Lending Club Returns

[Donnie]

Returns look pretty bleak for the 2016 LC vintage.  This stuff is really going to be a mess when a recession hits.  I like how the net returns go down for the lower credit scores.  You can be pretty sure LC's underwriting model is solid when average returns are lower for higher risk borrowers.  :P

 

[VagabondMD]

Yup, as of five minutes ago, my overall annualized return is 4.33%. I did get a quick score flipping the IPO a couple years ago, but the returns on the LC loan portfolio have been disappointing.

I have been winding down my account over the last 12-18 months. Thanks for the reminder to withdraw my cash balance. I do not see how this company (and model) remains viable.

[PhysicianOnFIRE]

Yikes. Glad I didn't get into this P2P lending. Plenty of risk, a decent amount of work (compared to investing in an index fund) and weak returns.

I wonder if Prosper is looking any different.

[Complete_newbie]

I'm still at 8%+

What OP mentioned while noteworthy isn't a new phenomenon , many algorithms already proved grade B/higher C lines were the best combo or return and risk

My account is on auto but cash going to personal hard money lending deals now anyways

[Donnie]

Complete_newbie wrote:

I’m still at 8%+

What OP mentioned while noteworthy isn’t a new phenomenon , many algorithms already proved grade B/higher C lines were the best combo or return and risk

My account is on auto but cash going to personal hard money lending deals now anyways

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Depends on what you mean by new.  B/C only became the best performing grade in the 2015 and 2016 vintages, as shown below.  Each vintage needs about a year to mature, so this is a relatively new phenomenon in my opinion.

However the main point here is that if the performance of these loans is deteriorating like this (and deteriorating across all grades) while we have the lowest unemployment levels in 17 years, these loans are likely to generate negative returns during the next recession.  If you want exposure to consumer credit, invest in credit card companies.

[ajm184]

Never invested so don't have a dog in this fight.  The underwriting standards appears to have declined over time, especially with respect to the lower rated portfolio's.  Plus the lower rated loan portfolios comprise over 20% of the overall portfolio and are seeing very high losses/write off's. They need to significantly tighten the lending standards.

[VagabondMD]

ajm184 wrote:

Never invested so don’t have a dog in this fight.  The underwriting standards appears to have declined over time, especially with respect to the lower rated portfolio’s.  Plus the lower rated loan portfolios comprise over 20% of the overall portfolio and are seeing very high losses/write off’s. They need to significantly tighten the lending standards.

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Actually, they have recently eliminated the ability of individuals to purchase F/G notes.

[Complete_newbie]

Investing in credit card companies doesn't give you exposure to consumer credit, you are investing in their business not the credit itself so disagree there.

Do agree that newer year vintage is weak a lot to do with their underwriting. I'm seeing strong returns still but am not actively reinvesting as I have better returns on hard money lending. And no B/C performing better isn't a new phenomenon , I've been investing since 2012-13 and identified it back then. I did use my own Python script and ran some regression models.

[Complete_newbie]

My previous response wasn't in terms of pure return it's including risk and what I felt comfortable with assuming that risk which I guess is bearing out now as loans matured. I started with b/c1's and stuck to it despite lower grades paying more due to high risk of default and loss of capital

[The White Coat Investor]

2016 wasn't a great year (7.2%) and 2017 was negative for me (-4.5% so far-mostly because I was selling, often at a loss in 2017). But my returns prior to that were just fine. I think I'm around to just $5K there. Overall returns over 8% for LC and over 6% for Prosper.

I agree that hard money lending is more attractive.

 

[Complete_newbie]

Hard money lending via platforms will suffer similar fate and actually returns are declining there as well. 5k will qualify as small sample/play money tbh

HML done personally/as a business has been the best return for me despite a roaring stock market. I so run it like a business but it's amazingly passive and has outsized returns if you know what you are doing.

[Dreamgiver]

Complete_newbie wrote:

Hard money lending via platforms will suffer similar fate and actually returns are declining there as well. 5k will qualify as small sample/play money tbh

HML done personally/as a business has been the best return for me despite a roaring stock market. I so run it like a business but it’s amazingly passive and has outsized returns if you know what you are doing.

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Can you provide some links for me to learn what you are talking about?

[Donnie]

I've never invested in LC either.  I suspect that most people end up with an inaccurate idea of what their actual annual returns are because they are buying new loans each month/year.  The right way to figure out your returns is to use a vintage or static pool analysis which looks at the total returns and charge-offs of loans purchased in a given time period, say a quarter or a month.  Buying or selling skews your annual results.

Complete_newbie wrote:

Do agree that newer year vintage is weak a lot to do with their underwriting. I’m seeing strong returns still but am not actively reinvesting as I have better returns on hard money lending. And no B/C performing better isn’t a new phenomenon , I’ve been investing since 2012-13 and identified it back then. I did use my own Python script and ran some regression models.

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B/C is performing like garbage lately too, just not as poorly as D-G.

• B declined from an average of 6.7% from 2011-2014 to 5.1% in 2015-2016, or a 24% decline in return


• C declined from an average of 7.7% from 2011-2014 to 4.9% in 2015-2016, or a 36% decline in return

Based on the above in a non-recession, I would only feel comfortable investing in A.  I think there is a strong chance B-G generate negative returns during a recession.

Complete_newbie wrote:

Investing in credit card companies doesn’t give you exposure to consumer credit, you are investing in their business not the credit itself so disagree there.

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It is indirect exposure, I agree.  That said, CC companies actually seem to know what they are doing, unlike Lending Club.

[Complete_newbie]

Your analysis is good. Newer loans (sans 2016) are underperforming , I stopped making active investments end of 2016 so I haven't hit garbage returns and as loans mature I am siphoning money to private lending

I did pick loans individualky using my own model and they are doing well when I compare to what you are positing as the average of grades.

Lending is uch much different than just market investing as there are risks to asses - time to default is equally as important as charge off risks. I have had charge offs but I've been excellent at calculating/evaluating time to default and almost all my loans have gone all the way or late charge offs

Average charge offs are pretty early - I think average is 12 months on a 36 month loan

Agreed- vintage analysis is the way to go; represents platform underwriting and economic factors/sample

[Zaphod]

If you want to get exposure to credit and more you invest in banks or directly in credit of your choice, government or corporate. Credit card companies are network/processing investments and are somewhat different but related. Lots of that cant be avoided and make money no matter what, obviously number of transactions and fees can decrease with economy and over time.