Am I Crazy Crowdfunding Loans??

[underwrite]

Lol

 

[njhowie]

Lol

Quite impressive that you were able to go through and understand it all in 2 minutes.

 

[underwrite]

You asked if you were crazy to do this and we gave you our subjective opinions.

I have done research on these loans and a few members here have dabbled in the process. You may get better feedback once more members have a chance to read your thread.

Here's a previous thread on your topic:

http://www.early-retirement.org/forums/f28/peer-lending-prosper-76203.html

Peer to peer lending is too much risk for me as I don't have the time left to make back any lost funds due to defaults. I have a conservative portfolio and also dabble in preferred stocks for higher yields (6 - 8%). There is a long running thread here with members who invest in preferreds.

Thanks! I’ll check out the preferreds string.

 

[underwrite]

Quite impressive that you were able to go through and understand it all in 2 minutes.

Sorry. That Lol was for someone else. I’m definitely going to check out the asset backed link you sent.

 

[underwrite]

Totally agree

 

[underwrite]

I initially invested 1.5% of my portfolio in Lending Club. I am 70% A and 30% B loans at 3 year duration. I have since been pulling money out for over a year and a half (Not, re-investing proceeds). Now down to 0.70% of my portfolio. The main problem as many have pointed out is that the sites are trying to get borrowers at any cost, they don't care much about the investor. Lending Club lowered their standards so much that A and B loans were having significant defaults (The supposed safest borrowers). Where they told me I should be getting 5.1% return in a healthy economy I am trending down and am barely at 4% and will likely be around 3.80% soon. This was with over 2500 Individual notes. Not terrible, but this is in a booming economy. I can only imagine where the return will be when the economy goes into a recession and more borrowers default.

I can't get out fast enough is my bottom line.

That's my .02 cents.

Troy

Thanks for the comments. I actually take your comments as positive toward peer to peer lending in my situation. If I come out with a 4% return on this money over the next few years, I’ll be satisfied. My guess is the stock market will do worse over the next few years....or not much better.

 

[underwrite]

lending standards in the big global players

are you sure ?

only the Australian ( and New Zealand ) and Canadian banks seem to frolic through the Basel III requirements several EU banks are on (full ) life-support AFTER being restructured to resist a total collapse ( and there has been no melt-down since the GFC ..
these are stressed in the ( allegedly ) GOOD TIMES


Stress test results signal more flexible new-look Fed


WASHINGTON (Reuters) - This year’s Federal Reserve stress test results suggested a more flexible approach, a further sign the regulator’s new leadership is responding positively to a Wall Street push for pragmatic bank supervision, analysts and lawyers said.

FILE PHOTO: The Federal Reserve headquarters in Washington, U.S., September 16, 2015. REUTERS/Kevin Lamarque/File Photo
Banks that took a one-off capital hit due to the 2017 U.S. tax overhaul got a conditional pass, a departure from the Fed’s traditional strict pass-fail approach to quantitative capital issues, while scandal-plagued Wells Fargo & Co was able to double share buyback plans.

Goldman Sachs and Morgan Stanley were dinged since their capital fell below the Fed’s minimum, but the regulator’s response this year sounded a more industry-friendly tone under Chairman Jerome Powell and Vice Chairman Randal Quarles, President Donald Trump appointees, analysts and lawyers said.

“They have allowed firms to pass on the basis there were special circumstances and applied a level of pragmatism in the way they haven’t in the past. This is the new Fed and it signals to me an early retirement of this super-strict quantitative test,” said Mike Alix, financial services risk leader at PwC.

The Fed on Thursday approved the capital plans of 34 lenders following the second leg of its annual tests, a process introduced after the 2007-2009 financial crisis to assess banks’ capacity to withstand a severe recession. The U.S. central bank has ramped up its worst-case scenarios each year.

The U.S. tax code rewrite signed into law in December meant Goldman and Morgan Stanley’s Thursday results were weighed, in part, by changes to the treatment of past losses on hypothetical tax bills under the Fed’s scenarios.

But since the tax issue was a one-off and capital levels in the system are high, the Fed felt it was unnecessary to fail the two banks, senior Fed officials said.

Under the conditional approvals for their capital plans, the two banks can pay out capital distributions but must keep them in line with previous years.

Some analysts pointed to the Fed’s conditional approval of State Street Corp’s higher dividend even though its counterparty exposures showed high losses under the scenarios.

“This reinforces how the Federal Reserve was less draconian in how it reacted to the results,” said Cowen Washington Research Group’s Jaret Seiberg in a note.

Wells Fargo won approval for the highest payout ratio of the major U.S. banks, quashing investor concerns it would fail the part of the test measuring operational controls.

A passing grade could signal clearer skies ahead for Wells Fargo and better relations with regulators, according to analysts at Evercore Group LLC.

Democratic U.S. Senator Sherrod Brown on Thursday criticized bank payouts to “wealthy shareholders” and warned the Fed against easing up on how it approaches the tests.

STRESS BUFFER
Lenders have long complained the stress-test process is too opaque and that the Fed has been too harsh on firms whose results fall short of models the Fed keeps secret.

Despite noting the Fed’s pragmatic stance on Goldman Sachs and Morgan Stanley, industry insiders still questioned whether the regulator should have proceeded with the tough scenarios this year given the short-term adverse tax changes, and said they want further changes to make the process more transparent.

Powell and Quarles have said they believe stress-testing can be more transparent and less discretionary, but banks continue to worry that Fed rule-easing may not go far enough or could inadvertently make life tougher if changes are not finely tuned.

They point, for example, to the Fed’s April proposal to introduce a “stress capital buffer” that would work in tandem with the stress tests to move the system away from a strict annual quantitative pass-fail.

In a blog post published on Friday, bank trade group The Clearing House warned the proposal as written could actually exacerbate their capital planning challenges by requiring banks to capitalize themselves against stress losses year-round.

“This year’s results illustrate that capital requirements in the United States are highly volatile from year to year and that the volatility will be magnified by ... the stress buffer,” they added.

Reporting by Michelle Price and Imani Moise; Editing by Meredith Mazzilli

courtesy of Reuters

does this fill you with confidence

Basel III is a 30 day buffer to help the banks unwind dangerous positions ( and probably allow the government to bail them out again )

does that sound like ' unquestionably strong' to you

Actually yes. Citigroup, B of A, JPM and most other large banks are incredibly well capitalized these days. There are a few bad eggs, Duetsche being the worst.

 

[gstillson]

Probably lower risk trading stock option calls (long dated) than crowdfunding loans, and the return is likely much higher.

 

[corn18]

Yes, you are crazy.

Become a boglehead. A lot less thinking involved.

 

[OldShooter]

One alternative I have seen mentioned by a couple folks is here:
https://www.uhaulinvestorsclub.com/InvestmentOpportunities ...
I'm not offering investment advice here, simply referring to an alternative which might be suitable for the right person. As always, do your own due diligence.

There is always a certain amount of that kind of thing available. The borrower gets his money at a lower interest rate than he would otherwise have to pay and the lenders might get a slightly higher rate than they would get with a more conventional investment.

I look at these as sort of junk bonds on steroids. Unrated, loosely regulated, and risky. For a certain type of investor who understands the risks and has enough money to be well diversified across many of them, they probably work OK.

This is the prospectus for this particular offering: https://www.uhaulinvestorsclub.com/document/download/9048/UIC-29E-Prospectus-Supplement2017 One interesting thing is that U-Haul's business 2012-2016 seems to be in pretty good shape. Another bit of good news is that the prospectus exists and is prominently offered on the web site. Far different than the puffery I saw when looking at the OP's suggested web sites.

It's not to my taste, but these private offerings have been around for a long time and obviously meet some borrowers' and some lenders' needs. I would certainly look at this type of thing while I waited for 5-10 years to see how the peer lending thing worked out. I love those early adopters; it is the guys out front who have the arrows in their chests. I can learn from that.

 

[ESRwannabe]

Do you think the stock market is a better place to be? Have you looked into peer to peer lendIng? Do you think my allocation to this type of lending is too high?

In my taxable account I have consolidated most of my taxable money into Vanguard's Managed Payout fund ($400k) but I still have a tiny bit with fundrise.com as well ($2,000) to try them out.

Do I think 25% is too high? Hmm, no not really.

You might want to also look into yieldstreet.com for some unique crowdsource options.

IMHO the only bad thing about these crowdsource options is they are not tax efficient.

 

[njhowie]

I look at these as sort of junk bonds on steroids. Unrated, loosely regulated, and risky. For a certain type of investor who understands the risks and has enough money to be well diversified across many of them, they probably work OK.

This is the prospectus for this particular offering: https://www.uhaulinvestorsclub.com/document/download/9048/UIC-29E-Prospectus-Supplement2017 One interesting thing is that U-Haul's business 2012-2016 seems to be in pretty good shape. Another bit of good news is that the prospectus exists and is prominently offered on the web site. Far different than the puffery I saw when looking at the OP's suggested web sites.

It's not to my taste, but these private offerings have been around for a long time and obviously meet some borrowers' and some lenders' needs. I would certainly look at this type of thing while I waited for 5-10 years to see how the peer lending thing worked out. I love those early adopters; it is the guys out front who have the arrows in their chests. I can learn from that.

Make note of a few items:

1. U-Haul's parent company, AMERCO, is a public company, earned $40/share in 2017, and the stock trades at $350/share. Though there is potential for any company to fall upon hard times, this one has been performing.

https://finance.yahoo.com/quote/UHAL?p=UHAL

2. The notes (as well as all others) are registered with the SEC, and the prospectus can be pulled up directly on the SEC's website:
https://www.sec.gov/Archives/edgar/data/4457/000000445717000013/UIC11Ethru31E.htm

https://www.sec.gov/cgi-bin/browse-...004457&type=424&dateb=&owner=exclude&count=40

3. The notes are fully collateralized with first liens against the property they are issued on - quite similar to how airlines and aircraft leasing companies collateralize their debt with liens on the aircraft.

4. I fully appreciate your points regarding instances in this space where others have taken advantage of investors and such securities were like junk bonds on steroids. However, I don't believe this to be anything close. Again, you have a $7B public company, subject to SEC regulations.

5. Lastly, these notes differ from (junk) bonds in that where typical bonds simply pay interest until maturity with face value returned on the maturity date, these notes are amortized - the same as a mortgage. With each quarterly payment, the interest is paid on the remaining balance along with a small amount of principal (initially). Over time, as the note matures, the payoff amount declines over time, the principal portion of the quarterly payment increases while the interest portion decreases.

Again, I don't own any of them, but I have done the research on them in the past.

 

[ESRwannabe]

OP,

IMHO a crowdsource option like fundrise.com, where you are invested in hundreds of apt complexes (half of which are loans anyway), is a bajillion times less risky than buying real estate on your own to rent out.

Millions of people are landlords in the US and nobody would bat an eye if they said they had 25% of their assets invested in it.

On the other hand I would probably not put a penny into prosper or lending club.

Outside of fundrise.com my next preference would be to look at yieldstreet.com. I might would invest with uhaul lending club as well.

 

[underwrite]

Yes, you are crazy.

Become a boglehead. A lot less thinking involved.

I’ve been in the Boglehead camp for many years. Now, however, if you buy almost indexes you’re getting huge exposure to FAANG. They’ve had a great run, but not sure how much they have left to run. I’ve moved away from growth to value as I can’t stomach the valuations on growth stocks. Of course, value is not much better.

 

[underwrite]

OP,

IMHO a crowdsource option like fundrise.com, where you are invested in hundreds of apt complexes (half of which are loans anyway), is a bajillion times less risky than buying real estate on your own to rent out.

Millions of people are landlords in the US and nobody would bat an eye if they said they had 25% of their assets invested in it.

On the other hand I would probably not put a penny into prosper or lending club.

Outside of fundrise.com my next preference would be to look at yieldstreet.com. I might would invest with uhaul lending club as well.

Good info. Thanks. I’m checking out U-Haul now. I’ve also had really good results with Peerstreet. Agree with your comments on the real estate allocation.

 

[underwrite]

In my taxable account I have consolidated most of my taxable money into Vanguard's Managed Payout fund ($400k) but I still have a tiny bit with fundrise.com as well ($2,000) to try them out.

Do I think 25% is too high? Hmm, no not really.

You might want to also look into yieldstreet.com for some unique crowdsource options.

IMHO the only bad thing about these crowdsource options is they are not tax efficient.

Thanks for the feedback.

 

[underwrite]

Make note of a few items:

1. U-Haul's parent company, AMERCO, is a public company, earned $40/share in 2017, and the stock trades at $350/share. Though there is potential for any company to fall upon hard times, this one has been performing.

https://finance.yahoo.com/quote/UHAL?p=UHAL

2. The notes (as well as all others) are registered with the SEC, and the prospectus can be pulled up directly on the SEC's website:
https://www.sec.gov/Archives/edgar/data/4457/000000445717000013/UIC11Ethru31E.htm

https://www.sec.gov/cgi-bin/browse-...004457&type=424&dateb=&owner=exclude&count=40

3. The notes are fully collateralized with first liens against the property they are issued on - quite similar to how airlines and aircraft leasing companies collateralize their debt with liens on the aircraft.

4. I fully appreciate your points regarding instances in this space where others have taken advantage of investors and such securities were like junk bonds on steroids. However, I don't believe this to be anything close. Again, you have a $7B public company, subject to SEC regulations.

5. Lastly, these notes differ from (junk) bonds in that where typical bonds simply pay interest until maturity with face value returned on the maturity date, these notes are amortized - the same as a mortgage. With each quarterly payment, the interest is paid on the remaining balance along with a small amount of principal (initially). Over time, as the note matures, the payoff amount declines over time, the principal portion of the quarterly payment increases while the interest portion decreases.

Again, I don't own any of them, but I have done the research on them in the past.

Good info. Thank you.

 

[OldShooter]

Make note of a few items ...

Sorry, I didn't mean to upset you. I think this type of thing is a reasonable option for some people.

Re "junk" maybe we agree to not use this word, but I just looked on the Schwab site and 10 year investment grade bonds are yielding as high as 4.8%. U-haul is offering an 8-year loan at 4.93% and a 12-year at 6.07%. Why would they be offering these rates to "the club" if they wouldn't have to pay more in a bond offering?

Barron's is fairly sanguine about the deal: "AMERCO HAS ABOUT $2.7 billion of debt, part of which comes from a direct-investment program involving retail buyers, which offers some tempting yields with a minimum purchase of just $100. The U-Haul Investors Club recently was offering a series of asset-backed deals that also carry a corporate guarantee, with rates ranging from 3% for a two-year maturity to 7.75% for a 30-year maturity. These bonds aren’t rated by the major agencies, but probably would carry investment-grade ratings given the company’s relatively low debt compared with its ample cash flow and asset value. There’s about $69 million of U-Haul Investors Club debt outstanding. One drawback is a lack of liquidity. Investors need to be prepared to hold the bonds until maturity."

So investors are picking up a little better yield in exchange for near-zero liquidity and no independent evaluation of the debt. For some, this is probably an acceptable tradeoff.

As I said, not to my taste however.

 

[Texas Proud]

Yes you are crazy... I did see someone mentioned the pref shares... here is a link... it is a LONG thread as we discuss various issues...


http://www.early-retirement.org/for...he-good-the-bad-and-the-in-between-77428.html




Me, I use it instead of my hi-yield investment.... my current yield is 8.39% with a BB- weighted avg rating... I just had a security called and when I get it reinvested I will go up to 8.85% with the same BB- rating... (the original is a bit closer to BB than the later, but both avg to the BB- rating, so a bit riskier but still close)...


I would never invest in small loans where the chance of being paid back is MUCH less than these pref securities or debt issues...


OH, and I have been doing this for almost 2 years without a problem except for a good number of calls... but that has slowed now that interest rates are rising...

 

[njhowie]

Sorry, I didn't mean to upset you. I think this type of thing is a reasonable option for some people.

Not upset at all, so no apology necessary.

I just had the feeling you were generalizing without all of the specifics of this particular company/investment.

 

[OldShooter]

... I just had the feeling you were generalizing without all of the specifics of this particular company/investment.

Well, guilty as charged I guess, but with mitigating circumstances:

Diversification is key to investment success, so I would tell anyone interested in this kind of direct placement deal to not concentrate in just one, but to look for five or ten. Hence the generalizations about the asset class. Study each one, like you have studied this one, but don't get married. Just plan one date and then move on to date others in the asset class. Or, if you do just one deal, keep it to an insignificant fraction of investable assets.

 

[Oz investor]

Actually yes. Citigroup, B of A, JPM and most other large banks are incredibly well capitalized these days. There are a few bad eggs, Duetsche being the worst.

]

i fear Deutsche is NOT the worst just the highest profile ( the biggest bank in the biggest EU economy ) Spain and Italy have some real houses of cards

the Australian Royal Commission found a few bad eggs ALL 4 MAJOR BANKS , and AMP( an investment bank ) ..... MQBKY may soon have it's day in the spotlight as well ( but also might have settled the problems it had , early )

WBK seems to have got little mention because it cleaned up it's mess EARLY not because it didn't have any problems

and ALL the Australian banks ( big and tiny ) are passing the stress tests , so what about the ones needing to cut corners .

however this MIGHT be the wiggle room peer to peer needs to survive

 

[fiyesno]

Lending Club

I made a sizable (roughly 50K) but not as big as the OP's investment in peer to peer lending. Mine was with Lending Club, I am about 4 years into it. I watched my "adjusted net annualized return" drop from about 10 or 12% to its current 3%. At first, I re-invested my gains back into it, and part of my drop in return is because about 2 years ago, I stopped re-investing and have been taking my money out as it goes to cash. One of the nice properties of this type of investment is it gives you a cashflow source for about 3 years as you unwind your way out of it. I mostly stopped investing in it because it made me kind of nervous, but intellectually, I think it is a reasonable investment for, say, less-than 10% of your portfolio. I started with the A and B investment grades, but quickly changed that to a mix of A-F. It turns out the default rate is not that much different based on the grade. Unfortunately, I can't remember for sure how much I invested, and it is not that easy for me to figure it out, but I think I invested 50K initially, and I have been returned 69K, 15K which is interest, and my balance is still 8K, in about 4 years. So the return has been pretty good for me.

But like I said, it, and the company, make me nervous, so I am taking out my money as the loans are repaid. Each loan is $25, and have 2-3 year loan lengths (although lots of people pay back early). The defaults end up being tax write-offs. Also, it is very easy to use, and the year-end tax stuff ended up being easy (downloads easily into TurboTax).

So my experience has been mixed, but not bad.

 

[flintnational]

I tend to believe financial markets are "mostly"* efficient. Accordingly, the rate of return and risk usually go hand in hand. If there are higher returns , it is probably because the risk is also higher. With P to P lending, risk levels will not be clear until we go through a down turn and a full economic cycle of data is available. Banks tend to go out of business (get taken over) during downturns due to bad loan portfolios. The bad loan portfolios are only exposed during the down turn.

*I say "mostly" because I also believe behavioral finance influences markets at times and they can become irrational near peaks and bottoms. If anything, bf is probably having a downward push on P to P rates. Times are good and its the trendy thing to do. (More risk less return)

 

[Oz investor]

"In the short term, the market is a popularity contest. In the long term, the market is a weighing machine." Warren Buffet

"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing." Warren Buffet

but i hold over 200 stocks ... yes i needed an income fund in less than 10 years and was not arrogant enough , to believe i could become an expert in 9 years .

but younger folk have to to learn and refine that knowledge and THEN invest wisely