PeerCube Thoughts

Opinions and analysis of Marketplace Lending, Online Lending, and Peer to Peer Lending.

Guest Post: Statistics and Emotions in Selling Lending Club Notes

Cognizant Report on Marketplace Lending: A Critical Review of the Study

A Conversation with PeerCube User: Getting Started, Experience, and Strategy

Today we’d like to share our recent conversation with Aaron, a PeerCube user. He often gives us great ideas to make PeerCube more powerful and useful. He puts out astute questions and gives us different perspectives. We always enjoy talking to him and hope you will find this conversation valuable.

Getting Started with Peer to Peer Lending

PeerCube: How did you become interested in Peer to Peer Lending?

Aaron: When Prosper first started, I signed up to be an investor; however, I never transferred any money to the account. I was curious, but I did not feel the information provided was sufficient for me to make a credit decision. Then, mid 2012, I discovered Credit Karma and was impressed with the information they provided for free. In addition, they had an advertisement or a recommendation for credit card consolidation using Lending Club (LC).

I went to the Lending Club website and was intrigued about how easy it was to see loans and the information they provided along with filters for the investor. I also wanted to see how they scored the loans and the process for loan approvals; so I used my wife to apply, as she had the best FICO between us. She qualified for an A1 loan. In the meantime, I opened an account to invest and started with $1,000 in June 2012. Based on the process to apply for a loan and learning how the process and questions LC asked, I felt comfortable that they were doing their due diligence to verify income, identity and their matrix to rate loans all made sense to me.

PeerCube: How has been your experience with P2P Lending? What platforms (Lending Club, Prosper, OnDeck, etc.) do you use?

Aaron: I currently only invest in LC loans and also use the secondary market, FOLIOfn, to buy and sell loans. As a matter of fact I only invest in E, F, and G loans. At first I also invested in D loans but found the yield too low for the risk, so I sold most of them in early 2013.

PeerCube: If comfortable, please share your P2P lending statistics, number of notes, total amount, and performance.

Aaron: I have invested in over 2,000 notes so far. According to PeerCube, my present gross yield is 18.72%, compared to benchmark of 11.71%, and loss rate of 2.10% , lower than the 2.90% benchmark. Lending Club shows my present NAR (net annualized return) to be 21.41%. My success is in part attributed to using PeerCube to manage my portfolio as when I first started out with PeerCube my gross yield was 12.69%.

PeerCube Experiences

PeerCube: That’s pretty good return! Now how did you find PeerCube? What attracted you to PeerCube?

Aaron: Around the end of last year (2013) I found the PeerCube blog and read some of your findings. It was the first time that I had read information that was of interest and was not at a beginner’s level. It got my attention that you had a more sophisticated view point and was providing information that presented different view point from mine and interesting tidbits. Especially at the end of a discussion whereby you list the “key takeaways”.

PeerCube: Thank you. Glad you like my blog. In terms of PeerCube as tool, how has been PeerCube helping you with P2P investments?

Aaron: PeerCube provides filters that help me manage my portfolio that would be very time consuming otherwise. As I currently have 1,800 active loans, I want to review all the loans that have FICO score dropped below 620 and sell them while they are current; otherwise, the discount is too steep to sell them in the “grace period” or beyond.

Notes at FICO Risk and Previously Late Features

PeerCube: We implemented Notes at FICO Risk feature based on your request. How did you come up with this idea? How do you like the feature after it’s implementation? How has this feature helped you?

Aaron: I am familiar with FICO scores and approving equipment financing loans is my profession. The business applications I review are closely held companies and as a result I review the Credit Bureau Reports of the owner/shareholders. I’ve learned the some of the pitfalls of FICO scores and also how they can be misleading even if you have a 700+ score.

Anyway, that’s how my background made me think of reviewing FICO downgrading trends of each loan. Previously I would have to do this manually and only after they had matured for minimum of 3 months. It was time consuming to review them as I reviewed all downward trending loans. Many of them were just 5 or 10 points below the original FICO and this did not concern me; however, I had to open each loan in FOLIOfn to see the graph. Later when LC started to post the current score in a field, it caused me to think that it would be easy to sort this information if a filter could be created. So, I requested you to help me sort FICO scores and you listened and made one for four categories.

I check Notes at FICO Risk page once every other week to review my portfolio and, as mentioned earlier, sell all Current loans below 620. Some of these loans are listed in several filters, so I always sell them in the FICO below 609. For the loans listed in the FICO drop by 50 and 100, I will sell them if they are 625 or lower. For the FICO below 640 filter, I use it when I want to pare down some additional lower scores.

In addition, Notes Previously Late page lists loans that have been in “Grace Period” or have been previously late. There are a higher propensity for these loans to go bad. So if the FICO score is below 650, I want to review the loan to decide whether to sell or keep it. If it is a loan that has a lower yield, below 20%, I sell it.

Wish List

PeerCube: Do you have any wish-list for PeerCube?

Aaron: Be able to mark the loans and sell them from PeerCube to FOLIOfn. Currently I write them down on a piece of paper and then look them up on FOLIOfn. [Note: Once Lending Club provides an API for secondary market, PeerCube should be able to automate order execution. None of the other methods have been proven to be reliable enough yet.]

PeerCube: Lastly, do you have any advice to people new to PeerCube?

Aaron: Take some time to read the PeerCube blogs. Some may be over your head at the beginning or too analytical, but don’t stop reading. Just skim and find some information of interest. It will help and build your knowledge base.

Also, do not make any loans to be used for Business. They are unsecured and a FICO score is not enough to invest in a loan. We do not know the business or profitability of the business cash flow or if they are a start up (yikes!). Stay away – all the stats prove this. I never added them to my filter to review. I do see them on the secondary market as they cannot be filtered out. I am always amazed that someone invested in them with very limited information. My other suggestion is only invest in “loan refinancing and consolidation” or “credit card payoff”. The borrower’s FICO score should generally increase. If you find the “right” loans the FICO score will easily increase by 50 points or more.

PeerCube: Thank you very much for your time today. Keep on coming up great idea and share with us!

We Need Your Help!

Like Aaron came up with great feature for PeerCube users, we would like to hear from you and implement your idea. Please use our Contact Us form to provide your ideas and suggestions.

Comments: (3)

scott | Thursday August 28, 2014, 9:38 am
When the FICO score drops below 620 seems like an interesting feature. I am not able to find this feature on your site or where I can research how it works exactly. Can you point me in the right direction please.
Anil Gupta | Thursday August 28, 2014, 10:59 am
Scott, the FICO score related stuff is under "Notes at FICO Risk" on PeerCube. We don't have specific FICO score drops below 620 but it does have FICO score drop below 609 and 640.
scott | Thursday August 28, 2014, 5:01 pm
Very interesting feature.

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