41–47 of 47 posts
LendingClub reported $86.9 million of revenue in the first six months of the 2014, up 134 percent. P2P is fundamentally shifting how people gets loans- banks should definitely be paying attention.
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Banks don't really care about these types of loans. They do their unsecured individual lending through credit cards. At the retail level they are more concerned with mortgages, HELOC, high net worth individuals, and collateralized business lending.
Banks and institutional investors make up the majority of the money being loaned out. If you look at the S1 filing you will see that something like 80% of the money being loaned out isn't coming for individuals. It's coming from banks and institutions. http://www.lendacademy.com/forum/index.php?topic=2612.msg225...
The exact model to use is tricky though. You could train a classifier to detect whether a loan will default or not, but this doesn't weigh the chance of default with the interest rate. I then thought of doing a regression on the expected return, which would properly balance between interest rate and default rate. At some point, though, you need to make the binary decision of whether to invest in the loan or not, again classification.
Another complication is that since LendingClub has been growing exponentially, the majority of the loans they've issued haven't matured yet. Utilizing this partially complete data is even more tricky. You could ignore non-mature loans, but that would reduce your training data significantly and make your data at least 3 years old.
I have had a LC account for about 4 years. The returns aren't that great, around 6%. I did some random loans of mixed interest rates, but have also applied my own set of filters which brought the rate up a little bit over the last year. The notes are also not liquid. You will suffer huge losses if you need to sell. I thought this would mean that I could get other people's notes at deep discounts...typically sellers w…
6% returns in a ZIRP environment are actually quite fantastic. Even junk bonds yield less than that.
You can find yields substantially higher than 6%. There are mortgage REITs that have yields well above 10%, and there are plenty of closed end funds and MLPs that yield better than 6%. Ditto for preferred shares.
Really want yield? MORL, a leveraged ETN that tracks the Market Vectors Global Mortgage REITs Index, has a current yield of around 20%, and CEFL, a leveraged ETN that tracks the ISE High Income Index, sports a similar yield.
Investors today are not challenged by a lack of yield but rather appropriately priced risk. In most cases, today's yields do not adequately compensate for risk. The "6% returns in a ZIRP environment are actually quite fantastic" mentality is going to cause a lot of investors a lot of pain. Chasing yield and ignoring risk is a game very few people win.
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I haven't had a bad experience, per se, but after running through almost all of my initial loans and not opting to reinvest in more, it seems like a relatively decent but not great way of investing your money. I think if I were willing to carefully vet the loans, or focus on a particular vertical, I could have done better. So, in my case, I did three portfolios - a fully manual hand-picked small portfolio, a blended…
The tax issue can be worked around to some extent by using an IRA. Lending Club will also open trust accounts so it should be possible to open one in the name of a solo 401(k) (only an option if you're self-employed). I'm going to try this in a bit.
Be forewarned, though, that you can't buy or sell loans on the 3rd party exchange with a tax advantaged account.
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I started in January of this year. It does seem high for sure. I'd like to think I spent a lot of time finding people that had the most to lose when making a decision (mortgage, relatively high income, stable job, etc) to lower my risk. But who knows. edit: so i just checked for real. looks like it's been over a year (time flies). for the record, it shows 199 (instead of my stated 200) because i put $50 into one inve…
> i put $50 into one investment instead of the standard $25 It's funny you mention that. I went through a phase where I started doing $50 and $100, becuase I couldn't find enough high quality borrowers. I figured that since I trusted these people with $25, why not a little more. It just hurts more when they default. When I see a high value note charged-off, I just feel more betrayed than usual.