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Chart of the Day: Seasonal Trend in Lending Club Charge Off Rate

Automated Buying of Notes on Lending Club Folio Secondary Market

How to automate Note Selling on Lending Club Secondary Market with PeerCube?


Last month, we introduced automated note selling on Lending Club Folio secondary platform using the secondary market API. With this PeerCube feature, subscribers are now able to automatically list their notes on secondary market for sale. In this post, we provide how-to and guidelines for automated selling of your portfolio notes.

Access to FOLIO Investing Note Trading API

Before trading notes, please sign the Access to the Folio Investing Note Trading API agreement with Lending Club and Folio for the accounts in which you want to trade notes. Without this API agreement in place, PeerCube receives non-compliance alert in response to any order placed. The system will routinely delete automated sell settings for such accounts that are not in compliance.

The sell orders are placed for notes meeting sell filter criteria at the price determined based on selected pricing strategies. PeerCube runs your automated sell filters once a day. Sell orders placed successfully on secondary market are valid for three days. All unsold notes are re-listed once the previous sell orders have expired.

Build Automated Sell Order Filter

The most important step in automating listing of your notes for sale is to determine your selling criteria and pricing strategy. You can do this by building your own sell filters with Build Lending Club FOLIOfn Automated Sell Order Filter. Your saved automated sell filters are displayed on Your FOLIOfn Automated Sell Filters page.

You have choice of the following six attributes to build your own customized sell order filter:

  • Loan Status
  • Credit Grade
  • Loan Length
  • Loan Purpose
  • Credit Score Trend
  • Application Type

Automated Sell Order Attributes

The Loan Status is an important field as the markup/discount on secondary market is closely related to the Loan Status of the notes. It is a good idea to have separate filters for different loan status of Issued, Current and Late (In Grace Period, Late (16-30 days), and Late (31-120 days)) with different pricing strategies (described later).

The Credit Score Trend is another relevant field. Typically notes with Credit Score Trend of Up can be sold at higher markup [lower discount] on secondary market.

The Application Type is a relatively new field. Previously, most loans were issued on individual basis. You may want to consider leaving this field as default until there is more performance data available w.r.t. application type.

PeerCube also provides three pre-defined pricing strategies for you to automatically price the notes. Multiple pricing strategies can be used with each automated sell filter.

  • Strategy 1: Lowest Listed Price for Same Loan
  • Strategy 2: Average Listed Price for Similar Loans
  • Strategy 3: Total Amount Due on Notes

Folio Sell Pricing Strategy

Pricing Strategy 1: Lowest Listed Price for Same Loan

This strategy scans the secondary market listings of notes from same loan as your note for the lowest markup [largest discount]. The price for your note is determined by adjusting the lowest listed price by the markup/discount percentage specified in your saved filter.

For example, you have a note with total amount due of $100. You have selected to discount your note 1% below the lowest listed price (strategy 1). There are currently five other notes from same loan available on secondary platform with one note listed at largest discount of 50%. The sell listing price for your note will be $100 x (1 - (50%/100)) x (1 - (1%/100)) = $49.50.

This pricing strategy is based on the premise that in order to encourage buyers to potentially purchase your note, you list note with markup [discount] lower [larger] than that offered by other sellers of notes from the same loan. Simply put, no rational buyer will pay more for a note if there is another note from the same loan available at lower price. This pricing strategy is suitable in situations when you want to sell your notes quickly, for example notes with Late Loan Status.

Pricing Strategy 2: Average Listed Price for Similar Loans

This strategy attempts to find the average markup [discount] for recently listed notes from similar loans as the loan associated with your note. The price for your note is determined by adjusting the average listed price by the markup/discount percentage specified in your saved filter.

This pricing strategy is suitable in situations when there are no other notes listed from the same loan as your note. By using average listed price instead of lowest listed price, this strategy guards against the situation when a seller on secondary platform might be liquidating his/her portfolio by heavily discounting notes on secondary market.

This pricing strategy is also a good strategy as backup to the first strategy described above. When creating your sell filter, select both pricing strategy 1 and 2. The system will first attempt to execute pricing strategy 1 and when there are no other notes from the same loan, it will execute the pricing strategy 2 to price your note.

Pricing Strategy 3: Total Amount Due on Notes

This strategy doesn’t take into consideration the previous listings from same or similar loans on secondary market. The price for your note is determined by adjusting the amount due on the note by the markup/discount percentage specified in your saved filter.

This pricing strategy is suitable when you want to list notes for sale at specific markup/discount without any other consideration, for example notes that were Issued recently, i.e. Issued Loan Status.

Pricing Guidelines

In general, we encourage you to review Loan Status Migration Over 9 Months chart provided by Lending Club and Lending Club FOLIOfn Pricing Overview and Lending Club FOLIOfn Detailed Pricing provided by PeerCube before pricing your notes manually, selecting pricing strategy and developing your sell criteria for automated selling on secondary market.

Folio Pricing by Loan Status

For example, the screen capture above shows the Lending Club FOLIOfn Pricing Overview. The markup displayed under Average Markup column for Current and Issued Loans (Blue box) appear quite reasonable compared to minimum markups. For such notes, you may want to consider avoiding pricing notes by lowest listed price strategy (Strategy 1) and use a combination of Strategy 2 and 3. Similarly for Late loans, the markup displayed under Minimum Markup column (Red box) appears more reasonable compared to average markup. For such notes, you may want to consider avoiding pricing notes by average listed price strategy (Strategy 2) and use a combination of Strategy 1 and 3.

Enable Automated Sell Filters For Your Lending Club Account

Once you have customized and saved your automated sell filters, you can associate sell filters with specific Lending Club accounts on Lending Club FOLIOfn Secondary Market Order Management page. The FOLIOfn Automated Sell Setting section shows dropdown with list of accounts for which you have provided Lending Club primary platform API keys. The section also shows dropdown with list of your saved FOLIOfn Automated Sell Filters. You can add a specific account with a specific sell filter to enable automated selling for that account.

On the same page, the Last 30 day Order Activity section shows all the Buy and Sell orders placed on secondary market, manually and programmatically, in last 30 days.

We hope this how-to helps you to set up automated selling for your Lending Club accounts. This feature is only available to our Pro Plan subscribers. Please comment below or contact us with your feedback and request for clarifications.

Comments: (3)

Karen Slater | Wednesday April 6, 2016, 6:02 pm

I like the available filter selections.  Decided to comment  about the saved filter description box--it's a bit of a hassle to edit that or find it to copy when changing the filter instead of starting over again.  Also, I'm wondering what happens when the 3 day listing expires.  You don't need to tell me--I can wait and see. The first time I tried this out I went back to the LC Folio page instead because that was easier for me.  Now my desired sales are completed, so I'm trying this out again to see if I can be automated for the fresh ones coming up.  Thanks for your email and blog directions!  I needed both.

 

 

 

Anil Gupta | Thursday April 7, 2016, 12:25 am

@Karen, thanks for your comment. The description should be populating with previously saved description. We will open an issue for description not populating. Your saved filter is run every day and the sell order is placed for any notes meeting the criteria including the notes that previously didn't sell and previous sell order expired. The system checks to make sure note is not already listed. 

 

 

 

Shane | Saturday June 23, 2018, 10:09 am

When I click the checkbox to approve the API the box never saves as going back to that page shows it unchecked again...

 ?   ?

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