Sunday, February 03, 2013

Screen Shot Reflecting Performance of my LendingClub Peer-2-Peer Lending Account and General Attributes to Lending Success

I have been lending at this site since late 2008.  My year-over-year statistics include:

  Balance Jan 1st Balance Dec 31st Account APY Notes Sold
2009 $125.72 $1,516.71 7.70% 4
2010 $1,516.71 $2,729.71 9.49% 16
2011 $2,729.71 $5,964.22 10.98% 41
2012 $5,964.22 $9,044.87 11.45% 172

You may wonder why there is a large difference between what LendingClub advertises as "Net Annualized Return" and my self calculated account APY.  I believe the principal reason for difference between these two is that LendingClub's calculations do not factor in FolioFn fees and loan losses incurred when selling loans at FolioFn.

I attribute my success at LendingClub to:

1.  Multiple years of lending at Prosper before opening my LendingClub account.  I lent about $5500 over several preceding years at Prosper and had a net loss of $50.  Over my time at Prosper, I learned a few lessons about risk-return.  I no longer use Prosper.

2.  Over 90% of loans originated are to borrowers whose projected revolving debt balance (after loan) is no more than three times their income.  This requires one to trust the marketed loan purpose at face value... (e.g. debt consolidation loans end up being used 100% for debt consolidation).

3.  Most of my loans are to borrowers reporting over $3000 per month for income.  I feel that the these borrowers have a greater latitude for paying basic living expenses and then having room in their budget for debt payback.

4.  I have ALWAYS sold non-performing notes.  Over 90% of the time, I sold notes that were no more than 15 days late in payment.  Most of the time between 2009 and Nov 2012, I sold notes in the hours between the time I discovered their monthly payment was was late and the time at which the note changed to an "in grace period" status.

5.  In November 2012, I noticed that the FolioFn trading platform was performing poorly and not displaying notes very well when users attempt to sort notes by Yield to Maturity.  Because of this, a number of my notes "in grace period" did not sell very well.  While I experienced some short term disgust with the FolioFn platform, it did prompt me to start selling notes well prior to them entering "in grace period" status.  Now, a majority of the notes I sell are those notes that have had a greater than a 35 point credit score drop since the loan was originated.  I typically sell these notes for around 0.99 to 0.995 cents on the dollar and eat the additional 1% FolioFn fee.  I would rather sell loans prior to a delinquency than have them age to an "in grace period" status and have to deal with the inadequacies of the FolioFn note trading platform.  If FolioFn is acting up (as it has in the past), it could cause notes that would normally sell to age and result in delinquency statuses of 17+ or 31+ days.  Notes that age to delinquency statuses of 17+ and 31+ days have required me to discount them 25-75% in order to get them sold.