Peer to peer lending

[Nords]

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Originally Posted by cute fuzzy bunny I can see that you're working hard to make this sound harder than it is, and you're right it isn't for you. If I had two large military pensions to cover all of my expenses and then some, contraptions to create income wouldn't look that interesting to me either.

Y'know, CFB, I drafted a long response to your points, but I'm belatedly realizing that would be pointless.

I hope your P2P plans work out for you.

I'm glad that your life is heading in a better direction. You have a good one now.

[arebelspy]

Thanks for the overview Nords.

I'm fairly meh on P2P overall (speaking as someone who has had over 50k invested in it and no longer does so).

Seems like it comes up a fair amount in the various early retirement communities, this will be a good post to refer them to.

[MooreBonds]

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Originally Posted by cute fuzzy bunny Thanks rbmartin for the pointers to some development tools. About all I want is the old school quickbasic where you get a prompt, type in ten lines of old school "open the file, read until end, check 10 fields for criteria and write a line into a second file if I find a hit" code and run it. I'll look into the stuff you provided, as I need to do this sort of thing every once in a while and I'd hate to learn another language or a big time development package to do something simple.

I don't recall from the earlier messages in this thread, but are all of the files available in .csv format? If so, you could simply take turns sorting the rows by one column at a time, then scroll down in that column and highlight (i.e. turn the cell background a certain color) for the range you like.

Then, cut and move the next column to the end of the spreadsheet, and sort the rows by that next column, repeating with setting the attractive parameters with a certain cell background color.

Repeating this for the various columns would only take 1 minute, and then reveal a hodgepodge of rows that have different numbers of variables that meet your criteria. Might be easier than coding it, AND would allow you to easily see at a glance any outliers that might have a variable that's just 0.2% outside of your parameter, but otherwise be an attractive loan.

[JDARNELL]

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Originally Posted by MooreBonds I don't recall from the earlier messages in this thread, but are all of the files available in .csv format? If so, you could simply take turns sorting the rows by one column at a time, then scroll down in that column and highlight (i.e. turn the cell background a certain color) for the range you like. Then, cut and move the next column to the end of the spreadsheet, and sort the rows by that next column, repeating with setting the attractive parameters with a certain cell background color. Repeating this for the various columns would only take 1 minute, and then reveal a hodgepodge of rows that have different numbers of variables that meet your criteria. Might be easier than coding it, AND would allow you to easily see at a glance any outliers that might have a variable that's just 0.2% outside of your parameter, but otherwise be an attractive loan.

I was thinking about how to do this also. My approach was to create "if" statements for each column in excel and assign colors. Then use a count function to identify the greatest # of greens and sort the rows. using the same spreadsheet and just cutting in the data would be quick and give you an easy visual of where to focus your time.

[photoguy]

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Originally Posted by Onward His second chart compares default rates quarter by quarter, starting at loan commencement. In all quarters the default rate of 5-yr loans is much higher than 3-yr loans. So I don't see how the extra length of 5-yr loans makes a difference here? We haven't even reached the fourth year of the oldest 5-yr loans.

Thanks for posting the chart. I hadn't seen a clear depiction of default rates from p2p lending sites before. Looking at the chart though, with >10% default rate in 2009 makes me think wouldn't I be better off just increasing my equity portion instead of reaching for yield with these junk bond like loans?

[haha]

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Originally Posted by photoguy Thanks for posting the chart. I hadn't seen a clear depiction of default rates from p2p lending sites before. Looking at the chart though, with >10% default rate in 2009 makes me think wouldn't I be better off just increasing my equity portion instead of reaching for yield with these junk bond like loans?

This is not attractive to me, and one of the clearest reasons is that there is a pretty high default rate, even though we are well into a recovery. These loans will be highly correlated when things get stinky. Which they will.

Also interesting is that although quite a few of our members are women, I don't recall any woman posting about doing this lending. A macho undertaking?

Ha

[cute fuzzy bunny]

Quote:

Originally Posted by Nords Y'know, CFB, I drafted a long response to your points, but I'm belatedly realizing that would be pointless. I hope your P2P plans work out for you. I'm glad that your life is heading in a better direction. You have a good one now.

You too!

I didn't write any long responses though. You were never really interested in this, and you don't need it.

Back on topic...

I did have some thoughts around the 3 vs 5 year data. When LC first offered these, the initial customers were people who didn't qualify for the 3 year loan payment, so LC offered to relist the loan at 5 years. In other words, the first ~6 months or more of borrowers weren't as qualified as the 3 year borrowers.

Of course, if you're filtering your own loans for credit worthiness and whatnot, you're leveling the playing field...if its still off level now that everyone has the option of 3 and 5 year right up front. Remember that ~95% of my loans are for people who ran up 20-30k of debt and just want to make one smaller payment with an actual "out of debt" day. For the people who mean it, the 5 year should be easier to pay.

Looks like the more 'contemporary' the data gets, the closer the two default rates run. I'm seeing less than a 2% variance in the most current, and the interest rate difference you get from a 3 to a 5 year loan in the grades I'm buying is more than that.

[cute fuzzy bunny]

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Originally Posted by haha This is not attractive to me, and one of the clearest reasons is that there is a pretty high default rate, even though we are well into a recovery. These loans will be highly correlated when things get stinky. Which they will.

Even if the more serious default rate doubles, I'd still eke out 3-4%. Where else can you get something that in the likely worst case scenario still makes money? I keep hearing "add more equities" and I still don't know how to generate more income from those without taxable events and I'm not sure how selling those into a down market to make the income helps me.

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Also interesting is that although quite a few of our members are women, I don't recall any woman posting about doing this lending. A macho undertaking?

Same with a lot of other things, mostly stupid. We do let our little heads and testosterone make a surprising percentage of our decisions. Might be kind of boring if we didn't.

My ex wife was constantly skeptical of lending club, yet here I am making a lot of money on it with a history that goes back through the recent recession that says that as long as I'm well diversified (800+ notes) I won't lose money. She was also dubious of my 'eat fat, lose weight diet' and look at how that turned out!

I agree that we might see a second dip and a higher default rate, but this is like the old joke where two guys see a bear and the bear starts charging. One guy stops to take off his hiking boots and put on his sneakers "You cant outrun that bear" says the other guy. "I don't have to! I just have to outrun YOU!". Bottom line is, you write notes that carry an interest rate that exceeds the default rate. My overall average right now is 17% and rising, only pulled down by all the B and C grade debt I wrote to get my capital deployed. That quick deployment of a goodly chunk of cash got me a $1000 freebie from LC. My defaults so far haven't even eaten that up.

That means defaults would have to go north of 15% from their current 5-7% at the grades I'm writing.

There really shouldn't be any correlation between LC loan default rates and the stock market. Most of the people taking debt consolidation loans aren't heavily invested in the market, and few are going to exclaim "Oh my god, the Dow just dropped 5000 points! I'm not paying my debt consolidation loan!"

The correlation is between LC loan default rates and job loss or huge individual financial stress like a house going from 500k to 250k in 3 years. There would be some trailing job loss issues correlated to a stock market plunge, as there would be for any significant economic malaise but it'd hardly be immediate.

I understand that the process of certain losses bugs the crap out of some people. Bugged me too at first, but I realized that even index stock funds have some holdings that tank or go out of business. You lost money there. It was just made up somewhere else.

This is simply high grade junk investing for income. Whats the rule there? 5% spread over treasuries means buy? Sounds like I need to beat .3% for 3 year treasuries and .6% for 5 year treasuries. I think I'll do that handily.

You can buy an index (with the autoinvest tool) or actively manage a portfolio of loans. Someone else does all the work aside from selection and deciding what to do with the money.

[GrayHare]

http://si.wsj.net/public/resources/i...1012172200.jpg

[haha]

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Originally Posted by cute fuzzy bunny Even if the more serious default rate doubles, I'd still eke out 3-4%. Where else can you get something that in the likely worst case scenario still makes money? I keep hearing "add more equities" and I still don't know how to generate more income from those without taxable events and I'm not sure how selling those into a down market to make the income helps me. Same with a lot of other things, mostly stupid. We do let our little heads and testosterone make a surprising percentage of our decisions. Might be kind of boring if we didn't. My ex wife was constantly skeptical of lending club, yet here I am making a lot of money on it with a history that goes back through the recent recession that says that as long as I'm well diversified (800+ notes) I won't lose money. She was also dubious of my 'eat fat, lose weight diet' and look at how that turned out! I agree that we might see a second dip and a higher default rate, but this is like the old joke where two guys see a bear and the bear starts charging. One guy stops to take off his hiking boots and put on his sneakers "You cant outrun that bear" says the other guy. "I don't have to! I just have to outrun YOU!". Bottom line is, you write notes that carry an interest rate that exceeds the default rate. My overall average right now is 17% and rising, only pulled down by all the B and C grade debt I wrote to get my capital deployed. That quick deployment of a goodly chunk of cash got me a $1000 freebie from LC. My defaults so far haven't even eaten that up. That means defaults would have to go north of 15% from their current 5-7% at the grades I'm writing. There really shouldn't be any correlation between LC loan default rates and the stock market. Most of the people taking debt consolidation loans aren't heavily invested in the market, and few are going to exclaim "Oh my god, the Dow just dropped 5000 points! I'm not paying my debt consolidation loan!" The correlation is between LC loan default rates and job loss or huge individual financial stress like a house going from 500k to 250k in 3 years. There would be some trailing job loss issues correlated to a stock market plunge, as there would be for any significant economic malaise but it'd hardly be immediate. I understand that the process of certain losses bugs the crap out of some people. Bugged me too at first, but I realized that even index stock funds have some holdings that tank or go out of business. You lost money there. It was just made up somewhere else. This is simply high grade junk investing for income. Whats the rule there? 5% spread over treasuries means buy? Sounds like I need to beat .3% for 3 year treasuries and .6% for 5 year treasuries. I think I'll do that handily. You can buy an index (with the autoinvest tool) or actively manage a portfolio of loans. Someone else does all the work aside from selection and deciding what to do with the money.

Sounds convincing. I may be skeptical only because of inexperience.

Ha

[Aiming_4_55]

Sounds kinda like work Does that make one switch from ER to semi-ER since they are researching and taking risk?

I'm half joking, but I guess it can be a hobby. I'm kinda doing my own peer-to-peer lending, but in a different way, but I won;t hi-jack this thread. I'll just update one of my existing threads or start a new one as I'm experiencing "something new".

[cute fuzzy bunny]

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Originally Posted by Aiming_4_55 Sounds kinda like work Does that make one switch from ER to semi-ER since they are researching and taking risk?

How is this different from any kind of investing, unless someone tells you "Go buy an s&p 500 index" or "go buy target retirement 2045", and you do it without learning why? Then you're also taking risks. By that metric everyone with self directed investments isn't retired. But then again, whether you're 'retired' or not is a moving target. There have been many, many days where I'd have preferred to be behind a desk posting to an internet forum and getting paid for it instead of what I ended up doing.

Oh and by the way Ha, my ex-wifes boss does lending club, now that I think about it. Nice lady in her 50's, independently wealthy. Wants this for the same thing I do, nice steady income on standing cash with a decent amount of liquidity.

[Aiming_4_55]

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Originally Posted by cute fuzzy bunny How is this different from any kind of investing, unless someone tells you "Go buy an s&p 500 index" or "go buy target retirement 2045", and you do it without learning why? Then you're also taking risks. By that metric everyone with self directed investments isn't retired. But then again, whether you're 'retired' or not is a moving target. There have been many, many days where I'd have preferred to be behind a desk posting to an internet forum and getting paid for it instead of what I ended up doing.

I'm probably in the minority here as investing started in my early working days without much knowledge. HR related brownbag seminar told new employees to save for retirement and here are some options. I carved out a % of my pay and I said sure that sounds like a good thing. I looked at my options in the 401k program, historic data, and picked 3 (Fido Magellan, Contra, and something else) during the meeting. It was set from 1990 to about 2004, contributing 5 - 15%. Fortunately for me, it worked out. In 2005/6, I became a little more aware and determined somewhat of an asset allocation with Vanguard index funds.

[fanmail]

I'm very intrigued by this. Going to do some more research, thanks everyone for the great information.

[Texas Proud]

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Originally Posted by cute fuzzy bunny Even if the more serious default rate doubles, I'd still eke out 3-4%. Where else can you get something that in the likely worst case scenario still makes money?

That is what banks say.... but we also know that many banks go under because defaults go above what they expect...

The difference here is that you have 100% equity to cover losses and no real expenses you have to cover....

[pb4uski]

Interesting thread and a topic that I have been interested in but sitting on the sidelines. I would think of it as a portion of my junk bond allocation. It does sound like a bit of work but I would think that once you have a loan selection and monitoring process established that it would be reasonably easy to maintain and you could put it aside when on vacation.

What are the merits/detriments of LC compared to Prosper? Are the tools very different between the two?

I'm a bit anal when it comes to tracking investments - everything is in Quicken and automatically updates by linking to my investment providers (principally Vanguard). Is there similar functionality for tracking loans and loan cash flow?

Also thought of getting a loan (my credit is excellent) and then turning around and lending (just kidding).

[cute fuzzy bunny]

Quote:

Originally Posted by pb4uski Interesting thread and a topic that I have been interested in but sitting on the sidelines. I would think of it as a portion of my junk bond allocation. It does sound like a bit of work but I would think that once you have a loan selection and monitoring process established that it would be reasonably easy to maintain and you could put it aside when on vacation.

I'm not sure it even requires monitoring. I've been completely unable to tell which grace/late notes are worth selling and so far many of them have eventually paid back all of the money. I think I had about 20 grace/lates pay off, and one that paid after I listed the note for sale. A lot of people eyeball this and fiddle with selling and buying "used' notes. I don't use it, but I understand that mint and quicken can shlork these in and give you returns.

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What are the merits/detriments of LC compared to Prosper? Are the tools very different between the two?

Never used prosper. Prosper has been around longer but ran into some trouble in 2007 and 'rebooted'. LC has higher grade borrowers and lower interest rates. I spent a few hours comparing the two and came to the conclusion that I might be able to make more with prosper, and had a chance to lose more. LC had the stats that with >800 notes, nobody has lost $, and prosper doesn't.

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Also thought of getting a loan (my credit is excellent) and then turning around and lending (just kidding).

When I found I could borrow @6.5% and lend at 17% with a likely default bringing my ROI to 3-5%, I thought about it. For five seconds. I suppose if your credit rating isnt that important to you, you could pull $35k as an A borrower and lend to the D-G crowd, and if the economy goes back in the hole and they don't pay, you don't pay either?

Meh, not a margin strategy I'd recommend, but I'd probably do it before I'd margin the stock market...and its way more appealing than borrowing money on a heloc and investing it...

[Onward]

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Originally Posted by cute fuzzy bunny There really shouldn't be any correlation between LC loan default rates and the stock market.

Unfortunately (for us p2p investors) I expect a pretty strong correlation between the stock market and p2p loan performance. A weak economy will hurt both corporate earnings and, with layoffs, the average person's ability to pay his debts.

There is definitely a strong correlation between the stock market and junk-bond performance.

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Originally Posted by pb4uski What are the merits/detriments of LC compared to Prosper? Are the tools very different between the two?

I haven't used Prosper in a while, but I've kept up with its features. The site is on par with LC. Some things Prosper does a little better, and some things LC does a little better. Prosper has been around longer and might have a slightly slicker UI.

[cute fuzzy bunny]

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Originally Posted by Onward There is definitely a strong correlation between the stock market and junk-bond performance.

Ehhh...perhaps but do people working a job and paying on a loan correlate with a corporation meeting their debt obligations?

What affects lending club payback performance is loss of a job, serious injury or medical condition, death, divorce, serious financial mishap or taking on more debt than the borrower can pay. I fix the last one by filtering. I can't do anything about the rest. The only two of those that are economy related are the loss of a job or serious financial mishap, like a housing market crash.

Since the housing market collapse (which I think had a LOT more to do with higher default rates than the economy and definitely more to do with it than the stock market decline) happened at the same time as the recession, job loss, etc...its hard to pick out the causative factors to rise in defaults a few years ago.

However, it'd take some splaining to come up with the correlation between a drop in the S&P 500 and Frank the car repairman not paying his monthly car payment or debt consolidation loan. Maybe a guy who sells financial products for a living and makes his money on commission has a bad time paying loans during a stock market crash.

In any case I'm pretty sure I said results would likely to be trailing on LC default rates, which is fine with me. Its not like the DOW will drop 4000 points one day and 15% of my loans will default the next. It'll more likely have an effect 3-6+ months later. I can still draw a bunch of cash from my LC account until, through, and after a higher default rate scenario and avoid selling equities while they're beaten down.

Unless I get into a certain loss situation, and during the recent worst recession since the depression coupled with a housing market crash and a stock market crash...lenders with 800+ notes still made money, I don't think stock market correlation from anything other than a total return measure matters here. I just want to avoid losing money, make some money on my cash stash if I can, and have a source of steady reliable income with a knob I can turn up and down to avoid selling equities in a market downturn.

[Onward]

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Originally Posted by cute fuzzy bunny I just want to avoid losing money, make some money on my cash stash if I can, and have a source of steady reliable income

I think you're on the right track. The big institutional $$ coming into LC isn't stupid.

I'm on the same track, so let's hope it's right.