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[112233]

https://www.fis.dowjones.com/WebBlogs.aspx?aid=DJFVW00020100414e64e00001&ProductIDFromApplication=&r=wsjblog&s=djfvw

LendingClub = "has raised"
Prosper = "is close to"

[baeventures]

Nice article. Really no new information but a good summary. Thanks for the link.

BAEVentures

[Urbi_et_Orbi]

Prosper declined to comment.

There's something new.  

What happened?

[GLeaderAccountantsChoice]

Prosper declined to comment.

There's something new.  

What happened?

I noted that too.   

[Urbi_et_Orbi]

The obvious options:

"no, we don't comment if the ground rules for the interview will allow for follow-up questions."

"no, thanks - we prefer to do press with 19 year old bloggers."

[Xenon481]

Nice article from the WSJ.  Good to see a non-fluff piece.

Nominate for The Lobby.

[God-Father]

Second

[112233]

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[bankomatic]

Investors earn on average 12% to 13% gross, and the default rate is about 2.3% to 2.5%, for a 9.65% net return on Lending Club, which is higher than what investors could get at a bank, Laplanche said. For borrowers, they can pay a lower interest rate than at a bank.

I would find this hard to believe. Prosper has a default rate in the area of 40% give or take 5%. How can Lending Club have a default rate of 2.3 to 2.5%? This looks like BS to me. I am also calling BS that a typical Lending Club investor earns 10% pre taxes.

[Fred93]

I would find this hard to believe. Prosper has a default rate in the area of 40% give or take 5%. How can Lending Club have a default rate of 2.3 to 2.5%? This looks like BS to me. I am also calling BS that a typical Lending Club investor earns 10% pre taxes.

About 40% of prosper loans default over a 3 year period.  That's an annualized rate of about 17% if memory serves me.  The newer prosper loans, after they tightened the requirements will do a bit better.

Lending club has invented some funny calculation I believe, and is underrepresenting their own default rate in the number they present.  My guess is that you need to double their number.  I haven't done the work to detail that out, but may do so at some point. 

[baeventures]

https://www.lendingclub.com/info/statistics.action

Above is the link to LC's stats page. It gives you the basics.

They don't weight the duration of the loans into their equation at all.

A Credit Grade
Originations = 2128 loans
Current = 1878 loans
Late = 26
Default = 15
Prepaid = 209

Total $ Funded = $12,046,308
Total Payments Received = $4,603,193
Percentage of borrowed funds repaid including interest = 38%. This includes interest (I'm thinking principal paid off would be roughly 29%?)

Basically, because of how new most of their notes are, and how they calculate their default rate, the numbers they supply are not quite accurate.

If instead you look at a summary of all debt consolidation and credit card pay off loans issued prior to April 2009 you will find the following.

CR /   Net   / Default
A   / 6.08% / 2.51%
B   / 3.58% / 7.00%
C   / 1.85% / 10.23%
D   / 0.49% / 13.09%
E   / 0.07% / 14.78%
F   / -7.45% / 23.72%
G  / -5.12% / 23.05%

Default rates assumes that all current lates will default and all loans that have defaulted or charged off will not receive another payment. It also for simplicity purposes, assumes that 30% of principal was repaid on all charge off loans before they went late and subsequently charged off.

Another good way to look at it may be by looking at total dollars defaulted, rather than an annualized default rate. I.E.

Credit Grade = G
Funded = $1,578,597
Default = $356,286
Default Percentage = 22.57%
Average Interest Rate =18.24%
Net = - 4.33% (Instead of 9.81% Net annualized return)

Just my 2 cents...

BAEVentures

P.S. It may be worthwhile to note that roughly 75% of LC loans originated in the last 18 months.
P.P.S. This being stated, I am currently lending on LC's Platform and looking to generate meager returns of 7% annually investing in A, B, and C rated borrowers via my number crunching. Unlike ResearchPro, I think there is a realistic chance that I may hit 7% as the economy improves, but would expect to do no worse than 5%.

[Fred93]

It also for simplicity purposes, assumes that 30% of principal was repaid on all charge off loans before they went late and subsequently charged off.

This is a major problem.  "Default rate" is the rate at which loans default, just like "death rate" is the rate at which people die.  Now if the government decided one day that they wanted to show you a smaller number for a death rate due to whatever, they might start saying well old people have lived most of their normal life already, so we'll count them as only a fraction of a death.  That's what you're describing above.

To use the default rate in the standard calculations of return, one needs a number that is the rate at which loans default.  It appears that LC doesn't calculate that. 

I could calculate it myself, but it requires some work.  LC's web site doesn't allow me to see how many loans are in what state as of a given observation date.  Used to, but they removed the observation date feature.  Therefore I can no longer grab numbers from their web site and plot curves as I do for prosper.  I could of course download the whole database and do some massive crunching, but that increases the cost to me by a lot, so I haven't done it.

[wiseclerk]

It also for simplicity purposes, assumes that 30% of principal was repaid on all charge off loans before they went late and subsequently charged off.

This is a major problem.  "Default rate" is the rate at which loans default, just like "death rate" is the rate at which people die.  Now if the government decided one day that they wanted to show you a smaller number for a death rate due to whatever, they might start saying well old people have lived most of their normal life already, so we'll count them as only a fraction of a death.  That's what you're describing above.

http://www.wiseclerk.com/group-news/services/lendingclub-annualized-default-rate/

[Capital_Finance_Group]

Currently I am not allowed to directly purchase notes from Prosper or LC - thank you kindly State Regulators.
I can purchase LC notes trhu the Folio market; however, at this time I have no interest in either except to wind down my positions.

[baeventures]

It also for simplicity purposes, assumes that 30% of principal was repaid on all charge off loans before they went late and subsequently charged off.

This is a major problem.  "Default rate" is the rate at which loans default, just like "death rate" is the rate at which people die.  Now if the government decided one day that they wanted to show you a smaller number for a death rate due to whatever, they might start saying well old people have lived most of their normal life already, so we'll count them as only a fraction of a death.  That's what you're describing above.

To use the default rate in the standard calculations of return, one needs a number that is the rate at which loans default.  It appears that LC doesn't calculate that.  

I could calculate it myself, but it requires some work.  LC's web site doesn't allow me to see how many loans are in what state as of a given observation date.  Used to, but they removed the observation date feature.  Therefore I can no longer grab numbers from their web site and plot curves as I do for prosper.  I could of course download the whole database and do some massive crunching, but that increases the cost to me by a lot, so I haven't done it.

What does this mean exactly Fred? Sorry a little confused, a lot of your math has always been beyond me.

The 30% default rate that I "assumed" was based on rough numbers that went something like this when I analyzed their full database last month.

$1,000,000 principal loaned to individuals that had defaulted/charged-off
$300,000 principal and interest combined paid on these charged off/default notes leaving a net loss of 70% on default / charge-offs

I just re-downloaded the data. If you limit the data to all loans originated before April 1, 2009, and limit the loan purpose to Credit Card Payoff and Debt Consolidation, you get the following (rounded to the nearest dollar):

Principal Borrowed : $19,994,575
Remaining Principal : $9,046,909
Payments to Date : $13,572,508

Now, look at charge-offs and defaults.

Principal Borrowed : $2,449,175
Remaining Principal : $1,868,557
Payments to Date : $818,733 (Principal + Interest)
Interest Payments : $238,115

Leaving 76.3% of principal unpaid, however, earned interest of 9.7% (not annually). So I definitely took some liberty rounding these numbers off, and it doesn't help us with an annualized default rate, but it does give an accurate picture of total dollar value defaults.
Roughly 30% of principal lent, is repaid (if you include interest payments) when a loan defaults or charges-off.

By the way (1,868,557/19,994,575 = 0.0934 or 9.34% of total Principal lent prior to April 01, 2009 has charged-off or defaulted. This data does not include any lates.

Not sure if this really helps anyone but the data seems meaningful to me...

BAEVentures