what is the counterparty + credit risk going on here?
Not sure if I understand the question. There is counterparty/credit risk from the borrowers, which is why instead of funding one loan you fund portions of hundreds of loans. Think of it as automatic securitization – loans are securitized in the funding process. I personally use the current strategy of dumping loans in the secondary market to try to ensure a return of just principal at first sign of weakness – I’m currently analyzing whether I’m foregoing yield doing this.
There is also counterparty risk that LC could go under. Their prospectus states this risk and I think they have agreemenets for someone to service the notes if they stop operations. This article is pretty interesting, if you aren’t familiar with the investment:. I’m a hotel with awful internet in Venice, Italy. Google “John Mack Lending Club” and click the news article from FT.com. I think it requires access from Google to be free, anyway.
exactly how credible the information on borrowers?
Couldn’t I just go on there, ask for 27,000 dollars to be wired to my far away island bank account… for my wedding/pool/new bathroom/vacation? or, couldn’t people purchase their own debt to pump their note’s “% funded” ?
What is your realized default rate been the last few years? what grade debt have you guys focused on? I really want to just click add add add add for all the 25% returns… obviously didn’t but that big red square is so tempting… and simple
exactly how credible the information on borrowers?
Couldn’t I just go on there, ask for 27,000 dollars to be wired to my far away island bank account… for my wedding/pool/new bathroom/vacation? or, couldn’t people purchase their own debt to pump their note’s “% funded” ?
What is your realized default rate been the last few years? what grade debt have you guys focused on? I really want to just click add add add add for all the 25% returns… obviously didn’t but that big red square is so tempting… and simple
You know, back when I started Lending Club I was just a souphmore in college. I only invested in ‘verified’ income borrowers (submitted paperwork to LC, etc), because I thought that was safer. Whe you run the numbers, turns out verified income borrowers slightly underperform unverified. The reason being the ‘prime’ borrowers Lending Club tries to attract (I think Prosper avg credit score is much lower, so may not be true there) get annoyed with requests for too much info. So sometimes the verified people are actually the less attractive borrowers.
Information comes from self report and credit report. So I use the revolving credit balance, past delinquinces, and FICO in part of my determination of funding refinance loans. That information is accurate – the income, work history is generally self reported. And you can ask questions about installment loans they may have or monthly expenses, all that is self report and unverified.
All loans are unsecured and the majority of borrowers are unverified. LC does have some measures in place to screen to try to ensure people who they say they are. But it’s been a while since I’ve read their prospectus, it’s all detailed in that. LC seems very interested in making sure fraud doesn’t occur, because if fraud occurs then investors don’t invest. If that happens, LC doesn’t make money.
I have roughly 210 loans now. I’ve had 2 default. However, recently I’ve started selling any loans exhibiting trouble (or past loans that no longer meet my new loan criteria) in the secondary market. So I may have funded some loans that defaulted, but I didn’t take the hit. My LC NAR (formula above) return is right at 11.04%, but my ROI was 10.4% last I checked. That NAR doesn’t fully take into account transactions/fees on the secondary market.
I use prosper.com. My 2011 return was 7%, which was more than what I earned on my equity portfolio.
To be honest, Prosper scared me. When I first got into it, I saw prosper had that bidding system. I told myself I was not smart enough to be bidding on interest rates – turns out most of Prosper got burned shortly after. But my impression of it now is they have higher returns than LC, but it seems the borrowers are more influenced by macroeconomic conditions i.e. not as credit worthy.
7% seems low for their current pricing structure. Do you only fund the top tier of notes?
Before I got heavy into Prosper, I decided to take out a loan myself. As far as information verification is concerned, they seemed pretty strict and asked my oddball questions (e.g., what car did I own in 2005 and that sort).
As far as investing is concerned, I don’t do that auto invest function. I want to see each loan individually, even if investing the minimum amount ($25). My criteria is pretty weird, but I avoid engagement ring loans and auto loans. I also avoid borrowers who work in retail or construction and those who cannot provide a breakdown of their monthly income and expenses. I tend to screen for borrowers who have borrowed from Prosper before and never had a late payment.
Before I got heavy into Prosper, I decided to take out a loan myself. As far as information verification is concerned, they seemed pretty strict and asked my oddball questions (e.g., what car did I own in 2005 and that sort).
As far as investing is concerned, I don’t do that auto invest function. I want to see each loan individually, even if investing the minimum amount ($25). My criteria is pretty weird, but I avoid engagement ring loans and auto loans. I also avoid borrowers who work in retail or construction and those who cannot provide a breakdown of their monthly income and expenses. I tend to screen for borrowers who have borrowed from Prosper before and never had a late payment.
One of my two defaults was a wedding loan. I decided never again am I funding a loan for someones wedding – so I can understand the engagement ring.
I personally look for borrowers with moderate DTIs – people with low DTIs appear to under perform based on the data. I also look for less than 2 inquiries in the past 6 months, how long they’ve had credit, how many lines they have, and if they’ve had any delinquincies in the past 10 years. I only do large loans, since they seem to outperform small loans. And since I’m doing credit card refinancing, I only fund borrowers who are requesting 80-120% of their revolving credit. Performance outside that range drops off dramatically. Also, the ability to carry really large revolving balances wiht no delinquincies in the past is how I screen for my higher interest rate (16+) refinance candidates. They ar generally only refinancing one or two credit cards, so I ignore the 80-120%.
I always read the answers the Questions, do math. I generally only want to fund loans where the loans monthly payment is equal or less than the current monthly payment required by the CCs. If they’ve made that higher payment with no problems, then I suspect they will outperform a random sample of refinance candidates.
what is the counterparty + credit risk going on here?
Studying With
Not sure if I understand the question. There is counterparty/credit risk from the borrowers, which is why instead of funding one loan you fund portions of hundreds of loans. Think of it as automatic securitization – loans are securitized in the funding process. I personally use the current strategy of dumping loans in the secondary market to try to ensure a return of just principal at first sign of weakness – I’m currently analyzing whether I’m foregoing yield doing this.
There is also counterparty risk that LC could go under. Their prospectus states this risk and I think they have agreemenets for someone to service the notes if they stop operations. This article is pretty interesting, if you aren’t familiar with the investment:. I’m a hotel with awful internet in Venice, Italy. Google “John Mack Lending Club” and click the news article from FT.com. I think it requires access from Google to be free, anyway.
A’m afraid, FrankArabia missed with his reply on my post ).
Studying With
I use prosper.com. My 2011 return was 7%, which was more than what I earned on my equity portfolio.
NO EXCUSES
Critique my resume: http://www.razume.com/documents/27593
Like electronic music? Check out my latest mix: http://www.mixcloud.com/bpdulog/mix-5/
exactly how credible the information on borrowers?
Couldn’t I just go on there, ask for 27,000 dollars to be wired to my far away island bank account… for my wedding/pool/new bathroom/vacation? or, couldn’t people purchase their own debt to pump their note’s “% funded” ?
What is your realized default rate been the last few years? what grade debt have you guys focused on? I really want to just click add add add add for all the 25% returns… obviously didn’t but that big red square is so tempting… and simple
ACEaceAnaltiCalteEquityACEanalticalteequityACE
http://tinyurl.com/axn8cua
aceofheartscapitalmanagement@_____________
Studying With
You know, back when I started Lending Club I was just a souphmore in college. I only invested in ‘verified’ income borrowers (submitted paperwork to LC, etc), because I thought that was safer. Whe you run the numbers, turns out verified income borrowers slightly underperform unverified. The reason being the ‘prime’ borrowers Lending Club tries to attract (I think Prosper avg credit score is much lower, so may not be true there) get annoyed with requests for too much info. So sometimes the verified people are actually the less attractive borrowers.
Information comes from self report and credit report. So I use the revolving credit balance, past delinquinces, and FICO in part of my determination of funding refinance loans. That information is accurate – the income, work history is generally self reported. And you can ask questions about installment loans they may have or monthly expenses, all that is self report and unverified.
All loans are unsecured and the majority of borrowers are unverified. LC does have some measures in place to screen to try to ensure people who they say they are. But it’s been a while since I’ve read their prospectus, it’s all detailed in that. LC seems very interested in making sure fraud doesn’t occur, because if fraud occurs then investors don’t invest. If that happens, LC doesn’t make money.
I have roughly 210 loans now. I’ve had 2 default. However, recently I’ve started selling any loans exhibiting trouble (or past loans that no longer meet my new loan criteria) in the secondary market. So I may have funded some loans that defaulted, but I didn’t take the hit. My LC NAR (formula above) return is right at 11.04%, but my ROI was 10.4% last I checked. That NAR doesn’t fully take into account transactions/fees on the secondary market.
If you are interested, I recommend these two websites to look at data: http://www.nickelsteamroller.com/lendingclub_invest
http://lendstats.com/
Studying With
To be honest, Prosper scared me. When I first got into it, I saw prosper had that bidding system. I told myself I was not smart enough to be bidding on interest rates – turns out most of Prosper got burned shortly after. But my impression of it now is they have higher returns than LC, but it seems the borrowers are more influenced by macroeconomic conditions i.e. not as credit worthy.
7% seems low for their current pricing structure. Do you only fund the top tier of notes?
i suspect there will be plenty of fraud going on here….time will reveal…
Studying With
Before I got heavy into Prosper, I decided to take out a loan myself. As far as information verification is concerned, they seemed pretty strict and asked my oddball questions (e.g., what car did I own in 2005 and that sort).
As far as investing is concerned, I don’t do that auto invest function. I want to see each loan individually, even if investing the minimum amount ($25). My criteria is pretty weird, but I avoid engagement ring loans and auto loans. I also avoid borrowers who work in retail or construction and those who cannot provide a breakdown of their monthly income and expenses. I tend to screen for borrowers who have borrowed from Prosper before and never had a late payment.
NO EXCUSES
Critique my resume: http://www.razume.com/documents/27593
Like electronic music? Check out my latest mix: http://www.mixcloud.com/bpdulog/mix-5/
Studying With
It’s always possible, but they are regulated by the SEC. I’m pretty certain that means they have to deal with the BSA regulations.
the mob will figure out a way around it……
Studying With
One of my two defaults was a wedding loan. I decided never again am I funding a loan for someones wedding – so I can understand the engagement ring.
I personally look for borrowers with moderate DTIs – people with low DTIs appear to under perform based on the data. I also look for less than 2 inquiries in the past 6 months, how long they’ve had credit, how many lines they have, and if they’ve had any delinquincies in the past 10 years. I only do large loans, since they seem to outperform small loans. And since I’m doing credit card refinancing, I only fund borrowers who are requesting 80-120% of their revolving credit. Performance outside that range drops off dramatically. Also, the ability to carry really large revolving balances wiht no delinquincies in the past is how I screen for my higher interest rate (16+) refinance candidates. They ar generally only refinancing one or two credit cards, so I ignore the 80-120%.
I always read the answers the Questions, do math. I generally only want to fund loans where the loans monthly payment is equal or less than the current monthly payment required by the CCs. If they’ve made that higher payment with no problems, then I suspect they will outperform a random sample of refinance candidates.