P2P Lending / NFT Lending Forum

First, need to consider the time horizon. I figure on a 10 year time horizon for a couple reasons. One, these are minimum 3 year investments. This is not a short-term investment. Two, it is impossible to predict short term returns for stocks. It is more reasonable to predict a range in the longer term. I love Vanguards yearly prediction for 10 year returns. They do a great job. You can see it here:

https://personal.vanguard.com/pdf/ISGVEMO.pdf" class="bbc_link" target="_blank">https://personal.vanguard.com/pdf/ISGVEMO.pdf

In it, they estimate a 10-year return of 5.2% for global stocks and 2.6% for US bonds (not adjusted for inflation which is predicted to be 1.7%). If you want to understand why the low stock prediction, you will need to read the report. There are very good reasons for it.

I believe an LC portfolio of mostly B and C loans is less risky than global stocks. So I am happy with anything over about 4.2%. I believe this is achievable, so I am happy to invest in LendingClub notes.

I do not think 36 and 60 month loans follow the same credit model. For example, a 60 month E3 will have fewer deliquencies the first year than a 36 month E3. This is because they tighten the requirements for 60 month loans.

I recently put a bunch of loans for sale at 10% premium, not thinking much would happen. To my surprise, I had a bunch of F and G notes that ended up selling. These were never late with flat or rising trends that were roughly 40 months old.

Now, I wonder how this could be a good deal for the buyer. These notes returned roughly 8 percent up to now because they were in the "good ol' days" vintage. They likely return more now because they have such a good repayment history. Still, with the possibility of repayments and all, could this possibly be a good deal for the buyer?

That is pretty weak. All the talk about transparency... Very disappointing to see that kind of misleading comment.

Has anybody read this article? It seems like Lending Club as company has many uphill battles. I find it hard to see the positives.

https://seekingalpha.com/article/4083106-lending-club-take-look-competition?page=3" class="bbc_link" target="_blank">https://seekingalpha.com/article/4083106-lending-club-take-look-competition?page=3

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/" class="bbc_link" target="_blank">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?

Those Orchard returns are interesting. It appears to me that the monthly returns are not associated with loans originated in that month, but the return of the entire outstanding principle during that month from all loan vintages. Is that how you guys see it?

If that is true, it reflects what I have seen in my portfolio. It absolutely cratered in Nov and December and has been gradually recovering (relatively speaking).

Does anybody fear LC going out of business? I have been investing since 2011 and really like LC for many reasons. However, I fear there is a decent chance they will not be around in 4-5 years. Every year there is a new competitor. The Renaud Leplanche announcement is just the latest announcement. Note that Leplanche will not be using Peer-to-Peer. He likely knows more about marketplace lending than anybody on the planet and he decided not to go Peer-to-Peer. There is probably a reason for it. My opinion - it probably is not efficient. Then there is Marcus - same thing.

Today's situation of lower returns is just a blip caused by low underwriting standards (by LC and everybody else) and competition. Throw in a couple more significant variables like a tanked economy, over-regulation, and/or another breach of trust and some companies will not make it.

Maybe I would feel better if I had more faith in the unproven/questionable bankruptcy vehicle. I heard the institutional investors have some sort of upgraded "bankruptcy vehicle". If the guys that really know what is going on demand an "upgrade" what is wrong with what we have?

Does anybody else have these fears? Somebody validate my irrational fears or make them go away. What do you think? Does anybody cut back their investment allocation based on these fears?

I think raising rates will have little to do with the Fed and more to do with supply/demand competition, etc.

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.

So, If I am selling a note that is trending down, then the FICO improves (so it starts trending up), then somebody can buy it and get a great deal? The notes are not cancelled like when payments are processing?

I have been pretty impressed with PeerStreet lately. It is not too hard to average 7-8% interest rate on hard money loans with maximum 75% loan to value ratio. My question is - what is the likely downside. I do not know a ton about funding real estate, but I have my ideas on how to estimate. Here are my thoughts. Let me know if any of this sounds off.

First, the good times. It seems reasonable to expect 1-2% foreclosure rates during the good times. This is what I have found at a couple web sites. It also matches PeerStreet's relatively short history. With a 75% loan to value ratio, I would expect to lose very little principle. I would still expect to make about 7-8%.

Second, the recession times. About every 4-5 years, expect a recession with loss of jobs, regional areas of high unemployment, and higher foreclosures. Maybe expect 10% foreclosure rate each year? With a 75% loan to value ratio, expect to lose a fair amount of interest and some principle. Maybe lose 4% of my investment for a total of 7%-4% = 3% gain during these years. Does this seem reasonable?

Then there are the major correction years. These are the 2006 - type years. These occur roughly every 16 years. Real Estate prices across the country would drop 10% - 50%. With a 75% loan to value ratio, expect to lose maybe 10% on my investment for the year.

If all this is true, then I would stand to make 5-6% or so long term. This sounds pretty good to me. This assumes the quality in the loans do not degrade. Does any of this look way off base?

Thanks for your thoughts.

I keep seeing these stats in everybody's post:

vs All Accounts: 94.65
vs Similar Age Accounts: 0.00
vs Similar Age and WAIR Accounts: 0.00

I cannot find it anywhere in my 'Understanding Your Returns' area. Where are you finding it?

I have been buying pretty conservative notes on folio. Usually grade 'C' with level or rising FICO and never late. Usually around one year old. These usually have roughly 2% discount.

It seems like lately a lot of these have been going late right after I buy them. Is there any way that the seller may know more information than I might? Is there something I should be looking for to make sure I am not getting shafted?

Thanks for any help.

Just into PeerStreet for a couple months now. Seems like a cool place to be. Anybody have any experiences?