P2P Lending

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flagator
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Re: P2P Lending

Post by flagator » Fri Nov 06, 2015 10:57 am

So are you saying that P2P lending is underutilized as an investment tool? If so, I would agree with you.

Certainly in this abysmally low interest rate environment, it is very tempting to heave steady real returns ranging from 7-9% via P2P.

Is it anymore of a risk than being fully invested in stocks and bonds? I do not think so.  Corporate bonds especially nowadays can be very tricky.

So when people say that they "get the willies" because P2P lending is unsecured debt, I say, so is the rest of your market investments. They are unsecured obligations of whoever receives your money, and there is no guarantee that your stocks will go up, or that the bonds you hold will not default ( except treasuries), or that you will get your capital back!

Just saying...
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Re: P2P Lending

Post by mathjak107 » Fri Nov 06, 2015 11:11 am

yep , far to under-utilized to the point of being quite ineffective as any kind of investment income for most folks except as perhaps lunch money .
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Re: P2P Lending

Post by sophie » Fri Nov 06, 2015 11:11 am

Yes, exactly.  The returns are there because the investment is risky, and the same goes for stocks and bonds though that risk is better understood. You can reduce the risk by diversifying across a large number of loans, but if you could eliminate it, why would you expect more than the rate of return on a Treasury note?

I also think P2P lending has been underutilized, but that's changing as large fund managers are starting to invest in it:

http://www.forbes.com/sites/stevenberto ... -club-ceo/

So if you have a pension, say, you may be invested in P2P even if you don't know about it.  I would prefer to see a bit more history before putting in a large personal investment, though in any case it's great fun as a VP play.
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Re: P2P Lending

Post by MachineGhost » Fri Nov 06, 2015 2:31 pm

Having gone through debt collections myself for over a decade, I can tell you that the debtor has all the power and the collectors only have intimidation and threats.  It's not worth the time and expense to go to court and get a judgement unless the amounts are large enough to bother, usually only for collateralized loans.  And that's assuming the debt collector actually has a legal leg to stand on in terms of collecting the debt which is not the case if they are [re]purchasers of charged off debt rather than contracted inhouse by the original creditors (that you would have contractually agreed to, in theory).  Lots of illegality and immorality goes on in debt collections.

So, nothing is stopping these P2P borrowers from just walking away other than a hit to their credit report which I'm not so sure they care about if they're that financially unintelligent enough to be needing debt consolidation or wedding loans at 20% APR in the first place.  LendingClub will do inhouse collections but after they charge it off and you write it off your taxes, it's all a mirage after that point.

And bonds are a legal obligation in a corporate capital structure.  By law they must be paid, before equity holders receive any dividends.  Junk bond bankruptcies happen at a rate of 4% on average and recoveries average .40 on the dollar.  P2P promissory notes are not even remotely the same thing as a bond.

I'm on my way to the magical 400. <wipes sweat>  Massive diversification is your only real recourse to minimize the damage.  To smooth the returns out, I'm going to do it over the average maturity of the loans, which is about 4 years I think.  Lumpiness seems bad also.
Last edited by MachineGhost on Fri Nov 06, 2015 3:00 pm, edited 1 time in total.
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Re: P2P Lending

Post by MachineGhost » Fri Nov 06, 2015 2:59 pm

Speak of the devil:

[quote=Americans for Financial Reform]Congress's newly-passed budget deal included a provision – Section 301 – that allows debt collectors to robocall you about federal student loans, mortgages, or other debt backed by the federal government. Thankfully, Senator Ed Markey (D-MA) has introduced a bill to prevent this. It's called HANG UP – the “Help Americans Never Get Unwanted Phone calls” Act.

The language in the budget deal will affect millions of consumers, including graduates who can't pay their school loans due to a terrible job market, homeowners who are behind on their mortgages, and people who owe money to the Internal Revenue Service. Families who have already lost their homes to foreclosure could be exposed to robocalls about delinquent mortgage payments for years on end. And many debt collectors won’t be content to call the debtors themselves – they’ll also use this license to harass people’s relatives and references, and even those who just get their reassigned cell phone numbers.

Senator Markey’s HANG UP Act will undo the damage done in the budget deal, and restore key protections to American cell phone users. Your support of the HANG UP Act will send a strong message to Congress and to the Federal Communications Commission (which is charged with writing rules to implement this provision) that passing this gift to debt collectors was wrong and something must be done to fix it.
[/quote]
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Re: P2P Lending

Post by mathjak107 » Sat Nov 07, 2015 6:27 am

i went on line yesterday to take another look .

i could never imagine  going one by one looking at hundreds of profiles to invest 25 to 50 bucks in each .


i would have to see how good you can refine some kind of auto  invest . i wouldn't want to loan those with no jobs listed or bankruptcy and judgments  . no student loans either or weddings

basically just debt consolidation and home improvements in  D,E,F category's .
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Re: P2P Lending

Post by MachineGhost » Sat Nov 07, 2015 3:34 pm

I didn't know there were F and G grades now, so I'm definitely avoiding that fat tail!!!  28.99% is insane.  OTOH, these are amortized loans so its not like you're compounding what you owe at 28.99% a year, right?!!  This could help people escape the clutches of the loan sharks.

So basically the trick is to get lower than the expected default rate than calculated by LendingClub.  That's the arbitrage.
As of September 30, 2015, the average Lending Club borrower shows the following characteristics:

    699 FICO score
    17.9% debt-to-income ratio (excluding mortgage)
    16.2 years of credit history
    $74,414 personal income (top 10% of US population)4
    Average Loan Size: $14,677
When borrowers miss payments and loans become late, Lending Club uses best practices from the banking industry to bring delinquent loans back to "current" status. Currently, Lending Club charges investors one of the following collection fees, which is deducted from any amount recovered: 1) 18% of the amount recovered if a collection action must be taken with respect to a loan and no litigation is involved, or 2) 30% of hourly attorneys' fees, plus costs, if litigation is involved. Lending Club does not charge a collection fee if no payments are collected, and no collection fee will be charged in excess of the amount recovered.

Please note that Lending Club currently charges investors a reduced collection fee, which may be discontinued at any time. The normal collection fee is a percentage of the amount recovered: up to 35% if a collection action must be taken in respect of a loan and no litigation is involved; or 30% of hourly attorneys' fees in the event of litigation, plus costs.
Last edited by MachineGhost on Sat Nov 07, 2015 3:42 pm, 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 MachineGhost » Mon Nov 09, 2015 9:43 pm

My two loans that are currently 31-120 days late are rated D1 and D2 and are for 36 months.

D1 (Other) is now on an automatic payment plan.  Earns $6222 a month, claims to be a Principal and has an amazing 78 total credit lines, with just 6 open.  Must be a money moron.

D2 (Home Improvement Loan) is still in collections.  Earns $4333 a month, claims to be a Service Technician and has a 78.80% revolving line utilization for a $2,363.00 revolving credit balance.  That is tight!

I feel ill.
Last edited by MachineGhost on Mon Nov 09, 2015 9:47 pm, 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

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 » Tue Nov 10, 2015 12:05 pm

MachineGhost wrote: My two loans that are currently 31-120 days late are rated D1 and D2 and are for 36 months.

I feel ill.
Put up a sign on your wall:  "Chargeoffs are part of the game.  Don't let that stop you, if you don't bet, you can't win"  Robert Heinlein, paraphrased.

The higher the grade, the more of those there will be - but the higher interest rate more than makes up for it.  I buy only higher grade D's, F's and E's.  Diversify, set up automatic investing, and quit worrying about it.  Our personal assessment of the financial intelligence of borrowers is irrelevant.  Think P.T. Barnum.  I only hope that the one-fool-born-per-minute rate is enough to keep us loansharks rolling in dough. :-)
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Re: P2P Lending

Post by Xan » Tue Nov 10, 2015 1:16 pm

sophie wrote:Our personal assessment of the financial intelligence of borrowers is irrelevant.  Think P.T. Barnum.  I only hope that the one-fool-born-per-minute rate is enough to keep us loansharks rolling in dough. :-)
That actually is what gives me pause about giving P2P lending a try.  If I'm actually helping people, then okay.  (Maybe debt consolidation?)  But it seems it's awfully easy to become a usurer.
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Re: P2P Lending

Post by bedraggled » Tue Nov 10, 2015 1:43 pm

My concerns are Xan's.

Time to revisit [?] the usury topic?
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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.
"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 » 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

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 » 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".
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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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