During the month of November, my net annualized return with Lending Club took a bit of a tumble. The reason for this is that the loan from my “High Risk” portfolio that had gone into default was finally written off. Once this happened, my net annualized returns dipped into the high 8% range, though they’ve since recovered to just shy of 9.2%.
In other news, two more loans showed up as late during November. In one case, Lending Club has worked with the borrower to get them on a payment plan (I’m still investigating exactly what this means) and in the other case, the borrower has subsequently made some partial payments.
Because these loans were being paid on time and in full for several months before getting into trouble, and because the borrowers appear to still be interested in making good on their obligations, I remain cautiously optimistic that they will get back on track. I have, however, activate my FOLIOfn account (accessible through the Lending Club login) and might try my hand at selling one or both of these at a discount on the secondary market.
Once again, I had a couple of borrowers pay off their loans early, so I’ve re-deployed that cash (along with some additional funds that I’ve added to my account). I now have around 180 active loans with a net annualized return (as noted of above) of roughly 9.2%.
As before, I’m planning more of the same… I’ll be steadily adding money every month, and reinvesting the repayments as they come in. I’ve already changed some of my loan selection criteria, and will be looking closely at the three troubled loans in hopes of identify additional risk factors that can be avoided in the future.
Look for a followup post in the not too distant future where I talk about what exactly I’m looking for when I select Lending Club loans. As always, if you’ve been investing with Lending Club, I’d love to hear about your experiences in the comments section.
22 Responses to “Lending Club Update – November 2009 Performance”
I’ve been a lending club investor for about a year. Quite a few thousand invested. At my peak had 34 outstanding loans with none even in the grace period. The ‘return’ statistics are misleading. New loans are rarely in trouble. As the commenters above note, once a borrower is in trouble, the probably of eventual default goes up. So far I’ve had only one write-off, with perhaps two more coming. The problem is that every default brings your total return down fast. IMHO, lending club’s outragious statistics are dependent on new lenders coming in. As the whole portfolio ages, the returns will come down to a more realistic few percent. The real problem I’ve experienced (and I have 40 years of real-world business experience), is that borrowers sometimes lie. There really is no recourse if a borrower has mispresented his situation, not disclosed an important fact, or outright lied. But, you’ll find out in the end and be stuck with it. “no tree grows to the sky”.
I only have $500 invested in lending club, but am getting a 14.78% return. I have 23 loans.
I bought a note a couple of weeks ago on the FOLIOfn platform for about $7 which was 80 days late. Less than a week later the loan was paid in full for $25!
I sold 2 notes recently for the first time. Both notes were held for about 6 months with not a single late payment and I priced them pretty close to principle+interest price. In 6 months I made over 6% on the notes. Not bad.
Thnx Nickel. Blaze the way and let us know how it is. Perhaps after a 3-5 year trial period I’ll jump in!
Hey all, just logged into my LC account and saw that one of the late loans is back to being current, and the other one (on the payment plan) got the first (reduced) payment a bit of three weeks early. That one is still listed as late because the borrower is currently making reduced payments, but it’s definitely good to see progress.
Sam: That’s something that I struggle with. Unless I’m willing to really go heavy into this, is LC worth the effort? I’m not sure, as I’m still getting my feet wet.
Larry – That’s the thing though. 12% return on $1,700 is still only $180 bucks! It’s like a rounding error for most people’s portfolios.
My question to you members is when will you guys start putting $10,000+++?
I’ve been with Lending Club for 7 months, have 44 notes with $1700 invested and have a Net Annualized Return of 12.49%. All notes have paid on time, although a couple have gone into the Grace Period.
I’ve been able to sell several of the older Notes via FOLIO and reinvested the funds by purchasing more Notes. I’m also starting up a self-directed IRA which should be funded this week.
This has been great fun while obtaining an unbelievable return.
Data points from the “competition” over at Prosper:
1. Only 15% of loans that go 30 days late recover.
2. I wouldn’t get too hopeful about anything — I’ve had loans struggle and recover multiple times before finally charging. I’ve had some that had been faithful payers until they became late — and once they were late, that’s the last I’ve ever seen from them. I even had one guy default six months before his loan matured.
3. Lending club does a pretty good job of screening out the truly bad borrowers — the only things you may want to pay more attention to are:
a. Inquiries (LC allows 10… IME, anything over two or three is a huge red flag.)
b. Utilization (but borrowers are already penalized for high utilization in the risk score that they get.)
c. Account history (at Prosper, back in the day, “No Credit” history borrowers did even worse than the High Risk group. I don’t know if LC’s minimums are enough to sufficiently mitigate that risk.)
And as always, LC gains are paper gains only until they are locked in. If Prosper is any indication, “mid term” results are no indicator of ongoing performance. However, if you can sustain 9% returns in perpetuity, I will be the first who would love to know. (The median return at Prosper is something like -1%.)
Very interesting… I’ll have to check into this in the next few days!
Nickel – How much money do have invested with Lending Club again?
I’m wondering what the maximum you’d invest with them is.
I don’t suppose there’s been any word at all about when this is going to be open to all states? I know it is on the secondary market, but I’d love to try my hand at picking some of these loans 🙂 Can’t yet, I guess…
I have a loan that is over two months late and looks like it may be written off due to it being turned over to outside collections. I asked on Turbotax insider boards about writing off loan as a bad debt and I was told by a response that looking at lending club’s rules the lender does not own the loan, lending club does and lending club only passes on the payments to the lender. So if the loan defaults it is to lending club and they take the write off. I don’t like this at all. Soi it looks like if LC forgives the loan they get to issue the 1099-C to the borrower and the lender cannot write off anything on their taxes for bad debts.
I’m not trying to sound like a braggart or anything; call me naive if you want, however.
I am on a limited income myself, yet I am not having any trouble paying back my loan. My hours at work have been cut by 60% or so, making things rather very tight for me. Even so, I am able to make those monthly payments back to Prosper’s lenders, on time and in full. This includes making my other cc debt obligations. (I was unemployed for 1-1/2 years, so the credit cards took a heck of a beating.
What you guys (aka lenders) do for us who are in desperate need of loans is a fortuitous favor, since, speaking for myself, I am unable to get a loan the conventional way. For this I am thankful.
I hope things continue to go well for you, and that those who owe you back will do so in a responsible manner. If not, this will cause many potential lenders to shy away from this method of investing as part of their portfolio.
I think you just about have me convinced to give Lending Club a try.
Now that you have developed an extensive portfolio, can you give us a better idea of how much time and effort you have to dedicate to earn your 9%?
Storch Money is correct about the payment plan. They reduce payments for a period of time, then the increase them above the original amount towards the end of the loan. The final payment date and total payment amount received doesn’t change.
Thanks for your honest explanation of Lending Club, I was always skeptical of participating in it.
John DeFlumeri Jr
My understanding of a Lending Club payment plan is that the required monthly payments are reduced for a fixed period of time (say, hypothetically, to 75% of the normal amount) then later increased up to 125% once the borrower has gotten back onto the pattern of making timely payments. At least as I understand it, neither the date of final payment nor the principal amount are changed, just the amounts of monthly payments.
Very interested to hear any analysis from Nickel or anyone else about which loans have gone bad and why. I have a $1,000, 40-note test portfolio and so far all 40 have made their first payment and about 5 have made their second payment, all timely to date.
I just put $100 in a few days ago along with the $25 sign up bonus. I have 3 loans issued and 2 still in process. No payments have come due yet. I just bought a house and my money is pretty well tied up for the next year or so to minimize financing costs. I wanted to get a small account going just to get my feet wet even though my account will remain very small for a while.
I’ve been investing in Lending Club since July 2009. My boyfriend and I have a joint account, I have an individual account, and I just recruited my 20-year-old son into investing, as well. My boyfriend is afraid of money :), and my son is in the military, so by default, I manage all of the money in all three accounts.
All three accounts are Issued and Current for all loans, and I’m shocked – I haven’t picked a single loan that’s gone 16 days past due. Yet. I expect that’ll happen at some point, and I’m prepared for that.
Status: My son’s account has 81 notes, all current, Net Annualized Return (NAR) = 14.81%
My personal account has 25 notes, all current, NAR = 14.06%
Our joint account has 16 notes, all current, NAR = 13.22%
I do have to send you a word of thanks, Nickel. When I first heard about Lending Club, I Googled to find out if this was a scam, or not, and it was thanks to your detailed and insightful posts that I decided to dip my toes in. We don’t have much money invested and we’re not adding any the moment because we’re buying a house. I’m so pleased with my results so far, I’m going to start back up again after we close on the house.
(Oh man! I spelled my name wrong!! LOL! Rieland)
Definitely looking forward to what criteria you come up with. I have my own but always interested in learning more.
Curious…what happens when your loan is written off? What does that entail?
“Look for a followup post in the not too distant future where I talk about what exactly Iâ€™m looking for when I select Lending Club loans.”
Looking forward to it.
Be sure to look just as closely at the loans that are getting paid off if you want to make valid conclusions. 🙂
(Otherwise you might note that all 3 bad loans had some characteristic, when in reality that’s just a characteristic of most of your loans, rather than being specific to the bad ones…)
Do you know when they post your Net annualized return rate to your summary page? I have been investing for several months now, and it still says New for me.