P2P Lending

A place to talk about speculative investing ideas for the optional Variable Portfolio

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Re: P2P Lending

Post by mathjak107 » Tue Nov 10, 2015 1:45 pm

It is still a notch above the pay day  loan
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Re: P2P Lending

Post by flagator » Tue Nov 10, 2015 3:43 pm

It sure looks like it.

What makes me a bit uneasy is that you are "locked in" for 3-5 years depending on the loan durations you are financing, and the possibility of another recession where defaults can go up.

That is the only thing that makes me hesitant in investing.

Again on the issue of helping others, it looks like most borrowers get a decent deal because the rates are competitive compared to credit cards, or other high interest schemes out there.
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Re: P2P Lending

Post by mathjak107 » Tue Nov 10, 2015 3:53 pm

I agree. The chances of default may increase greatly if anything  goes wrong. You may be better off buying a great run high yield fund like fidelity capital and income which buys not only high yield debt but distressed company's stock
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Re: P2P Lending

Post by MachineGhost » Wed Dec 02, 2015 12:39 am

Here's some interesting information about P2P Lending from Kitces (he is the financial planner's financial planner):

https://www.kitces.com/blog/debt-consol ... platforms/

https://www.kitces.com/blog/investing-i ... set-class/

[img width=800]http://i.imgur.com/nfuezof.png[/img]

Those would did the correlation analysis above also says 13% allocation to P2P lending is optimal based on mean-variance optimization.  It is clearly being taken away from equity exposure by the optimizer which is in line with how I've viewed it (seriously, where else would it go in the PP?).
Last edited by MachineGhost on Wed Dec 02, 2015 11:26 am, edited 1 time in total.
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Re: P2P Lending

Post by MachineGhost » Wed Dec 02, 2015 11:19 am

Heads up, sophie!  You may be making a huge mistake by investing only in F and G's.  The net return is actually lower than E's.  The robot that I use does not seem to invest in F and G's at all, so it must not be able to find any added value through judicious filtering.

Also, the net returns for all grades overall have been decreasing on Prosper over the past few months and is now starting to do so on LendingClub.  This could be reflecting the snowballing recession.  Default rates could be a coincident or leading indicator.

[img width=800]http://i.imgur.com/oaiEORQ.png[/img]
[img width=800]http://i.imgur.com/89ZsZRU.png[/img]
[img width=800]http://i.imgur.com/EvYmy4u.png[/img]
Last edited by MachineGhost on Wed Dec 02, 2015 11:22 am, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

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Re: P2P Lending

Post by sophie » Wed Dec 02, 2015 12:00 pm

Thanks MG!

In fact, the bulk of my investments are E grade notes, because I saw early on that overall returns peak at this grade.  I also get higher grade Ds.  I will rethink the Fs though...already stay away from Gs.

I have noticed nonpayment increasing of late, but I wrote that off as the peri-Christmas effect that I've seen in previous years.  Let's see if it persists into February.

And just to reinforce:  this was purely a fun/VP bit of speculation for me.  I have no skin in this game that I would be particularly upset about losing.  I would not under any circumstances use P2P as a core investment strategy, at least until I see how it performs through a serious recession.
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Re: P2P Lending

Post by Reub » Tue Dec 08, 2015 5:46 pm

Be careful who you lend your money to!

http://www.cnbc.com/2015/12/08/online-l ... ource.html
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Re: P2P Lending

Post by MachineGhost » Mon May 09, 2016 1:09 pm

Dodged a bullet?  It's risky out there.  This is why you don't want to deal with me-too, tier players.

[quote=http://www.prnewswire.com/news-releases ... 64893.html]Lending Club today also reported that on May 6, 2016, the board of directors accepted the resignation of Renaud Laplanche as Chairman and CEO. His resignation followed an internal review of sales of $22 million in near-prime loans to a single investor, in contravention of the investor's express instructions as to a non-credit and non-pricing element, in March and April 2016.

Scott Sanborn will continue in his role of President and will become acting CEO, assuming additional managerial responsibilities for the Company. Mr. Sanborn will be supported by director Hans Morris, who has assumed the newly created role of Executive Chairman.

"A key principle of the Company is maintaining the highest levels of trust with borrowers, investors, regulators, stockholders and employees. While the financial impact of this $22 million in loan sales was minor, a violation of the Company's business practices along with a lack of full disclosure during the review was unacceptable to the board. Accordingly, the board took swift and decisive action, and authorized additional remedial steps to rectify these issues," said Mr. Morris. "We have every confidence that Scott and the management team are well positioned to lead Lending Club forward."[/quote]
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

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Re: P2P Lending

Post by sophie » Mon May 09, 2016 5:58 pm

I've switched from buying new notes to looking for high grade notes that have completed half of their payments.  Kind of interested to see how that does compared to the new notes.  It'll also reduce the time that the $$ is locked up from 5 years to 2.5 or less.
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Re: P2P Lending

Post by MachineGhost » Sun May 15, 2016 2:11 am

Image
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

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Re: P2P Lending

Post by MachineGhost » Sun May 15, 2016 2:13 am

sophie wrote: I've switched from buying new notes to looking for high grade notes that have completed half of their payments.  Kind of interested to see how that does compared to the new notes.  It'll also reduce the time that the $$ is locked up from 5 years to 2.5 or less.
DCA over five years is sheer torture.  I want to "get rich quick" not "get rich slow".
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

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Re: P2P Lending

Post by MachineGhost » Fri Jun 10, 2016 9:51 pm

Image
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

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Re: P2P Lending

Post by MachineGhost » Fri Jun 10, 2016 9:53 pm

This is massively inaccurate, so have fun with it:

http://www.nytimes.com/2016/05/15/busin ... tails.html
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

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Re: P2P Lending

Post by sophie » Fri Jun 10, 2016 9:55 pm

I'd look into the stats to see if there really has been a jump but...

Image

It's been 3 days now. Wonder if they use Arvixe.
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Re: P2P Lending

Post by MachineGhost » Fri Jun 10, 2016 10:19 pm

sophie wrote:I'd look into the stats to see if there really has been a jump but...

Image

It's been 3 days now. Wonder if they use Arvixe.
I've no problems. I was just on it a few days ago for the statements and just now. Do a traceroute?
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

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Re: P2P Lending

Post by sophie » Sat Jun 11, 2016 8:39 am

It's been up and down. Down right now but was up briefly last night.
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Re: P2P Lending

Post by MachineGhost » Sat Jun 11, 2016 6:11 pm

sophie wrote:It's been up and down. Down right now but was up briefly last night.
I think you'll get a kick out of this...

http://seekingalpha.com/article/3981272 ... t-72448249
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

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Re: P2P Lending

Post by sophie » Fri Jul 08, 2016 10:21 am

Despite the glowing jobs report that came out today, I've seen an enormous jump in Lending Club delinquencies recently. Could be chance but I have enough notes that I doubt this. Also, the delinquent notes are all ones funded in the past 2 years.

I'm used to seeing a chargeoff rate of ~7% per year, which would be right about in line with predictions. Right now this is what I have:

Grace Period: 3.2%
Late 16-30 days: 2.7%
Late 31-120 days: 2.0%

And this is after chargeoffs year to date of 4.9%. Almost all the above notes look like they are headed for chargeoff. Many of them are declaring bankruptcy or gave Lending Club a cease and desist order.

It looks to me like Lending Club loosened its borrower requirements quite significantly about 2 years ago while reducing interest rates, presumably to attract more borrowers so they can inflate their portfolios and collect more fees. And it works - despite the recent bad press, their loan issuance is still going up. Quite a conflict of interest. It was fun for a while but I think there are better places for VP money.
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Re: P2P Lending

Post by MachineGhost » Fri Jul 08, 2016 5:30 pm

sophie wrote:It looks to me like Lending Club loosened its borrower requirements quite significantly about 2 years ago while reducing interest rates, presumably to attract more borrowers so they can inflate their portfolios and collect more fees. And it works - despite the recent bad press, their loan issuance is still going up. Quite a conflict of interest. It was fun for a while but I think there are better places for VP money.
Not so fast! Before you give up, what you need is superior credit intelligence than what LC just provides out of the box. I just logged in to see my stats since Jan 2015:

Image

Grace Period: 0%
Late 16-30 days: 0.59%
Late 31-20 days: 0.59%
Charged Off: 1.18%

For a 11.59% adjusted net annualized return, 14.17% weighted average rate. I too have noticed a teeth gritting slight uptick recently, more obvious in my other account.

So head over to http://lendingalpha.com/ I asked them a lot of hard hitting questions initially and I am satisfied they really know what they're doing (as I would do things myself) and can weather and adapt to anything that comes. Worst case is breakeven in another 2008 crisis. But to make this work safely, you've got plan to DCA in over 5 years since the term composition is about 50%/50% split between three and five. I do deposits literally every week to smooth it out.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: P2P Lending

Post by sophie » Fri Jul 08, 2016 11:05 pm

Thanks for the pointer.

It comes down to whether you believe Lending Club's charge-off rate prediction - which LendingAlpha apparently does. It looks to me like LC is underestimating it by at least a factor of two.

Shame, because I really liked the model. Interestingly, a friend of mine invented something like this on a small scale years ago - he called it "the FOO Bank", established a 5% interest rate, and had a program running to calculate the daily interest with compounding and calculate/track payments. It was among friends of course. I had some money in it for a while.
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Re: P2P Lending

Post by MachineGhost » Sat Jul 09, 2016 2:50 am

My two charged off were D and E and were for debt consolidation purposes; they paid 26% and 36% of the balance before giving up the ghost. Of the graces, both are rated C (!); one is 31-120 days late for credit card refinancing, the other is 16-30 days late and is another debt consolidation. One paid 36% of the balance and the other 51% of the balance. I guess its true that if a note makes it well past 50%, you're unlikely to have a default?

Since you said you were focusing on F and G, I'm gonna speculate there's not enough loans in those grades to derive an accurate risk forecast. It's definitely early days, yet! Total volume might be impressive based on $ but it isn't for quantity:

subgrade: 1, loan count: 2826
subgrade: 2, loan count: 3166
subgrade: 3, loan count: 3529
subgrade: 4, loan count: 5871
subgrade: 5, loan count: 5102
subgrade: 6, loan count: 4055
subgrade: 7, loan count: 4796
subgrade: 8, loan count: 7085
subgrade: 9, loan count: 5344
subgrade: 10, loan count: 5189
subgrade: 11, loan count: 4663
subgrade: 12, loan count: 4303
subgrade: 13, loan count: 2612
subgrade: 14, loan count: 2504
subgrade: 15, loan count: 2162
subgrade: 16, loan count: 2676
subgrade: 17, loan count: 2299
subgrade: 18, loan count: 1696
subgrade: 19, loan count: 1368
subgrade: 20, loan count: 898
subgrade: 21, loan count: 661
subgrade: 22, loan count: 519
subgrade: 23, loan count: 388
subgrade: 24, loan count: 294
subgrade: 25, loan count: 234
subgrade: 26, loan count: 153
subgrade: 27, loan count: 134
subgrade: 28, loan count: 88
subgrade: 29, loan count: 79
subgrade: 30, loan count: 62
subgrade: 31, loan count: 50
subgrade: 32, loan count: 44
subgrade: 33, loan count: 31
subgrade: 34, loan count: 52
subgrade: 35, loan count: 67

I fail to understand how a lender can have a high FICO score to get in, yet somehow manage to grade E, F or G. And since defaults are banned, it's a diminishing supply of potential lenders over time. How did this lender even get their foot in their door?!!

Image
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

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Re: P2P Lending

Post by sophie » Sat Jul 09, 2016 7:37 am

I have 29 chargeoffs to date and 16 more clearly headed in that direction, so I have a somewhat larger sample size. I've seen chargeoffs follow a couple of separate patterns.

There's the group that charges off in the first year, often in the first few months. Most of those cases have to be fraud/criminal behavior. The borrower knows they're going to default on their credit card debt, and they have nothing to lose by snagging an extra $35K from a P2P lender beforehand. I'm disappointed that Lending Club hasn't done more to clamp down on this behavior. For example, they could set a rule that any cash disbursed has to be used first to pay off existing unsecured, non-student loan debt, like a balance transfer deal, and they transfer the money themselves rather than trusting the borrower to do it. In other words, act more like the banks do. They make it hard for people to get cash advances, and there is good reason for this.

The second group is the steady-state incidence of people losing their jobs, getting sick or even dying, etc. Remember these are the people with no savings, who couldn't fund an unexpected $1,000 expense. This is the 2% per year rate that banks experience. I've had loans charge off with just a few months remaining to pay off.

I suppose there may be another group that just gets tired of paying the loan after a year or two, and decides there's no real penalty if they stop paying - vs the very real "penalty" of not being able to buy the newest iPad or Xbox. The chargeoff rate definitely decreases about halfway through the loan.

Also: I'm focusing on E & F grades. No G.
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Re: P2P Lending

Post by MachineGhost » Sat Jul 09, 2016 5:42 pm

LA relies on its own models, not anything from LC. But, I didn't know back in the beginning both P and LC were truly P2P and "free market" as far as lenders setting rates went and a social networking thing. Because lenders had no clue what interest rate to charge, etc.. It was disaster prompting "intervention" where P and LC had to step in and start providing credit scores, rates, etc. all the usual jazz to lenders. So they're doing that service as an after thought not a primary reason for being. And that was a also disaster during the initial years as well which I'm much more familiar with. So I say don't even expect them to be competent at it. The self-interest just isn't there.

I've read LC's page on their collection practices and I'm left wanting more. Having lived through the hell of 12 creditors coming after me all all at once before charging off (and then getting handed off to a perpetual revolving door of collection agencies for at least 7 years afterwards), it's just not enough to do things the traditional old way. So your best defense is going to be as best an offense as possible from the very outset. Ruthlessly weed out as many potential deadbeats as you can. N\o mercy.

And I'm pretty disappointed LC allows in as low as a 640 FICO score as far back as 2012 (and it's probably worse now). Their high loan deny rate has to be over much more stupid and insignificant things than what really matters. I'm seeing stories of high FICO, high income, responsible people getting denied.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: P2P Lending

Post by sophie » Sat Jul 09, 2016 6:46 pm

You went through a charge-off? Sounds like there is a story there worth telling.

If it were more difficult to get out of paying a debt, then Lending Club might not exist in the first place. The investor profits depend entirely on most people feeling obliged to repay debts.

Definitely I'm talking myself out of this investment. I thought Lending Club's self-interest would be enough to protect investors from the worst excesses of the borrowers, but now I'm not so sure of that.
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Re: P2P Lending

Post by MachineGhost » Sat Jul 09, 2016 7:29 pm

sophie wrote:You went through a charge-off? Sounds like there is a story there worth telling.
11 credit cards and 1 personal loan. I really hate to say this (especially in this topic), but just go directly to Chapter 11 (well, in the old days). Do not put your head in the sand like an ostrich and wait it out (in my defense, I was young and naive and interacting with the government was a scary proposition at the time on top of the already very scary situation). However, I wasn't gaming the system like certain P2P borrowers appear to be doing (its really hard to tell with no personal contact with the borrowers, which I also find rather aggravating... not that I want to bust their kneecaps or anything like that! ;) ).

So now that I think about it, I guess I approve of the tougher bankruptcy rules passed a few years ago that force people first into debt counseling and then Chapter 13 rather just instantly wiping the slate clean via Chapter 11. I did indeed do debt counseling (voluntarily) which is just a mechanism to centralize all disbursements to creditors via just one payment and also substantially lower the monthly required payments, but it only goes so far if you don't have the income even for that.

Which reminds me, aren't we still the creditors on the charged off loans? The debt doesn't disappear just because its charged off and written off our taxes unless it is cleared in a slate wipe Chapter 11 or the statute of limitations runs out to collect. Statute of limitations vary by state but any third party debt collector without a legal nexus buying charged off debts from the original creditors for pennies on the dollar can try to collect and if you're stupid enough to engage with them in any way shape or form, it gives default legal presumption the debt is valid resets the clock. It seems like LC dropped the ball on that one also. Grrrr! I really don't have much confidence in their collection practices at all. I should start up "MachineGhost's Knee Cap Busting Collection Agency". Just the name alone should scare people into paying.

Did you see that hilarious video in the YouTube junky thread where John Oliver starts a collection agency? "Fuck you, Opera!" ;D
Last edited by MachineGhost on Sat Jul 09, 2016 8:19 pm, edited 3 times in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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