Build Your Own CDO 
Have you ever dreamed of building your very own CDO? Do you think you could master the fragile alchemy of blending Z-tranche crap with A-rated paper to outperform the market? Well now you can. And I'm going to lead the charge by putting together my own CDO and reporting its results to you on a quarterly basis. Here's how.
I've been researching Peer-to-Peer (P2P) lending for several months now. It is a growing market currently serviced by two major players, and I expect more to come online shortly. Individual borrowers log on and apply for a loan, and individual investors log on and fund those loans. At present, loans are written for up to $25,000 and for terms as long as five years. P2P lending completely bypasses the banks in favor of a free market solution, and I think it has the potential to be a grand slam for investors over the next decade.
THE PLAYERS
The biggest companies offering P2P lending today are Prosper and LendingClub. Prosper is the older and larger of the two, founded in 2006 and now boasting over one million members and over $210 million in loans funded. LendingClub isn't far behind. They were founded in 2007 and, while they don't publish membership numbers, they've completed over $180 million in funded loans. The two just happen to be headquartered a stone's throw away from each other in San Francisco.
The primary difference between the two is that Prosper uses an auction format for bidding up or down interest rates on requested loans, where LendingClub has set rate parameters based on a variety of factors like loan amount, FICO score, debt-to-income ratio, and several others. Both allow investors to fund a requested loan with as little as $25, so a $25,000 loan may be funded by as many as 1,000 different investors.
Both sites also offer a secondary market in the notes through Foliofn where funded notes are bought and sold. I can't say how liquid the notes are, because I haven't tried to sell any yet. I will say that I'll be buying some "junk bond"-type paper on the secondary market soon just to test out a high-yield portfolio.
MY CDO
I chose LendingClub over Prosper because they appear to have a platform better suited to sophisticated investors. That's not a slam on Prosper, it's just my impression. LendingClub chose to register with the SEC right away, but Prosper operated outside the regulators for awhile before registering (I'm not sure there's any requirement for them to register, but it certainly makes investors feel better). LendingClub also instituted stricter lending standards coming out of the gate, which Prosper has now emulated.
I was more comfortable with the LendingClub platform as well. It's very straightforward; you simply filter the available notes by interest rate, credit rating, term, purpose, or a variety of other factors that are important to you. I liked that I could lock in an interest rate when I found a loan I was comfortable funding, rather than seeing the rate fluctuate according to auction results.
So I joined LendingClub and built a portfolio of loans whose results I could report back to you. The CDO I built has a weighted average rate of return of 10.79% annually and this is how it breaks down:
- A paper - 20%
- B paper - 40%
- C paper - 20%
- D paper - n/a
- E paper - 20%
- F paper - n/a
- G paper - n/a
80% of the portfolio is made up of loans to people consolidating debt (mostly high-interest credit cards) and the other 20% went to hard asset investment purchases (collectible automobiles for resale by guys with demonstrated expertise in that market). 60% of the portfolio is in 3-year notes, the other 40% in 5-year notes.
For the record, LendingClub only offers loans by those borrowers with FICO scores of 660 or better, debt-to-income ratios of 25% or less, at least three years of credit history with no current delinquencies or recent bankruptcies (7 years), and a variety of other fairly strict criteria.
WHY IT WON'T LAST
I have a feeling P2P lending is going to be great over the next 5-10 years, but I think the people who get in now are going to do the best. This is for two reasons.
First, as P2P lending becomes more the norm, more and more investors will seek the higher yields this type of investing can provide. If you have more dollars coming into the market, either the yields or the credit quality of the loans have to drop.
Second, as the dollar volume of P2P lending accelerates, the banks are going to get really cranky. Sites like Prosper and LendingClub have no capital requirements, because all their loans are fully funded by individual investors. They have no local branches or exorbitant staffing requirements. They're able to offer lower rates to borrowers than the banks and offer higher rates to investors than the banks can afford. At just under a half a billion dollars in lending, P2P lending is a minor irritation for the banks. But you'd better believe that when the volume gets over $10 billion or so, the banks are going to start leaning on their government puppets to shut it down.
I could be wrong about all this, and it certainly wouldn't be the first time. I might have my CDO crash and burn and never pay me a cent. But for the opportunity to stick it to the TBTF banks (who issue the vast majority of credit cards in the U.S.), you'd better believe I'm on board. I'll let you know how it works out.
If you have any questions (or think I'm a fool), hit me with them below.
Comments
Interesting...would be
Interesting...would be curious how much you actually loaned out? $1k, $5k? or how many loans make up each bucket? So, for example, 20% of what you loaned out is what you call "C Paper"...how many individual loans made up this 20%?
I might actually give this a shot to put some $s to work.
35% off Live IB Training
WSO Conference 2012
I have recently been playing
I have recently been playing with lending club data (plan on doing some more over the holidays). It piqued by interest when a bunch of personal finance blogs I follow began managing loan portfolios. Many of these guys were beating the 10% avg return than lendingclub advertises. I remember one of the main points made by these guys is the importance of diversification.
Anyways, here is some data to play with: https://www.lendingclub.com/info/download-data.action
My main interest is to see if I can figure out what the optimal number of notes to hold to get a decent return:risk ratio on a HY (>10%) loan portfolio. Overall, I think its a great way to put some $ to work. Investing in loans would have netted you more money in the last 4 years than putting it in the market at the very least.
Another great post, Eddie.
Another great post, Eddie. Interesting ideas, piques my interest. Any idea of loss ratios so far for either of the P2Ps??
A good friend will come and bail you out of jail...but a true friend will be sitting next to you saying, "Damn...that was fun!"
I'm not sure I understand how
I'm not sure I understand how you've structured your CDO; can you elaborate on that? (I assume it's really more of an internal calc to make a point but I'd still like to know what you mean)
There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
@Patrick, I opened the
@Patrick, I opened the account with $250 just to poke around and get a feel for everything. I bought 10 loans at $25 apiece. So 20% is 2 loans, 40% is 4 loans, etc... I'm still getting to know the various stages of the loan process (for example, loans are initially given 2 weeks to round up all the dough - some do it right away and other take the whole two weeks), then it goes through a review process, then the funds get disbursed. I just put the portfolio together this weekend and so far 3 of the 10 loans are completely finished (as in, I'm now waiting for my first payment in January), 3 more are funded and under review (probably disburse in the next 24 hours), 2 are still in funding (meaning they're not fully subscribed but have more time before expiration), and finally 2 expired without being fully subscribed, so I'm not sure what happens in that case but I'll report as soon as I know. One of them was a $12,500 loan request that got $11,950 funded, so I'm assuming they just go ahead with the $11,950 loan, but I'll let everyone know when I find out for sure.
Once I'm completely comfortable with the whole thing, I'll probably buy 100 new loans and 100 secondary market loans to see how it goes.
@baddebt88 Yeah, I think diversification is key to this type of investment. LendingClub hammers that pretty hard, and their loss ratios bear it out. The more loans you have, the more stable your return and the lower your risk.
@LetsGoSailing LendingClub actually offers a Portfolio function if you don't feel like picking out your loans individually. You just select from one of three annual yields (low, medium, and high ranging from about 6% to 16%) and they build a portfolio for you. When you do this, they actually give you the statistical rate of default on the portfolio. I didn't fool around with it much because I wanted to build my own, but I remember the default rate on the worst portfolio was still expected to be less than 2%, so the overall yield was around 14% if I remember correctly.
Eddie - thanks, just created
Eddie - thanks, just created an account.
I guess a question we should be asking ourselves is how correlated a portfolio built in a P2P network is with the rest of our investments in the market (assuming a net long position).
In other words, what equities and/or ETFs would a portfolio of personal loans track most closely or are there any other ways to play this micro-loan market trading through your traditional brokerage account?
35% off Live IB Training
WSO Conference 2012
I cannot preach enough on how
I cannot preach enough on how important diversification is when managing a loan portfolio, had a tiny lending business back in college and it blew up on me when I got greedy on one.
Great thread Ed, will be looking into this for sure.
People like Coldplay and voted for the Nazis, you can't trust people Jeremy
Eddie> How are you picking up
Eddie> How are you picking up your notes from the secondary market? What sort of screening idea etc?
It seems that the liquidity in the market is fairly decent. It also seems that fairly stable loans can be picked up at .2-.5% discounts which over the long term can definitely add some alpha to the portfolio.
One thing I am trying to find is data on distressed notes that trade in the secondary market. It would be interesting to see, how loans that trade at 30-40% discount eventually perform. Any idea where to find this raw data?
HAHA. Yeah, me, cuz that's
HAHA. Yeah, me, cuz that's the crap I'm gonna be buying for my high-yield portfolio. I'll keep you posted.
Very interesting, but a CDO
Very interesting, but a CDO would imply collateral. These loans do not appear to be collateralized at all. I am skeptical because (among other reasons):
- 63% of loans are reportedly for borrowers to pay off credit card bills, and I regard people with credit card debt as some of worst at managing money
- 87% of all loans ever made are still outstanding, so the system does not seam to be tested yet. I would be very interested to see the data in 5 years, when we can see how many of these loans actually do get paid off
- The lack of verifiability of the borrower’s information, particularly in the “Loan Description” and “Questions and Answers” sections
- Uncollateralized, and because these loans are generally small, sometimes held by a hundreds of lenders who cannot contact the borrower, and because the only institution available to chase after them is the website company, I have doubts of the collectability of delinquent loans
- Diversification only mitigates some of the risk. Mortgage backed securities should have taught us that a pile of shit bundled up into a diversified package is just a package of shit
However, it is still a very interesting idea, and if the company can ensure transparency and can build a solid long-term track record, it could be a very useful tool for investors
Yes, you are correct, these
Yes, you are correct, these are not collateralized loans. I called it a CDO for lack of a better term.
All the points you bring up are good ones. I happen to think that the recession has caused a massive wave of deleveraging among consumers and it is now very popular to become debt free. I would normally agree that credit card balance carriers are a poor risk, but in this case I'm willing to take the chance. I think consumer sentiment has turned a corner to such a degree that for the next several years at least, people will look at credit card debt like the financial AIDS that it is and cut it at all costs. For that reason, I feel better lending money to people who are eliminating debt. Right or wrong, the bulk of my lending will be for that purpose.
[quote Asia_i_Banker]Diversification only mitigates some of the risk. Mortgage backed securities should have taught us that a pile of shit bundled up into a diversified package is just a package of shit.
Correct, and hilarious. There's no free ride. You still have to do your due diligence.
The "collateralized" in CDO
The "collateralized" in CDO refers to the debt itself which collateralized the obligation. IE in a CLO the collateral is the loans, in a CBO the collateral is the bonds. The loans and bonds themselves aren't necessarily "collateralized" and can be unsecured, subordinated, etc.
There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
Nice post, I passed the one
Nice post, I passed the one year mark doing lending club last month. It is a great idea and thus far I have just under a 12% return. I have about $4k invested in about 150 notes. I want to see how well they perform come march, after the holiday bills are due and heating bills are back down to normal, and then I am going to ramp up my investment there.
Lending club is WAY better than Prosper. I tried prosper back in 2007, and the rates were way too low for people who were such high credit risks- It was the height of the credit boom, and Prosper may have changed some of their policies since then, but when I did it, you would see guys who could hardly get a credit card secure a loan for 10k at a 7% interest rate.
Some advice- read the applications from the potential applicants. I let lending club auto-pick a portfolio that is about 30% of the size of my total investment. I have had 3 notes verge on defaulting, 2 were from the auto portfolio, one from the portfolio I hand selected after reading applications. Some are just filled with grammar and spelling errors, which I immediately pass on.
I was dq'ed from participating in FolioN due to my position in my firm. I looked in there, and I think there is an opportunity to juice returns a few % points. Another way to juice your return is taking advantage of their matching promotions- it seems that the providers of capital are in greater demand than potential borrowers, and every other month or so they have a promotion where they will kick in 2% of whatever you put in over $1000 or some other threshold (you have to invest the money in notes within a certain period to get the bonus). 2% is more than I am getting in my bank account these days...
If you guys are interested, PM me, if I refer you, YOU get $100 free to invest and try the site out with (I get nothing from the deal)- though they might offer the same to new accounts on the site. Also, Lending Club is not available in some states- I had to lie and say I live in NY to join, and if I remember right, there are net worth and other requirements that you have to pass to join, though you can easily lie about those if you don't meet them.
If you guys have any other questions, let me know, I will answer them.
Edit: I am getting lots of referral requests, which is fine. A few things though- I need your email address to send you the referral. I didn't realize this earlier, as their older promotions just gave you $ for joining, but here you need to deposit $2500 to get the $100 and I am pretty sure you need to invest that $2500 in notes within 30 days. So its not completely strings free. Sorry if that wasn't clear, when I joined they gave me $25 or $50 free and clear, so long as I invested it in notes within the first 30 days or so.
Hey Eddie, would you be able
Hey Eddie, would you be able to sell your CDO on a secondary market like SecondMarket.com? That is a solid expected return.
I am not cocky, I am confident, and when you tell me I am the best it is a compliment.
-Styles P
Funny, I was just looking at
Funny, I was just looking at this yesterday as well.
PS, if anyone wants to invest in me and a startup... feel free to throw some money my way ;)
Need to Land a Job? Click Here.
Clever idea. I've been
Clever idea. I've been wondering how long it would take for the idea of securitization to hit LC's fixed rate note business. I'm not sure if CDOs or SIVs really fits the bill, but I would likely refer to this as SPNs - securitized promissory notes.
I've been investing for 1.5 years so far w/ a 15.5% NAR. Have a few blog posts documenting performance, but since I'm new here, don't want to post an active link. If anyone wants to check it out, just let me know.
__________________________
Attempting to be the chess player, not the chess piece @ Steadfast Finances
Matt, I appreciate your not
Matt,
I appreciate your not wanting to SPAM the forum as a new user. If only more people were as courteous.
I checked out your documentation and not only is it legit, congratulations are in order. A 15%+ annual return with 0 defaults is pretty amazing, and I'll do the service of posting it because I think people will want to see it for themselves:
http://steadfastfinances.com/blog/2010/09/21/lending-club-update-earning...
Welcome to WSO, by the way.
Truly interesting company
Truly interesting company there.
As stated before... whats the process when the loan defaults? (cant view their site at work)
Im assuming this has to be tied into credit rating and the like therefore actually incurring consequences?
"Stay Hungry, Stay Foolish"
i have copied and pasted part
i have copied and pasted part of the prospectus of the lendingclub.
i would only invest money you can afford to lose.
=============================================================
Information supplied by borrower members may be inaccurate or intentionally false and should generally not be relied
upon.
Borrower members supply a variety of information that is included in the borrower member loan listings on our website and
in the posting reports and sales reports we file with the SEC. We do not verify this information, and it may be inaccurate or
incomplete. For example, we do not verify a borrower member’s stated home ownership status, job title, employer or tenure,
unless otherwise indicated, and the information borrower members supply may be inaccurate or intentionally false. Borrower
members may misrepresent their intentions for the use of loan proceeds which also may result in us not obtaining certain fees
from borrower members. Unless we have specifically indicated otherwise in a loan listing, we do not verify a borrower
member’s stated income. For example, unless otherwise indicated, we do not verify borrower member paystubs, IRS Forms W-2,
federal or state income tax returns, bank and savings account balances, retirement account balances, letters from employers,
home ownership or rental records, car ownership records or any records related to past bankruptcy and legal proceedings.
Approximately 60% of listed loan applications are selected for income or employment verification. For the three-months ended
June 30, 2010, approximately 61% of requested borrower members provided us with satisfactory responses to verify their
income or employment; approximately 13% of requested borrower members withdrew their applications for loans, and
approximately 26% of requested borrower members either failed to respond to our request in full or provided information that
failed to verify their stated information, and we therefore removed those borrower members’ loan postings. The identity of
borrower members is not revealed to investors, and investors also have no ability to obtain or verify borrower member
information either before or after they purchase a Note. Potential investors may only communicate with borrower members
through LendingClub website postings, and then only on an anonymous basis. While we may Monitor website posting for
appropriate content, we do not verify any information in the postings nor do we respond to requests from investor or borrower
members in any posting and any response to the contrary should not be seen as accurate.
Matt_SF wrote: Clever idea.
Clever idea. I've been wondering how long it would take for the idea of securitization to hit LC's fixed rate note business. I'm not sure if CDOs or SIVs really fits the bill, but I would likely refer to this as SPNs - securitized promissory notes.
I've been investing for 1.5 years so far w/ a 15.5% NAR. Have a few blog posts documenting performance, but since I'm new here, don't want to post an active link. If anyone wants to check it out, just let me know.
You have a pretty good thing going there man. Put a link to your writings in your signature so that we can stay updated with how you're doing. Congrats by the way, looks like things are going pretty well for ya
EDIT: Because I cannot spell
If I had asked people what they wanted, they would have said faster horses - Henry Ford
Very interesting stuff. It's
Very interesting stuff. It's too bad the loans aren't collateralized, it would be fun to make a 100% G paper loan (G?!?) and go collect, guns blazing.
Financial Modeling Training
Guide to Finance Interviews
dmcd wrote: Truly interesting
Truly interesting company there.
As stated before... whats the process when the loan defaults? (cant view their site at work)
Im assuming this has to be tied into credit rating and the like therefore actually incurring consequences?
They detail this in their FAQ, but the summary is that they try to contact the borrower and work something out, and if that doesn't work, they go to collections just like other debt. I just had my first default, it will be interesting to see what gets recovered, if anything.
after reading that
after reading that prospectus, it sort of seems like this is one of those companies that lives by the mantra "great idea in theory, horrible in practice"
Maybe im cynical but there doesnt seem to be a large deterent from scamming on here when you have no way to contact the lender afterwards and they only contact through email...
If they could figure out a way to verify their info and it changes the ballgame in my eyes.
"Stay Hungry, Stay Foolish"
Glad you brought this up. I'm
Glad you brought this up. I'm actually writing my senior thesis on peer to peer lending and online social lending. Basically, I'm comparing the different sites to see if borrowers are able to get similar funding from both markets.
The academic literature I've been reviewing is very interesting. One paper that I read that particularly got to me was called "Trust and Credit". The paper uses Prosper pictures to see if lenders are able to determine the trustworthiness of a borrower based on the picture alone.
Personally, I think P2P borrowing will become much more prominent in the future; eventually, I see banks moving to a model where they will make loans alongside their depositors. P2P lending is great for small borrowers because it significantly reduces transactions costs.
I'll post more on this later.
looking for that pick-me-up to power through an all-nighter?
This sounds a lot like
This sounds a lot like Prosper.com.
Work hard, play hard.
Eddie very interesting site
Eddie very interesting site and following on Asia banker´s comment as this is still in early testing stage with relative risk, one can easily built a similar for FDI investing. I will not go into details without your permission as I do not want to hijack the thread. Great idea mate.
dmcd wrote: after reading
after reading that prospectus, it sort of seems like this is one of those companies that lives by the mantra "great idea in theory, horrible in practice"
Maybe im cynical but there doesnt seem to be a large deterent from scamming on here when you have no way to contact the lender afterwards and they only contact through email...
If they could figure out a way to verify their info and it changes the ballgame in my eyes.
The prospectus does contain some ugly information because when both Lending Club and Prosper launched their credit standards were somewhat lax (particularly in the case of Prosper). In October, 2008 when Lending Club came out of their "quiet period" they tightened their standards, same with Prosper when they relaunched in July 2009. Loans for both companies in their 2.0 versions have performed much better with default rates down dramatically.
I have been investing in Lending Club now for 18 months and while I can't boast the returns of @Matt_SF, I have been very happy. I am getting slightly over 10.5%, invested in around 1,200 notes and with 11 defaults so far. I expect my 1% default rate will increase over time, but there is no better fixed income risk/reward investment in my opinion.
Social Lending Network
IlliniProgrammer wrote: This
This sounds a lot like Prosper.com.
It doesn't just sound like it.
Financial Modeling Training
Guide to Finance Interviews
IlliniProgrammer wrote: This
This sounds a lot like Prosper.com.
haha yea too bad he didn't mention prosper in his blog entry....
If I had asked people what they wanted, they would have said faster horses - Henry Ford
happypantsmcgee wrote: You
You have a pretty good thing going there man. Put a link to your writings in your signature so that we can stay updated with how you're doing. Congrats by the way, looks like things are going pretty well for ya
Thanks man. I tossed up a link per your request.
I do a quarterly update on the Lending Club portfolio, but this time around, I'll have 1 or 2 late payers showing up, but in the grand scheme of things, I suppose 1 or 2 problem notes out of 250+ (and counting) isn't that bad. I'm sure Chase and Citibank would love to have that low of a delinquent/default ratio on their unsecured credit lines.
I have a pseudo investment club where we discuss the weeks best notes if you want to join in. Free to all.
__________________________
Attempting to be the chess player, not the chess piece @ Steadfast Finances
SLN-Peter wrote: I have been
I have been investing in Lending Club now for 18 months and while I can't boast the returns of @Matt_SF, I have been very happy. I am getting slightly over 10.5%, invested in around 1,200 notes and with 11 defaults so far. I expect my 1% default rate will increase over time, but there is no better fixed income risk/reward investment in my opinion.
Thanks for the mention there. I'm sure I'll get hit w/ the default bug sooner or later, and actually, I recently had one borrower file for Chapter 13 Bankruptcy protection. Per Ch13 regs, I'll probably get most or all of my principal back, but might end up being an interest free loan. Because I'm a max diversifier, the risk is pretty well spread out and won't hurt as bad, but being that I only have ~250 notes and a young portfolio, the odds suggest I'll take a few more hits as time progresses.
But still, a 1% default rate in your portfolio is very good. The higher yield notes, especially the 5 year notes, can yield 33%+ ROI if the borrower pays the monthly minimum over 5 years. So a few defaults here and there aren't a coffin nail if you minimize risk as much as possible.
__________________________
Attempting to be the chess player, not the chess piece @ Steadfast Finances
Ok, one of the ten loans in
Ok, one of the ten loans in my test CDO just got kicked back, so this proves there is some verification on the part of LendingClub. They don't tell you why (and I'd actually like to know because it looked decent enough to invest in) but now I need to find a replacement loan.
I'm open to suggestions for a replacement. The loan that got booted was B-rated. What do you think, go A-rated or buy some crap in the G's?
Quick Update: in addition to the 1 that just got kicked back, 6 are now through the funding process and have been issued, 1 has been funded but is still under review, and the remaining 2 are still in funding. Evidently, the two that weren't fully subscribed accepted the lesser amount and went with the loan.
Eddie, weren't you worried
Eddie, weren't you worried about inflation?
Loans on prosper.com run for three years. Not sure what they run on LendingClub, but I'm not sure how I feel about lending out $100 when bread is $2/loaf and getting it back when bread is $20.
Work hard, play hard.
What inefficiencies have you
What inefficiencies have you all seen in the Foliofn market, if you've tried it? Any good opportunities for arbitrage haha?
The lending seems pretty straight forward and I'm pretty interested in getting some solid returns. Even the A rated tranche is returning much better than the T-Bonds I have now. I understand that they assume more risk but with option 1 having a default rate of only .98%, A-1 should be much lower and still yields over 5%.
Edmundo Braverman wrote: Ok,
Ok, one of the ten loans in my test CDO just got kicked back, so this proves there is some verification on the part of LendingClub. They don't tell you why (and I'd actually like to know because it looked decent enough to invest in) but now I need to find a replacement loan.
I'm open to suggestions for a replacement. The loan that got booted was B-rated. What do you think, go A-rated or buy some crap in the G's?
Eddie, may as well go with a crap shoot G level loan. You don't have that much at stake and it might make things a bit more interesting...just a thought
If I had asked people what they wanted, they would have said faster horses - Henry Ford
Edmundo Braverman wrote: Ok,
Ok, one of the ten loans in my test CDO just got kicked back, so this proves there is some verification on the part of LendingClub. They don't tell you why (and I'd actually like to know because it looked decent enough to invest in) but now I need to find a replacement loan.
I'm open to suggestions for a replacement. The loan that got booted was B-rated. What do you think, go A-rated or buy some crap in the G's?
Couple things can happen:
1) investor changes his/her mind and cancels the loan
2) LC does not approve the loan
3) loan doesn't fully fund and investor decides to relist
If you're open to suggestions, here's a note I invested in that is still open for funding.
https://www.lendingclub.com/browse/loanDetail.action?loan_id=619786
Gent works for Occidental Petroleum.
__________________________
Attempting to be the chess player, not the chess piece @ Steadfast Finances
Eddie have you asked the
Eddie have you asked the reason. Maybe the answer might slip out. Go with the G´s and see how their default will likely be. Good luck
I was looking at this one,
I was looking at this one, too:
https://www.lendingclub.com/browse/loanDetail.action?loan_id=615902&prev...
Pretty sketchy at a G-4, but the reported household income is $200k+ and debt to income looks pretty good. Plus it closes in less than 2 hours, so I should know something fairly quickly.
And it gives my CDO a little more balance.
UPDATE: I ended up going with this loan. Oddly, about $5,000 in funding came into it in the last hour, so I thought that was kinda strange. Nevertheless, it increased the weighted average rate of my CDO to 11.87% assuming these last 4 loans get issued.
Fingers crossed.
The G's look alright to me
The G's look alright to me sometimes. I have a few G's and none have defaulted yet. I only have a few, but I look for a good story- IE high income, recent bankruptcy/foreclosure. There are a lot of otherwise good people out there who got caught in the real estate bubble and lost their houses and credit along with it.
Really though, I feel you shouldn't be stressing about any one note in particular. The whole key is putting a little money into as many loans as possible, not placing a five figure bet on "Joe from Arizona" not blowing the money on a motorcycle instead of paying down his credit cards. Occasionally I will put more into a loan than the $25 minimum if I really like the application.
They offer some nice reporting tools on the site, and they all assume that you have a large number of small, equal value loans.
One tip- loans will generally fill more in the last day, as they are viewed first on the note browsing page. Some of the better looking applications fill several days or even a week in advance, so be sure to dig a bit. Whether or not those perform better... only time will tell. The one note I have that defaulted was actually A rated, and everything on the app looked great- stable job, high income/debt ratio, etc. Nonetheless, she defaulted.
Do they actually verify the
Do they actually verify the "State and Financial Suitability" requirement? It looks like you just check a box, but what happens if they find out? It looks like they want you close your account. That's it?
Just an FYI - this is far
Just an FYI - this is far from a CDO. You have a loan portfolio - as stated on the website. A CDO would require you issuing notes(senior/sub/mezz) to fund your collateral purchases while trying to achieve above market returns. None of which you have done. You've built a loan portfolio, not a CDO in any capacity (or CLO in that matter)
LendingClub and Prosper are a great concept but lead way to predatory practices and are unsecured loans - if a default occurs - you're shit out of luck.
Only so much information can be verified - do your DD and diversify immensely.
Before you tout the P2P lending websites, you should find all the problems they have. They currently have a D rating by the Better Business bureau... might want to do some DD. A rated individuals can turn out to be shit.
Again - idea is good, but in practice its not that functional
"Free Market Capitalism is the best path to Prosperity!" - The Larry Kudlow Creed
@CDOMonkey - Yes, I'm aware
@CDOMonkey - Yes, I'm aware it isn't a CDO, as I covered above. I agree that this type of lending can lend itself (no pun intended) to predatory practices and that unsecured loans are not the optimal lending model. I think everyone here is aware of the risks involved, and those who believe that the risk is worth the potential payout will proceed with a level of prudence appropriate to their individual situation.
A "D" rating with the Better Business Bureau is utterly meaningless. The BBB is a for-profit membership-funded organization that can be described in much the same way as you've described P2P lending - the idea is good, but in practice it's not that functional. The BBB is to the consumer community what the ratings agencies were to the MBS market.
CDOMonkey wrote: Before you
Before you tout the P2P lending websites, you should find all the problems they have. They currently have a D rating by the Better Business bureau... might want to do some DD. A rated individuals can turn out to be shit.
Again - idea is good, but in practice its not that functional
I hate to contradict anyone being the new guy, but this is statement is incorrect as it pertains to Lending Club.
If I'm reading the Better Business Bureau website correctly, Lending Club scores a BBB rating of "A-" as of today (2010-11-29). Likewise, I have no functionality complaints after 1.5 years.
Disclosure: I don't work for LC, they just make me money.
__________________________
Attempting to be the chess player, not the chess piece @ Steadfast Finances
It would be nice if credit
It would be nice if credit default swaps were available on the site. Is there any way of profiting from betting against certain borrowers who you feel are paired with too low interest rates?
@Asia_i_Banker - I'm not sure
@Asia_i_Banker - I'm not sure why you caught some monkey shit with your last comment, because I've been thinking the same thing for some time now. I even mentioned it to Matt_SF offline and he agreed but pointed out that, from a PR perspective, SWAPS=Herpes to the average Joe and that's probably why they're not offered on a network of average Joes.
I have to think it won't be long before we see them offered, though.
idk edmundo i would think
idk edmundo i would think twice before doing this :/
Is there a similar service in
Is there a similar service in the UK. I'd definitely like to try it out. I don't think Zopa (the original P2P has the same functionality as lending club).
Zopa doesn't seem to have the
Zopa doesn't seem to have the cherry-picking option which is an issue seeing as I don't particular want whatever model they're running to pick out my investments for me.
dirac wrote: Zopa doesn't
Zopa doesn't seem to have the cherry-picking option which is an issue seeing as I don't particular want whatever model they're running to pick out my investments for me.
That was my point. I want the same level of control as lending club.
Yes-Secure is a brand new
Yes-Secure is a brand new player to the UK market:
http://www.yes-secure.com/homePage.do?action=initial
I don't know anything about them, although they do allow you to hand select loans. Let us know if they're legit.