There are more changes happening at Lending Club today. Just yesterday I published an article discussing changes to their trading platform and last night Lending Club rolled out some changes on their main account screen. They introduced a new concept, something called Adjusted Net Annualized Return (NAR). As you can see in the screenshot above there is now an On-Off button on your main account screen. Click the On button and your account screen changes to the one below.
Your NAR box changes to blue and you get an adjusted NAR. As you can see in the screenshots here my NAR dropped from 11.51% to 9.47%. That is not the only change. Your Account Total box has been moved into the middle (now called Account Value) and it adjusts along with the NAR to reflect future potential losses. Basically, what Lending Club is telling me here is that $1,297.80 of my total account value of $31,885.28 is likely to be written off and based on this fact my NAR is really more like 9.47%.
Customizing the Adjustments
So how does Lending Club calculate this adjusted NAR? It does what statistics sites like NickelSteamroller.com and Lendstats.com have been doing for years. It adjusts the principal amount of past due notes with a formula that reduces the value of notes in your portfolio based on how late each note is. Basically, late notes are valued at less than their face value on a sliding scale. This is explain in detail when you click on the new View/Customize Adjustments link. You will see a screen that looks something like the screen shot below.
You can see the breakdown Lending Club uses above for this sliding scale. Each status has its own loss ratio that reduces the amount of your outstanding principal to the expected loss you will receive from each note. They use data based on their own calculations of principal recovery over a nine month period. But the great thing here is that Lending Club allows you to edit these loss estimates so if you think they are a little too conservative or aggressive then you cam change them. Interestingly, if you look at the loss rates that Lendstats has been using since 2010 Lending Club’s rates are remarkably close with the exception of notes in default.
Real Time Net Annualized Return
Lending Club has a short blog post where they detail this change to Adjusted NAR. But one thing they do not mention is that NAR is now calculating in real time. So you should see your Adjusted NAR change throughout the day as notes in your portfolio move into a late status or payments are made.
While I spoke with Lending Club at length last week about all these changes they did not mention any changes to their Browse Notes downloadable file. But sure enough we are now on version 7 of this file and there is one field missing: Employment Status. I have no idea why they removed this data point because it doesn’t seem to have any privacy issues. But it is now gone and people who have relied on the download file to do analysis or automated investing will have to adjust accordingly.
There have also been some adjustments to the loan history file where a couple of the esoteric credit analysis fields have been removed and some new ones added. It is hard for me to judge whether those changes are significant for anyone but it certainly doesn’t impact my analysis.
My Take On the New Adjusted NAR
In my first visit to Lending Club’s office back in June, 2011 I remember sitting down with Scott Sanborn and one of the topics we discussed was NAR. Even back then I felt like this number should be improved upon. At the time Sanborn agreed that changes could be made to improve NAR. So, Lending Club has been mulling this change for several years.
My take on these changes today can be summed up in two words: about time. Investors now have a more accurate return number that should provide more realistic expectations for investors. What I really like about this change is that it is “sticky”. So, if you click the ON button to choose Adjusted NAR, Lending Club will remember that so next time you login you will see your Adjusted NAR on your account screen.
I will be changing all my accounts to display Adjusted NAR. I want to have a more realistic return expectation for my accounts. What about you? Do you like these changes or will you stick with the regular NAR calculation? Please let me know in the comments.
A few fields have been removed from browseNotes: emp_status, mths_since_recent_loan_delinq, pub_rec_gt_100, mths_since_oldest_il_open.
Yes, we will have to adjust. I can say at least one of these was very useful.
http://kb.lendingclub.com/investor/articles/Investor/Updates-to-Downloadable-Data-effective-November-6-2013/?l=en_US&c=Investor%3AUpdates&fs=Search&pn=1
Thanks for sharing the link Bryce – that is very useful for everyone who uses the Browse Notes download file.
I’ll be using the adjusted NAR. It should more accurately reflect what the long run ROI is without actually having to wait until the long run. Oof. Between this and the accrued interest (which I think should be included in the NAR, it’s like your “accounts receivable”, which is an asset) disappearing from the account balance, most everyone’s NAR has been brutalized in the last couple months. 🙂
Bryce………..Why (in your mind) did the removal of accrued interest brutalize NAR ? My understanding was that accrued interest was never part of NAR calculations……..Therefore the disappearing, as you called it, would have had no effect.
Ah, sorry Dan. I meant to say the XIRR calculations. I had been including accrued interest in that.
Bryce…………No problem. Are you going to be in SF on the 12th?
Alas, I teach class on Tuesday night, so can’t make the day trip.
Thanks for the quick summaries on these changes Peter. While I am glad to see them making technological improvements, I think some of the efforts have been misplaced. As an investor, I don’t really care what the NAR says now or before. Things that matter to me are availability of notes, ease of investing, and viable filters internally that can be easily found externally.
Excluding the first issue of available notes, which is just a supply/demand issue, the other two items are things that have been discussed for a while, but little to no progress has been seen. Prosper has had automated investing for how long now, yet Lending Club can’t seem to get on board with this. For those investors who don’t have the ability or access to utilize the API for investing, this makes things tremendously cumbersome and puts them at a relative disadvantage. While I haven’t had issues keeping my accounts invested, this is a much more pressing issue in my mind than these small cosmetic changes.
Additionally, there are a multitude of ways to adjust filters outside of Lending Club (and Prosper as well), but Lending Club seems to hold on to the sliders for inputs. I wouldn’t think allow for free form filters (same as Lendstats and Nickel Steamroller) would be all that difficult to implement. For those of us who play around with filters, we must do so within the confines of Lending Club’s sliders, should we want to log into Lending Club directly and take advantage of the notes as they become available during the release times.
At any rate, my two cents (probably more like $0.37).
Thanks for chiming in Adam. While you may think adjusted NAR is no big deal there are many others who would disagree. Many new investors get so excited at their 15% returns only to see them “plummet” to 9 or 10% two years later. Despite the fact that these investors are earning an excellent return they are disappointed because Lending Club lead them to believe that 15% was indeed possible. This change addresses that issue directly.
I continue to have discussions about automated investing and it is always coming soon. I think the real issue now with it is that if a ton of retail investors sign up for it there could be an even bigger shortage of loans for everyone else and that would be a problem.
As for the filtering question you mention I couldn’t agree more. They have put very little effort here into changing the way filtering is done. It is basically the exact same process that I used when I signed up in 2009. Many investors tell me they prefer Prosper’s UI and that is part of the reason.
I agree with Peter (for a change). To us it may seem like no big deal, but to almost all “new” investors the adjusted NAR will help bring expectations more in line with “reality”………………which is what I’ve been preaching for 4 years now. Sure, it may sap the fun & excitement of seeing high (& unrealistic) numbers for some new investors, but in the long run I see this as a positive move.
I completely agree that it will help new investors maintain a reasonable level of expectations for actual returns, but to me this is more lipstick on a pig than actually changing anything. They have had the ability to do this since they began tracking the performance of their own loans. They have had the recovery rates posted for how long now? Not to mention, NSR and Lendstats have done this for years, so why take so long?
That being said, I definitely don’t want to discount the importance of managing expectations for new investors and think it is a productive change. It is just not anything earth-shattering or materially affecting the ability for anyone to invest like automated investing or free form filters would be.
With some of these fields gone I assume I need to adjust my filters at Interest Radar. I got hosed when the Employer field was removed last month and I didn’t notice for several weeks. I haven’t had an auto invest since 2pm yesterday, so I think one of these removed filters is making my searches come up with nothing.
Is “mnthsSinceOldersIlOpen” the same as “Earliest Credit Line” on Interest Radar?
Unlike a number of the recent changes at LC, I approve of this change.
Peter, you might consider blurring your account number out, just thought I’d give you a heads up!
I like the Adjusted NAR, because I pretty much zero out anything that is late. The one thing I don’t like is that I have to toggle it off to see the actual dollar values of late notes under notes at a glance.
Also, I would like a NAR that allows you to adjust time parameters. For example, I first started at LC in 2009 under no investment strategy and I want to exclude that from my current model. Id like to see Adjusted NAR after a certain date, or broken down by portfolio.
Has anyone noticed that “Dan B” likes to complain in just about every post that Peter submits? I find it amusing but if you go back to posts over the last few weeks/months, there is no one better at being confrontational and argumenatative.
It was surprising that he actually sided with Peter today.
Peter….keep up the good work and keeping us informed.
Jack………….I’m glad you find it amusing. I think the readers here can draw their own conclusions as to whether my rebuttals are warranted, are thoughtful etc…………or are in fact similar to your post, which amounts to a complaint about me not complaining, or an idle observation about a non event.
If you had instead been a bit more thorough in your research you would have uncovered that I have also, as you so eloquently put it, “sided with Peter”, on numerous occasions in the almost 4 years that I’ve been commenting here. Of course there have also been many other occasions where we have disagreed or interpreted things differently.
Peter has on many occasions stated that he is biased towards p2p, & that’s fine. I on the other hand, am not predisposed in that fashion. So it is natural that we will disagree from time to time. Again, intelligent readers will decide for themselves the relative merit of our respective viewpoints when there are disagreements………….which is obviously not the case here.
So……….how did I do on the argumentative & confrontational scale? Still king of the hill, I hope. 🙂
LC is also putting the ANAR on their ‘Loan Details’ statistic page for all the loans by grade. It is interesting to see how well the E grade loans perform compared to the higher risk loan grades, especially since E grade loans have declined as a % of the overall LC loan mix.
Looking at the ANAR, it doesn’t look like it’s worth the risk to choose a F or G grade loan over a C or D grade loan, but I’m sure there’s more to it.
Good catch Walter. I hadn’t noticed that yet.
Thanks Peter.
What is the reason they don’t have a loss on current? the objective is to show an estimate on what is the most likely realized return given the current portfolio. What am I missing?
Daniel
Hi Daniel,
There are many ways they could provide an estimate of likely realized returns and including an estimate of losses on notes that have a status of current is one of them. That is what most hedge funds do when calculating an NAV on their p2p holdings.
What Lending Club is trying to do here, in my opinion, is improve on their previous calculation in a simple way that is easy to understand. I think they have achieved that. Is it perfect? No. Talking with them about this issue over the last 2 1/2 years they discussed many different ways of providing a more accurate return and settled on this method. It is a vast improvement over their previous NAR method but I agree there are other ways to look at this.