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Author Topic: Is LendingClub Broken?

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Is LendingClub Broken?
OP: June 05, 2016, 11:00:00 PM
The question I am not seeing answered is what happens to the thousands of borrowers who just say screw it and don't wait for 30 days for LendingClub to list their loan.  They are likely gone forever.  The most profitable borrowers for LendingClub are the repeat borrowers.  I would also imagine they are the least risky in most cases, if they have paid off a loan and shown an ability to repay. 

I would actually argue they should be taking some of their $850M in cash and funding a ton of loans if they need to.  The cost of acquiring a customer is significant.  These customers who don't wait for 30 days for their loan to be listed will have had a terrible experience and be gone forever.

I think the next 30 days are make or break for LendingClub, and for those of you who have had success earning a return on your investment buying notes.  Discover Personal Loans or SoFi, or any others with adequate capital, will end LendingClub if they don't quickly figure out how to fund their backlog of loans.
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Is LendingClub Broken?
#2: June 05, 2016, 11:00:00 PM
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#3: June 05, 2016, 11:00:00 PM
It is just a matter of priority. There are limited management resources to dedicate to a project so LC management has to decide where to spend their limited resources. There are about 150,000 retail lenders, even if average account balance was $20,000, there is only $3 billion in provided capital by retail lenders. Assuming everyone lent to 36 month loans, it only leaves $1 billion in retail capital for loan originations every year. Pursuing several dozen institutional lenders that could each put in more than a billion a year is more cost-effective with better return on effort and better use of limited resources and thus focus of management.

from: nonattender on June 06, 2016, 01:29:17 PM
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T
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#5: June 05, 2016, 11:00:00 PM
Fred93 - thanks for the insight.

My first question on the forum was trying to figure out was in regards to a friends loan, that applied on May 20th, which I could not see on the platform.

I guess I should define backlog as in - loans where people have applied but the loan is not available on the retail platform.  As I look today, specifically at D rated 60 month loans, the application dates for those loans is May 8th.  The date is increasing by 1 day (in general) each day that passes.  So tomorrow I expect to see May 9th. 

I am defining this as a backlog of loans.  There are more D rated 60 day loans that have been applied for, then LendingClub is allowing to reach the platform.  Significantly more if you consider that the current dates are May 8th.

I could be missing something but it feels like supply exceeds demand significantly (in the 60 month loan department)
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#7: June 05, 2016, 11:00:00 PM
Supply exceeding demand is temporary phenomenon caused by May 9th event. Since then, LC has significantly scaled back borrower acquisition efforts and increased investor acquisition efforts. You can see this by just watching the banner ads on different p2p lending, finance, investing sites and blogs. As LC already had committed to borrowers through direct mail channels and paid for borrowers leads through referral channels, as long as borrowers are willing to wait, LC is listing their loans on the platform. Once this bulge of borrowers acquired from marketing efforts that were already underway by May 9th dissipates, we will see more balanced supply and demand. Few years ago the typical wait for borrowers was 7-10 days for loans to be funded and issued. I expect we are returning to those norms.

from: sigclem on June 06, 2016, 04:06:28 PM
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#10: June 05, 2016, 11:00:00 PM
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#11: June 05, 2016, 11:00:00 PM
Ya gotta love him. What's this LC stuff anyway; Money for Nothing? When all is said and done we're all "Brothers in Arms"; no?
http://www.markknopfler.com/
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#12: June 05, 2016, 11:00:00 PM
Out of curiosity, how would you react if LC did decide to start using some of their balance sheet to buy its own loans? Would this be a good or a bad thing? As for myself, I can't decide. Part of me wants LC to buy a portion of their own loans and embrace the whole hybrid approach (you know, the whole idea of "being willing to eat your own dog food"). Peter alluded to this in his latest post on Lend Academy, although he cited different reasons for his embrace of a hybrid model.

If LC bought some portion of their loans, it would signal to me that - at least in theory - they would pay more attention to underwriting, or at the very least they would adapt more when they noticed a deterioration of credit quality. It might also make me more of a willing partner in loans.

On the other hand, if LC did start buying loans en masse, either out of necessity or change in strategy, it could lead to cherry-picking or some other form preferential treatment for LC's notes. For this reason, were LC ever to begin buying notes, I would want them to do so in agnostic sort of way, say X% of all fractional loans.

I can't really decide if this is something that I would like to see as a retail investor, but it was just something I was thinking about and would be curious to hear from others.
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#13: June 06, 2016, 11:00:00 PM
If LC starts buying loans en masse, that will make quick work of their cash reserves - hence the worries about bankruptcy.

Jenn
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