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

Reading List: Securitization, Forecasting, and Food

Six Steps to Automated Selling on Lending Club Folio Secondary Market

Enhancements to Automated Note Selling on Lending Club Folio Secondary Market


Earlier this year, we introduced capability to automatically list portfolio notes for sale on Lending Club Folio Secondary Market. See How to automate Note Selling on Lending Club Secondary Market with PeerCube? for more information. This automation capability is being extensively used by our subscribers to optimize their portfolio performance.

Since introduction of this feature, we received valuable feedback and suggestions for improvements. Based on those requests by users, last weekend, we rolled out a few enhancements to PeerCube automated Folio selling, specifically improving the development of Lending Club Folio Automated Sell Order Filter. This blog post is summary of new enhancements.

New Attributes for Sell Filter

With latest enhancements, you are able to incorporate the following new attributes in building your Lending Club Folio Automated Sell Filters:

  1. Never Late
  2. Interest Rate
  3. Outstanding Note Principal
  4. Markup/Discount Range
  5. Capability to Sell Notes in a Specific Portfolio only

Rest of the blog post provides detailed explanation for newly introduced attributes, except Interest Rate and Outstanding Note Principal attributes that are self explanatory.

Never Late

The Never Late field was the most requested enhancement from our users. Once notes have been issued for a while and borrowers have made a few monthly payments, health of the notes primarily depend on payment history and changing credit profile of the borrowers. By using Never Late field, you are able to create sell filters separately for portfolio notes on which payments have never been late (Never Late = TRUE) from portfolio notes on which payments were delayed/delinquent previously (Never Late = FALSE). By default, both TRUE and FALSE values are selected for Never Late field.

The Never Late field is not provided by Lending Club for notes in a user portfolio. This is a field that we actively monitor and update daily for all loans from the available data. To avoid marking a note as previously late (Never Late = FALSE) erroneously, we consider all loans to be never late (Never Late = TRUE) unless we positively identify that a loan was late at least once since origination.

Now, we also include Never Late field to identify similar loans listed on Folio for sale for the purpose of pricing notes using Pricing Strategy 2: Average Listed Price for Similar Loans.

We suggest our users to consider developing separate sell filter for Current notes on which payment was never late. Such Current notes tend to list for higher premium/lower discount compared to Current notes on which payment was previously late.

Sell from PeerCubeSell Portfolio Only

The capability to sell notes from a specific portfolio was the second most requested enhancement from our users. Our challenge to implement this feature is that the portfolio names and associated portfolio IDs are unique to specific Lending Club accounts. Most of our active users have multiple Lending Club accounts. Thus, we prefer to keep selected criteria for loan filters separate from account specific attributes. Separation of logic for loan selection from account enables our users to create and apply one set of loan filters across multiple accoounts at Lending Club Folio Secondary Market Order Management page. By default, the Sell from PeerCubeSell Portfolio Only field is not selected.

With Sell from PeerCubeSell Portfolio Only field, you can specify to sell notes only from PeerCubeSell portfolio. The notes that are not assigned to PeerCubeSell portfolio will not be listed for sale on Folio secondary market when this field is selected. The PeerCube system will attempt to list only notes for sale that are assigned to PeerCubeSell portfolio and meet sell filter criteria. If this field is not selected, the system will attempt to list for sale all notes in your Lending Club account that meet sell filter criteria irrespective of portfolios these notes are assigned to.

You must add a new portfolio with name PeerCubeSell (should be spelled as shown) at Lending Club My Portfolios page in your Lending Club account and assign notes that you want to sell to this PeerCubeSell portfolio. Once you perform these actions at Lending Club site, this information is downloaded and updated by PeerCube the following morning. Until then, no results are displayed after pressing Save Filter and Review Results button.

Markup/Discount Range

The Markup/Discount Range field enables users to restrict markup/discount within acceptable range on notes listed for sale. On Folio secondary market, depending on motivations for selling, sellers list their notes for sale with wide range of markups/discounts. With this field, you can make sure that the pricing for your notes is not unreasonable low/high specially for Pricing Strategy 1: Lowest Listed Price for Same Loan and Pricing Strategy 2: Average Listed Price for Similar Loans. The default range is -99 to 70%. The maximum default value is pegged at 70% as Lending Club doesn't allow notes to be priced at more than 70% premium.

For example, at the time of writing of this blog, Current Loans that were Never Late since origination for listed for sale with average markup of +5.57% and minimum markup (maximum discount) of -12.09%. Most lenders know that Current Loans that were Never Late are considered cream of the crop and will rarely be sold at a discount. A seller might be very motivated (ex: account liquidation) to sell such note at markup of -12.09% (discount). If you were using the strategy to price your note just below the lowest price of other notes from the same loan to make your note desirable for buyers, your note might get listed for sale at markup slightly lower than -12.09%. It is not a good outcome for you as you are not motivated seller. To avoid such undesirable pricing result, you can specifiy minimum acceptable markup/discount, for example a minimum markup of 3.00%. By setting the minimum markup limit, your note will never be listed for less than specified 3.00% markup.

We also made a few changes under the covers that improve, specifically identifying similar loans for Pricing Strategy 2: Average Listed Price for Similar Loans and, in general, the speed and reliability of automated process.

Suggested Readings on Investing

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan

Winning the Loser's Game, 6th edition: Timeless Strategies for Successful Investing

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