Thursday, October 25, 2012

Lending Club Peer to Peer Lending Account Performance

I have been on Lending Club since Dec 2008.

Since 2008, I have had the following net account performance (after loan sales and transaction fees):

2009:  7.7% return.  One month with a losing record.
2010:  9.5% return.  Zero months with a loss.
2011:  11.0% return.  Zero months with a loss.
2012 thru 30 Sep:  9.6% return.  Zero months with a loss.

I personally believe that I have not lost money in Lending Club because I do not hold loans until default.  Instead, I sell the loans at a discount in the first two weeks of loan delinquencies.

4 comments:

Ben Burford said...

How much of a discount do you sell the loans for?

I have noticed that a large number of my loans have gone into default leaving me only slightly in the positive (+1.5% for the year currently).

Finance Junkie said...

Ben,

Thanks for the question. I usually price non-delinquent loans for 0.983 cents on the dollar and they sell within 2 days.

If the loan is delinquent, I typically discount a $25 note by .50 cents or so a day until it sells.

If the lending club dialogue for a late payer leads one to believe that they are unable to contact the delinquent payer, I typically discount the loan by as much as 20% depending on the vibe i'm getting off of the remarks.

If the loan has gone more than 2 weeks late and there are no remarks indicating that late payer has been contacted and has agreed to pay, then I start discounting between 20 and 67%.

What i'm doing nowadays is looking at all loans that have a negative trending credit profile and if that profile indicates a fico score drop of 35 points or more from their original fico score, i'm considering selling the loan pre-emptively. If their fico score has dropped 70 or more points I definately do a pre-emptive sell.

Finance Junkie said...

Ben,

I use to lend on Prosper and was very aggressive with lending but never had the opportunity to sell bad loans. Over about 5 years, I invested between $5 and $7k and lost a net $50. Now, on lending club by being more conservative and selling notes with bad profiles and those that are delinquent in paying, i'm netting a 10% return after all fees.

Finance Junkie said...

On a separate note, don't believe the Lending Club account summary portfolio percent return read out b/c this does not factor in losses on sold loans.

Lending club clearly omits any references to losses from sold loans in their calculation. From their website:

"Lending Club calculates your Net Annualized Return in real time and provided to you in your account. Net Annualized Return is based on funds actually received each month, net of service charge and defaulting loans. Your Net Annualized Return will become available in your account after you receive your first payment."