Comments on: Lending Club late loan is current again

By: Lending Club lender

Lending Club lender — Sun, 20 Dec 2009 23:15:24 +0000

Lending Club now subtracts their expected default rate and their annual expense rate from the posted interest rate when you add a loan to your portfolio. This gives you more reasonable expectation. For example, a 13% loan would have about a 1.7% default rate, and then a .7% annual expense rate so the expected rate of return is closer to 10%. It’s a nice feature to see on the site.

By: Vanity Numbers

Vanity Numbers — Sat, 28 Nov 2009 04:24:31 +0000

It?s nice to now finally locate a web site where the blogger is knowledgable.

By: Another Lending Club Loan is Delinquent | Personal Loan Portfolio

Another Lending Club Loan is Delinquent | Personal Loan Portfolio — Tue, 19 Aug 2008 14:08:12 +0000

[...] the site map. Thanks!I mentioned earlier that I had one Lending Club loan fall behind, but the loan recovered in less than 30 days. I now have one Lending Club loan more than 30 days [...]

By: Personal Loan Portfolio

Personal Loan Portfolio — Fri, 20 Jun 2008 05:10:41 +0000

Overall, I agree with what you are saying, but I still think that we may be passing each other somewhat. Daniel: "Prosperâ€™s bidding model dissociates interest rates from risk, which means a lender may not be adequately compensated for defaults." I am not sure that it disassociates the two. Although, it can get out of whack sometimes like the crazy early Prosper Pennsylvania loans that were beyond reason. Daniel: "Prosperâ€™s default rates arenâ€™t grossly out of line for a given credit score." I agree more with this second statement. They can often get a little out of line, but it is not often that they go ridiculously out of sanity.

By: Daniel

Daniel — Mon, 16 Jun 2008 04:04:59 +0000

I do think Lending Club will be back, if they don’t burn through all their cash before the come out of there quiet period. Your post on the burn rate was quite informative BTW. But back to the discussion on rates of return. It’s not that an individuals interest rate will make them more or less likely to default. An individual’s circumstances are unknown and unrelated to interest rate paid on borrowed money. But for a group of borrowers with similar credit profiles, a statistical model can be developed. The more loans a lender has, the more closely their portfolio should resemble the historical model of defaults. What this really affects is the lender’s return. The interest rate an individual borrower pays is based on the historical default rate for their credit profile to compensate the lender for defaults from that group. Because lower credit scores tend to have higher default rates, they pay more interest as a group to compensate the lender for individual loan defaults. However, Prosper’s bidding model dissociates interest rates from risk, which means a lender may not be adequatly compensated for defaults. I don’t think most lenders researched that very heavily, so I like that Prosper spells it out clearly.

Also, Prosper’s default rates aren’t grossly out of line for a given credit score. Prosper’s defaults don’t conform to traditional historical models because Prosper will accept people outside those models, while Lending Club does not.

By: Personal Loan Portfolio

Personal Loan Portfolio — Mon, 16 Jun 2008 01:21:35 +0000

I have mentioned it somewhere on this site before - I believe that for a given risk level (i.e. credit score, loan amount, historical late loans, etc) that the Prosper Marketplace default rate and the Lending Club default rate should be practically identical. Otherwise, it would imply that the same borrower would be more likely to default on Prosper than Lending Club due to a different lending model. I can believe that the same borrower might receive different interest rates by a few percentage points due to the different models. However, a few points difference in an interest rate should not impact the default rate significantly. Only time will tell if there is a difference in default rates and then still the statistics will not be precise because they use different credit scoring agencies and divide their credit scores into different ranges. Certainly, Lending Club's overall default rate will be lower because of the number of loans that Lending Club rejects due to poor credit scores. Prosper too believed that their default rates would follow industry norms and they did not. In fact, it was theorized that due to the person-to-person nature of the loans that the default rates would be lower than industry norms. That is laughable now. If I ran Lending Club, I would not list a risk adjustment until I had more data. But why are we even talking about Lending Club's risk disclosures when we cannot lend there now? Do you think Lending Club will be back?

By: evelyn

evelyn — Sun, 15 Jun 2008 22:38:38 +0000

Sounds right Daniel. Let’s see what LC has up their sleeves though
when they finally reopen. I have been in contact with Rob there
several times since “quiet” and he indicated that we should hear
something very soon.

By: Daniel

Daniel — Sun, 15 Jun 2008 18:01:19 +0000

Actually, I think Lending Club could list out the risk of an aggregate
portfolio, just as Prosper does for a bidding plan. Prosper’s numbers
are based on Prosper historical data because the traditional risk
models don’t fit a Prosper loan portfolio. With Prosper, interest is
not directly related to risk. With Lending Club, the interest rate is
based on the borrowers risk, and historical default rates for the
banking industry in general should apply. From LC’s website:
http://www.lendingclub.com/info/historical-defaults.action . Also,
my own evaluation of LC portfolios: http://www.step3prophet.com/2008/04/running-some-nu.html

P.S. I like your site redesign.

By: Personal Loan Portfolio

Personal Loan Portfolio — Sat, 14 Jun 2008 23:59:30 +0000

I see what you mean and I like that feature at Prosper too.

I don’t know the exact date that lender guidance was introduced at Prosper, where they subtract a risk number from your interest rate to give you an idea of your probable return. However, it was after about two years of data had been collected on loans. Some people still believe that it is not accurate since it is not based upon more than three years of data which is the length of the loans.

Lending Club does not have nearly enough history yet to list out risk on particular loan numerically. If they tried doing that right now I think it would be a mistake.

By: Daniel

Daniel — Sat, 14 Jun 2008 16:36:11 +0000

Lending Club spells it out in general terms, which a responsible
organization should do. However, when I went to setup a portfolio
plan with Prosper, they laid it out in numbers. See the second image
in this post http://www.step3prophet.com/2008/05/prosper-update-2.html
. It illirates nicely that even if your average loan interest rate
is 16%, your real return will be closer to 9%.

By: Personal Loan Portfolio

Personal Loan Portfolio — Wed, 11 Jun 2008 02:33:47 +0000

@ Evelyn: I will be keeping them crossed.

@ Daniel: Thanks. I was surprised by it.

Interestingly, I also thought Lending Club did a good job of listing the risks in P2P investing.

By: Lending Club Promissory Note Text Details | Personal Loan Portfolio

Lending Club Promissory Note Text Details | Personal Loan Portfolio — Tue, 10 Jun 2008 14:02:00 +0000

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