled notes and the high rate of early payback I'm seeing, I'm guessing the notes that looked good were either too good to be true, the people didn't need the money, or they got a better rate/terms elsewhere.
Investors - LC / New to LC
« on: September 04, 2013, 11:00:00 PM »
When buying the lower interest rate loans, do note that on average, about 2% of the borrowers will die before the loan is fully paid.  That's average.  People with financial issues tend to have shorter lives and more health issues.  When someone dies, unsecured loans are paid last from the estate, and most estates are peanuts in the first place.

When you factor in job loss/unemployment, divorce (financial death), accidents and illnesses, a 3-4% unavoidable and unforeseeable default rate is pretty likely.  So taking less than 10% before taxes are considered is a bad idea.

About half of my defaults are loans I wouldn't write today.  The other half would have passed my current stringent filtering and generally are death and bankruptcy.  Loan grade doesn't seem to correlate with defaults in my case.
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