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Lending Club Loans Being Snapped Up Quickly

by Peter Renton on March 12, 2013

Back in the old days, as in last year, Lending Club regularly had more than 1,000 loans and sometimes 2,000 loans available to investors on their platform. But in 2013 that has changed. Today, there are rarely more than 500 loans available at any one time. What gives?

This is particularly curious when you consider that Lending Club has issued over $76 million in new loans this month and we are not even half way through the month. And yet as I write this there are only 323 loans available to investors.

Take a look at the charts below. They show the loan volume activity of a typical day at Lending Club taken on Wednesday of last week. The top chart is for loan grades A-C and the bottom chart is for grades D-G (click on the charts to see them at full size).

As many investors know Lending Club adds loans to their platform in batches at 6am, 10am, 2pm and 6pm (Pacific time) every day. You can see these spikes in both graphs. The 6am addition is usually the largest as you can see but it also generates the most investment activity.

So, what is happening is that investors are gobbling up loans just as fast as Lending Club can put them on the platform. The result of all this is that some loans are now being funded within minutes and most loans are funded within 24-48 hours.

This morning I followed the loans that were added at 6am very closely. At 5:59am today there were 353 loans on the platform. At 6am 89 new loans were added. By 6:03am 14 of these new loans were at least 50% funded. Interestingly, all of these loans that were immediately funded were grades C4 or below – as in the higher risk loans. By 8am 25 of the 89 new loans had been fully funded and by 10am that number was up to 35 with the vast majority being the higher interest loans.

How Are These Loans Funding so Quickly?

It is no secret that there are some large investors now investing at Lending Club. But what has changed in the last few months is that many of these investors are no longer using the LC Advisors funds as their investment vehicle, they are investing directly on the platform.

Now, Lending Club does have a whole loan program that many of these large investors take advantage of but they also invest in loans on the main platform. However, they don’t use the regular Lending Club website like most investors, they invest through the Lending Club API, which is actually still in beta and not available for general release yet. These large investors  have programmed the API with their investment criteria and it runs within minutes of new loans being added to the platform.

How can individual investors compete? Well, the good news is that these large investors are limited to a maximum of 75% of the total loan amount so if you are quick you can still invest in any of the loans. I had no problem at 6am this morning investing in all eight loans that met my criteria and the large investors had touched only two of my eight.

Lending Club Needs Automated Investing for All Investors

But what would really level the playing field more is if Lending Club allowed automated investing within their platform in a similar vein to Prosper’s Automated Quick Invest. I have been told such a tool is in development, so it will be very interesting to see whether this tool really does even the playing field for the retail investor. Because at Prosper the API investors take their large bites out of each loan before Automated Quick Invest is run.

Others are not waiting for Lending Club. I know of a couple of different tools in development that will allow investors to take advantage of the Lending Club and Prosper APIs. I will certainly write about these tools when they become available.

The industry is maturing before our eyes as the volume dramatically increases. The speed of investing has certainly quickened this year and I don’t see that changing any time soon. Regular investors who want to have as much choice as possible need to get in the habit of logging in at those times when Lending Club adds new loans to their platform.

Hat tip to Viking, a regular participant on the Lend Academy forum, who created these charts that prompted me to write this post.

{ 57 comments… read them below or add one }

Viking March 12, 2013 at 3:06 pm

Note that Times given are PST and that there are also two small additions of loans at 2 AM and 10 PM.

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Peter Renton March 12, 2013 at 4:56 pm

Thanks Viking once again for these excellent charts. They provide everyone with a great visual that explains what has been going on.

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Josh Brooks April 3, 2013 at 9:11 am

Viking, Peter,

Great work with these charts and this information. With my filter, I was struggling to get four notes ordered in a day (which turns into two notes issued). But since I read this article, I have been logging in at 0500, 0900, and 1300 EDT, and am easily able to get my target of seven notes ordered per day.

It is also very interesting to watch how many notes get funded to 70% in just a couple of minutes, while others remain untouched. The obvious reason is that the institutional money of course has their own filter, which I would very much be interested in studying.

Again, though, solid work. Once again, Lend Academy delivers remarkable value to its readers.

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Peter Renton April 3, 2013 at 3:08 pm

Thanks Josh. One day I will do a study of the loans that disappear most quickly from LC due to institutional interest and see if there is a corresponding increase in the returns from these loans.

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Viking April 3, 2013 at 4:54 pm

I have been wondering the same thing myself. However, I have not found any historical data for how fast a loan was funded. How did you plan to get that data?

Peter Renton April 3, 2013 at 8:49 pm

I have seen a beta of the LC API and this kind of data will probably not be too difficult to mine. Now, I don’t have the skill to do this myself but there are plenty of others who do.

Trent January 1, 2014 at 1:56 pm

For east-enders like myself new notes are added at:

9 AM, 1 PM, 5 PM, 9 PM Atlantic Standard Time (AST)

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Dan B March 12, 2013 at 3:12 pm

It’s worth noting (or repeating) that these loans that are being funded real quickly are nothing more than loans that happen to meet the criteria of (perhaps as few as) several individuals or institutions. There is nothing that suggests that these loans are better or worse than the remaining ones on the platform. Nor is there anything that suggests that these big hitters are necessarily outperformers. I know that a lot of people like to believe that is definitely the case, but the evidence doesn’t support it. Just look at worthblanket over at Prosper. They perform maybe just a tad better than average. Lots of posters here outperform them……………& for some, by a wide margin.

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Peter Renton March 12, 2013 at 4:53 pm

Very true. Everyone has different criteria and just because someone has done a bunch of analysis it doesn’t mean they will do better. And Worth-blanket2 is a case in point. I don’t think they are even in the top 10% of lenders as far as ROI goes given their average interest rate and portfolio age.

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dontvote March 15, 2013 at 4:15 pm

reduced liquidity necessarily reduces good loans too. to the extent anyone has a loan you prefer in their basket during these times, it’s gone. not really relevant if they also ate up a bunch of dirt with their bite – they still ate my delicious cabbage.

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Dan B March 15, 2013 at 9:10 pm

This has nothing to do with “liquidity”.

Well, if you really feel that your day is incomplete unless you have a chance at every single loan that is offered……………..you can always set your alarm clock & log on 4 times a day. Problem solved. :)

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James March 8, 2014 at 9:48 am

I’m not buying this. The loans that my filters identify, filters based on factors know to out preform, are often the very loans that disappear first. That is a fact. To put it another way, I can find loans right after they post that meet my criteria and can not 15 minutes later. There are still lots of loans 20 minutes later. . . just not out preforming loans. We can back test, using actual data, and see that all loans that pay the same interest rate are NOT created equal. The evidence does support filtering for better results, often 2-3 % better results.

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Mia March 12, 2013 at 3:23 pm

Is it possible LC is also offering up larger and larger percentages of the loans to the whole loan program, which get funded before ever hitting the retail platform?

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Peter Renton March 12, 2013 at 4:55 pm

I think that is unlikely. While I haven’t done any analysis recently all loans are marked as “w” or “f” and it is all publicly available in their download. But if you are suspicious you can download the data and do your own analysis.

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Mia March 12, 2013 at 7:55 pm

I tried downloading the complete loan data but it doesn’t seem to go beyond Aug/2012. Is there another file I should look at? The only other file I see is in funding data. That wouldn’t help in doing a comparison.

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Peter Renton March 12, 2013 at 7:56 pm

You want the Download Loan Data (more than 60 Meg) from the statistics page:
https://www.lendingclub.com/info/download-data.action

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Mia March 12, 2013 at 8:07 pm

I did. Most recent loan issue date seems to be Aug 2012, therefore 100% of loans are “F.” Am I missing something?

Peter Renton March 12, 2013 at 8:19 pm

Actually they are all there. I just downloaded the latest file right now and it is current up to today with around 118,000 records. The file you want is loanstats.csv which is 63,694kb at the page I linked to above.

Mia March 13, 2013 at 1:31 pm

Thank you, Peter. I downloaded it again and it worked. Not sure what I did wrong.

I get this, roughly:
Sept: 0/6087 W = 0% (6087 F loans) Control
Oct: 845/6262 W = 13% (5417 F loans)
Nov: 1292/6383 W = 20% (5091 F loans)
Dec: 1765/6066 W = 29% (4301 F loans)
Jan: 1955/6872 W = 28% (4917 F loans)
Feb: 2389/7563 W= 31% (5172 F loans)
Mar(1-12)1398/4930 = 28% (3532 F loans)

But these increasing percentages don’t appear to be significantly affecting the overall number of F loans available, so I think you are right. Also, I know a trickle of W loans make it to the F platform, but I don’t know how to calculate that. $ percentages also seem to correlate closely with loan number percentages.

It does look like something work keeping an eye on though.

(Disclaimer: this is not my forte and I did this in a hurry, so all of this might be wrong.)

Mia March 13, 2013 at 1:35 pm

“worth” not “work.” Can’t figure out how to edit my entry.

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Viking March 13, 2013 at 1:43 pm

Maybe the ” trickle of W loans make it to the F platform” is what we see at 2 AM and 10 PM..?

Peter Renton March 13, 2013 at 2:36 pm

Great work Mia. Interesting analysis. When the whole loan program was introduced Lending Club stated that 20% of the loans would be set aside for that program. It looks like they kept to that number for a bit over a month. It appears they have since raised the percentage to 30%. Good sleuthing Mia, it is definitely a number to keep an eye on.

And Viking, I think you might be right about that. LC did say the loans would only be on the platform for whole loan investors for 12 hours. So, it makes sense that the rejected 10am and 2pm loans would come on to the platform at 10pm and 2am.

Viking March 12, 2013 at 3:24 pm

I agree with Dan B. Like in the stock market, each investor have their own selection criteria and they may vary dramatically. Therefore, just because the available loans decline rapidly, that does not necessarily mean that the “good loans” (from each investors perspective) are gone first. To test this, I checked the loan availability meeting using one of my favorite selection criteria, and the availability of those notes declined much slower (see here: http://www.lendacademy.com/forum/index.php?topic=801.msg4494#msg4494)

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Fred March 17, 2013 at 7:15 pm

I have to disagree with Viking & Dan on this.

Unlike stock market where anyone can buy anything (for the right price), the LC has loans only for a limited time. Once the loans are fully funded, they are no longer available for the next lender.

In this situation, the term “availability” is better than “liquidity”.

In a simple scenario, let’s say I have a filtering criteria that match on average 1% for the existing loans. At 6 AM, this criteria would give me 5 loans; but at 6 PM, this would only give me 3 loans (ceteris paribus).

The issue here is not about reduced liquidity (which simply means lower number of transactions per unit time), but reduced population size.

In statistics, population size does matter. :-)

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Steve March 12, 2013 at 5:38 pm

Peter – given the much faster turnover and consequent limited “stock” of loans, wouldn’t that adversely affect the whole LC Prime approach? It seems like the only way to compete with the big guys is to be online every time a batch of loans is added, which is 180 degrees away from the Prime strategy, isn’t it?

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Peter Renton March 12, 2013 at 7:45 pm

Good to hear from you on here Steve. The idea with Lending Club PRIME is that it is like an index fund – they invest in whatever loans are available on the platform. For most people that will be acceptable and Lending Club likes to think that every loan on their platform is a good investment.

The people who are investing through the API and snapping up these loans believe that they will be able to beat the Lending Club averages – almost by definition PRIME gets you just the averages. If you want to do better than that then you need to take your account into your own hands and invest yourself.

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B. Mason March 12, 2013 at 9:17 pm

Remember that large funds have a very different problem than smaller investors. It’s easy to way outperform the average with a small portfolio. The big players are investing millions, tens or even hundreds. There just aren’t enough selective loans to invest that much, otherwise cash drag gets you. So, it’s not surprising to see WorthBlanket beating the average by just a little bit.

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Dan B March 13, 2013 at 4:51 pm

Depends on what you mean by a “small portfolio”. And it’s hardly easy. There are individual investors with thousands of notes that are outperforming the averages & outperforming institutional investors handily.

It is actually a bit surprising that worthblanket is only outperforming the averages by a bit. Of course they are “intending” to deploy $150 million at Prosper (or so they have said)……………..but they are doing it at a very leisurely pace, so it’s obvious that they’re not really seeing cash drag as a major concern. So no, I think it a bit surprising, & makes me care even less as to what notes they may or may not be gobbling up.

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Bryce M. March 13, 2013 at 7:24 pm

All I mean to say is that it’s harder to go big.

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Dan B March 13, 2013 at 8:43 pm

Oh, absolutely.

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Craig Hollyfield March 13, 2013 at 10:45 am

Thank Peter for giving us a better picture at what is happening with the larger investors

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samuel hu March 13, 2013 at 3:47 pm

Hi – does anyone know if there is an API for the folioFN secondary platforms (either prosper or lending club)

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Peter Renton March 13, 2013 at 5:15 pm

There is no API for the Folio platform but I do know that InterestRadar.com has some pretty neat tools these days for Folio investors.

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Viking March 13, 2013 at 4:52 pm

@Peter
Is there any “official” documentation (e.g. Prospectus?) which describes how many whole loans LC are allowed to set aside? If so, has it been updated?

So the rejected loans would be posted at 2 AM, 6 AM, 6 PM and 10 PM. We would not see a separate peak at 6 AM or 6 PM because the new loans are also posted at those times. It may be interesting to download the notes.csv just before and after 2 AM and 10 PM to see which types of loans were rejected by the institutional investors.

p.s. I was not able to reply directly to your “March 13, 2013 at 2:36 pm” post above. Is that maybe an issue with word press (e.g. set to only allow 9 replies)?

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Peter Renton March 13, 2013 at 5:18 pm

Viking, There is a Lending Club prospectus – you can always read the latest one here:
https://www.lendingclub.com/info/prospectus.action

But I haven’t seen any info in there on the whole loan program.

As for the replies, I have setup the blog to only allow 5 levels of nested replies. Much more than that and I think it gets unwieldy.

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Viking March 13, 2013 at 5:26 pm

Is LC is allowed to set aside an arbitrary number of whole loans w/o disclosure?

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Peter Renton March 13, 2013 at 5:28 pm

Most likely. They are very careful with this kind of thing and I would be very surprised if this was not legal for them to do.

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Golden Graham March 26, 2013 at 3:21 pm

It’s 2:20pm PST and the number of available loans within my criteria of C-E loans hasn’t budged from 425 (using Peercube). What gives?

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AlphaGen April 3, 2013 at 10:13 am

An even bigger issue is LC offering institutional investors ‘first look’ at loans BEFORE they hit the API. They offer an ‘Institutional’ setup structure bypassing the regular platform. Obviously this is not advertised.

These favoritism tactics are no different from wall street with soft-dollar arrangements, ‘side letters’, HFTs, etc. Note I am not defending nor attacking these practices, but rather exposing them in fairness.

At some point the institutional advantages will become more evident like the evolution of the stock market and creation of mutual/hedge funds versus individual stock picking.

Not all, but most Investors will eventually realize the advantages of investing through funds such as heliox capital, who seem to have the advanced predictive modeling, portfolio management expertise, advanced technology infrastructure, risk management, and access to all global platforms, which give them the higher risk-adjusted returns versus the platforms or most other investors.

Also, most people don’t think there is a need for risk management in this space, but as history tells us one doesn’t need risk management….until you do, and then its too late!

My point is ‘p2p lending’, ‘consumer credit’, or whichever term one uses will naturally follow the evolution of markets.

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Peter Renton April 3, 2013 at 3:27 pm

While it is not advertised the issue of the institutional investors getting a first look at a portion of the loans has been well documented here and on the forum:
http://www.lendacademy.com/several-changes-today-for-investors-at-lending-club/
http://www.lendacademy.com/forum/index.php?topic=666.0

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David Weinstein June 20, 2013 at 7:51 pm

Peter. I have been investing in Lending Club since the beginning and its been a great investment. With the institutions now investing, and today banks joining the investment side, my guess is that these large groups are using an API to buy notes. I don;t mind matching my buying algorithm against the big guys, but it is not a level playing field if they have an API and I get on multiple times a day and hit keys to buy notes. In addition I have multiple accounts to manage. Do you have any insight on a) do the institutions use an API today and 2) what is their plans to make it available to retail customers?

Thanks

Dave

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Peter Renton June 24, 2013 at 10:22 am

David, You are correct in your assumption that many of the very large institutions investing in Lending Club today are doing so through the API. It is made available to regular investors on a very limited basis for now. But I know there are plans for a general release to all investors at some point – they won’t provide an exact timetable I am afraid.

Prosper does allow any investor access to their API without restrictions so I am quite certain that Lending Club will eventually follow suit.

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Brian August 16, 2013 at 7:18 pm

What I see happening now is every loan in my filter being snapped up (literally seconds after they pop and often before I can invest in more than one or two notes) only for the ones with “issues” to be re-released by whoever had grabbed them 10-15 minutes later.

The deck is almost completely stacked against the little guy.

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David August 16, 2013 at 9:23 pm

Literally only about 80-90 notes, all grades, on the entire platform for days. What’s going on here? Is this the end of LendingClub?

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Peter Renton August 22, 2013 at 9:26 pm

David, This is far from the end of Lending Club, in fact the opposite is true. But as Brian pointed out above the deck is becoming very much stacked against the small investor. That is the reality we all must live with today. Loans are being snapped up as soon as they are being added to the platform. The most popular 10% of loans are gone now within seconds.

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andrew August 22, 2013 at 2:55 pm

Do you know who some of the funds and institutional investors are that are investing in peer-to-peer notes?

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Peter Renton August 22, 2013 at 9:27 pm

Yes. I have a list but some of them are publicity shy. But I will be happy to send the list to you – just shoot me an email.

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Jake September 3, 2013 at 4:29 pm

I wonder if there will be a tipping point with more money to lend than borrowers to borrow? I hope not.

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Dean September 14, 2013 at 6:07 pm

Thank you for the information and interesting comments.
Question: At what point will Lending Club be forced to start lowering the interest rates to encourage more borrowers? Or start lowering the underwriting standards to allow more sub-standard loans (I purposefully did not use the term sub-prime as that is a very bad word these days)?

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Peter Renton September 15, 2013 at 7:41 am

I asked this exact question to Lending Club CEO last week and this is what he said. There is a huge supply of borrowers and he doesn’t see any challenges in obtaining good borrowers for several years. So, there is no reason to start lowering underwriting standards whatsoever. There is simply no shortage of borrowers.

You can read more details of our conversation here:
http://www.lendacademy.com/a-visit-with-lending-club/

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Dave September 22, 2013 at 4:52 pm

If there was no shortage of borrowers, there would be more than only 40 to 80 loans available at any time. Down from 300 to 500 just a few months ago. I have had about $3000 sitting in my Lending Club Account for the past 2 months wanting to invest in $25 or $50 loan amounts. But after reducing to the 36 month and C-F grade, I want, there are never more than an handful, not worth my time.

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Peter Renton September 23, 2013 at 12:26 pm

Dave, the trouble is that Lending Club just does not have the capacity to add more borrowers than they are already doing. So while there is no shortage of borrowers available to Lending Club, in the competitive environment for investors means fewer choices. I guess it depends which perspective you take. The perspective of Lending Club’s CEOs is that they have not run out of borrowers, they just can’t get them on the platform quickly enough to satisfy investors.

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Viking September 23, 2013 at 1:21 pm

I am not sure that I understand the CEO’s comment.
I thought that the applications for ALL borrowers, which satisfied the underwriting requirements, were “instantly” posted on the website (actually at the next upload which occurs 4 times/day). Those loans would immediately be made available to the investors. However, it may then take LC several weeks to approve the borrowers.
Is this no longer correct? Are not all loan applications “instantly” posted on the web (apart from a fraction that goes to the whole loan program)?

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Peter Renton September 23, 2013 at 5:22 pm

Sorry Viking, that was just a poor choice of words on my part. What I really meant is that Lending Club has not run out of borrowers, they just do not have the capacity to get enough borrowers on the platform to satisfy all investors. All the procedures are still in place as before. I should have been more clear in my previous response.

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Joey W October 23, 2013 at 10:25 pm

I too have too much money just sitting in my LC account because I can’t find any loans. These days I’m forced to withdraw and invest in something else. I’m so glad I didn’t transfer my retirement funds to LC.

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Viking September 23, 2013 at 5:45 pm

I think that it was clear… However, I do not understand why LC cannot get enough borrowers on the platform. Every single application is supposed to be automatically posted on the platform within a few hours at most. Indeed, if you look at the platform shortly after 2 PM for example, you will see that the majority of loans were submitted between 10 AM and 2 PM the same day (“new” loans). Will some of these loan applications now not be posted because of some technical limitations?

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Peter Renton September 24, 2013 at 6:31 am

The reason is not one of technical limitations but a human one. Every single borrower has personal contact with someone at Lending Club. Being added to the platform is an automated process but then the follow up begins. And we know already that this can take a couple of weeks to complete. Lending Club continue to add personnel but to meet demand but the LC CEO does not want to grow any faster than the 7-10% monthly growth rate they are doing right now. But investor demand has been growing faster than 7-10% a month – hence the imbalance.

This is explained in more detail here:
http://www.lendacademy.com/a-visit-with-lending-club/

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