Lending Club Q1 Results

looks interesting.

What kind of protection is there against borrowers defaulting?

Also how much action is there for bigger loans?

On November 23 2012 00:50 Smuft wrote: looks interesting. What kind of protection is there against borrowers defaulting? Also how much action is there for bigger loans?

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dyou have to be american to invest?

On November 23 2012 00:50 Smuft wrote: What kind of protection is there against borrowers defaulting?

recent footage of whoosel dealing with a defaulted lendingclub debtor

lol

On November 23 2012 04:07 pinbaLL wrote: dyou have to be american to invest?

I think so:

You must reside in one of the states listed below and meet that state’s Financial Suitability conditions, as described below. Individual investors can invest in Notes if they are a resident of: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Kentucky, Louisiana, Maine, Minnesota, Missouri, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming. Investors who are residents of states other than California or Kentucky must have (a) an annual gross income of at least $70,000 and a net worth (exclusive of home, home furnishings and automobile) of at least $70,000; or (b) have a net worth of at least $250,000 (determined with the same exclusions).

On November 23 2012 00:50 Smuft wrote: What kind of protection is there against borrowers defaulting?

See previous blog entry

this is super interesting and probably could give my wife something cool to do since she is smarter than me!

what type of criteria do you use?

On November 23 2012 00:50 Smuft wrote: looks interesting. What kind of protection is there against borrowers defaulting? Also how much action is there for bigger loans?

The first layer of protection against defaults is a strict application to borrow. Lending Club accepts less than 10% of people who apply for loans. If a loan becomes late, Lending Club does all of the "collections" duties on its own. They will attempt to contact and receive payment on your behalf. Other than that, you can't really do anything except diversify in a large amount of loans. Lending club boasts that anyone who has invested in at least 800 notes has shown a profit.

As far as bigger loans, you can borrow up to $30,000 with LC. And many loans do get approved for $35,000. You can loan money in increments as small as $25 per loan. Even with a 10k+ deposit on lending club I don't see why you would go higher than $25 per loan, but you can choose to loan in $50 or $100, up to $250 increments.

On November 24 2012 12:56 albonycee wrote: what type of criteria do you use?

I pretty much just researched what other people who have had success are doing and copy them. Here's a cut-out from an article that I used to get started with Lending Club using LendStats.com for filtering/strategy testing:

There are many variables at play in a loan, and I figured if I could figure out which variables led to defaults and avoid those – I would increase my profits. My goal is to get 15% net annualized return. Anything under 10% will be a disappointment, given my calculated strategy. Here are the variables I’ve concluded are most important. 1. Credit Grade: D1 – G5. This is critical for high returns. D1 credit grade starts at 16.5%. If you invest in A1, you’re only looking at 6.88% minus fees and defaults. The data shows that default rate does not scale with the interest rates, meaning the riskier loans will return more on average. Diversification across many loans becomes critical. 2. Loan amount: 0-35000. The data showed that the larger loans were not riskier, so I am not avoiding them unlike many of my peers using Lending Club. 3. Minimum Open Lines: 6. This shows that the candidate does have several open lines of credit in good standing. Less than 6 is unusual, especially because I think Lending Club filters many of them out. 4. Total Lines: 15. This proved the candidate has had enough likes open over the years to build some credibility. 5. Minimum Employment Length: 4 years. This proves the candidate has reliable employment. Losing one's job is the most common reason for default. 6. Loan purpose: Debt consolidation, house, moving expenses, and weddings. I do not include things like car purchases, credit cards, education, vacations, or small business costs. These things are all more likely to default. It makes sense, too. Lending Club does not have extremely low interest rates, so anyone that is using them to buy a car or go on vacation likely is not wise with money. Credit card consolidation, for example, reduced historical returns by 1.5%. 7. Home Ownership Status: Own or mortgage. I did not include renting. Not that I have a problem with people who rent, but it reduced the returns by 1%. 8. States excluded: California. Sorry to anyone from California, but you guys default too much. CA dropped returns by 0.5% historically. Looking at the numbers, investing in D1 credit and above with no other filtering has extremely high default rates. In fact, the historical return is only 7.27%, which is terrible given the risk/reward ratio. On the other hand, using my filters listed above, that number is more than doubled, with a historical return of 15%. from http://www.bravenewlife.com/08/lending-club-investment-strategy/

what do you think?

A$25 (1)
B$50 (2)
C$100 (4)
D$50 (2)
E$0 (0)
F$25 (1)
G$0 (0)

Summary
Average Interest Rate: 15.37%
Expected Default Rate: 4.43%
Service Charge: 0.65%
Projected Return: 10.29%