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Messages - anabio

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Investors - LC / I thought the LC IPO was a good thing...boy was I wrong
« on: September 10, 2016, 11:00:00 PM »
I watched LC for over a year before I started investing because I wanted to wait until the IPO. The reason for the IPO wish was because I thought that LC would be less likely to go bankrupt/out of business if it was public. I still think that was a correct concept.

I now believe the IPO was not as good as I thought. I will provide a chart later that shows the detail but I have encountered "way more" defaults than LC estimated I would have when I first invested with them. The info below shows this.

Loan        LC's charge      My charge off
Grade      off rate             rate
        As of:mar 2014        Sept 11 2016
A             1.63%               6.31%
B             3.57%               7.23%
C             5.22%             13.99%

To be honest I no longer remember where I got that LC expected rate 3 years ago but I got it from somewhere on LC's web site and wrote it down for future use.

That begs the question: Why is my charge off rate so much higher than what LC estimated when I first started investing?

I guess some of you will say I had a "crappy" filter and invested in all the wrong notes. But that is not the case. For 84% of my note purchases I used LC's automated investing tool and went conservative: 40% A, 40% B, 20% C. No other filter except 36 month term. I did this because I assumed LC's expected charge off rate was based upon the "totality" of their loans in each rate category. So I assumed that is what I would get. If you use filters correctly you should get lower charge offs, but then there would be fewer loans available so money would sit idle for a long time.I was happy with the average so I did not filter. I only invested my "play money" and was content to invest and watch before investing my "non play money". I never got into the non play money pot because I turned bearish on LC as I started seeing how it really played out.

In March, April, May 2014 I invested $30,000. After that point I just re-invested the proceeds. When I started re-investing I used filters and mainly invested in C loans with some A/B. My filter was simple:

Only loans under $10,000, 3 years job, 1 or less inquiry, $24,000+ income, 3 year term, no California (I know...and I LIVE in CA).

I think the reason for my higher defaults is because when LC went public they HAD to show they would be profitable for their shareholders. That meant they HAD to increase their loan originations. I think LC loosened their loan rules in order to increase the number of loans and did not adjust their estimated default rates (until recently, supposedly...unfortunately for me). That is now playing out, causing a higher than estimated default rate.

I would REALLY be interested if someone who invested a couple years before the IPO and continued investing after the IPO would produce a chart like mine below. It would be interesting to see how the default rates compared pre IPO and after IPO.
Last Thursday I had 7 of my 684 current loans go into grace. Two of those had made 27 payments, three had made 26 payments and two had made 21 payments. The two that had been in grace before Thursday had made 26 and 27 payments.

I have 8 loans 16-30 late all having made at least 24 payments.

I have 18 loans 31-120 late the majority of which have made at least 20 payments.

I have to believe that someone who has made so many payments and then falls behind has to have extenuating circumstances; loss of a job, unexpected medical payments, etc.

I'm not an expert at LC's rules but I don't believe I saw anything in their collection procedures that would allow them to modify loan conditions.

I would like to know what the consensus out there would be to allowing Lending Club’s collection department to modify the conditions of a loan for those people who have such extenuating circumstances and extend the loan payoff by let’s say another year or two. That would cut the loan payment down and hopefully provide a little relief to those borrowers.

I know that would mean locking up the investor’s funds for another year or two when they (you and I) did not intent to fund a 4-5 year loan but think about it…the majority of loans going 31-120 days late end up being charged off. What is the harm in seeing if some of those loans can be made whole just by the simple change of adding a year to the payback schedule? LC would not need to do that much more work…in fact their collection department might do less work because they might not have to call the borrower every few days for 4 months.

I don’t know where the cutoff should be as far as how many on time payments have been made but there should be some consideration given to those borrowers who have really tried but due to circumstances beyond their control have problems paying their monthly payment. Sure, nothing says the extended payback schedule would ensure all loans are paid back but you would still be ahead because you would get more payments than if the loan went charged off at the start.
Investors - LC / My Decaying Star .......
« on: July 06, 2016, 11:00:00 PM »
I originally purchased 1,426 notes at mostly $25 per note in A B C. Started buying in March 2014. Whole $30,000 fully invested within 3 months (by end of may 2014). Re-invested earnings from June 2014 to Jan 2015. In Jan of 2015 I started to see the writing on the wall. I can't say I did much number crunching (not that kind of guy anymore) but intuition seemed to indicate something was  not right with charge off rates. I also started worrying more about a recession coming (co-incidentally???) right after this Nov. election. (They can't use chewing gum and  baling wire forever). At that time my account was worth $31,900. Letting things pay off "normally" I now have $7,193 of my original $31,900 left. The majority of those remaining notes will pay off fully by May 2017.

I stopped buying notes and started taking money out in Jan 2015. Of the 1426 notes, I have:
737 left (current)
541 paid off early
7 in grace
6 late 16-30
8 late 31-120
2 default
115 charged off.

NOTE 1: You may not get as many paid off early as me because LC is in a rising interest rate period. I got quite a bit paid off early because four or so months after I purchased most of these notes LC went into a decreasing interest rate period so people refinanced. I'm still getting between 20-25 notes paying off early each month.

NOTE 2: As I said in a note on another topic I don't think you can count on defaults tapering off after the 1 year point. My (conservative) estimates show I will have just as many notes if not more default/charged off after the 12 month point as under the 12 month point.
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