For the first half of this year the number of available loans at Lending Club hovered between 700 and 1,000 loans. Occasionally the number went over 1,000 but it averaged somewhere around 800 loans available to investors at any one time.
But in the month of June this changed. By June 21st there was over 2,000 loans available on the platform, a previously unheard of number. In late July at one stage there was over 2,500 loans available – about triple the historical average. I just took this screenshot above this morning and we are at 1,842 loans right now, below the heady numbers from last month but still more than double the average for this year.
The LC Advisor Funds Investing Huge Amounts in the First Week
Why the big increase in available loans? Simply stated, it is driven by investor demand. For the last several months we have seen this trend where in the first few days of the month at Lending Club very large volumes of loans are issued. In the first week of August that number was the largest ever – over $30 million.
Now, this isn’t driven by regular investors like you and I – the vast majority of this $30 million was from the LC Advisor Funds. These funds tend to collect money throughout the month and then put it to work in the first week of the month. Because they are investing tens of millions of dollars Lending Club needs to have many more loans available for investors in this first week.
This is the reason in the past couple of months you have seen a dramatic increase in number of loans on the platform late in the month. I expect this week we will get to well over 2,000 loans again as Lending Club gears up for the busy first week of next month.
Refining Your Investment Strategy
With many more loans available it stands to reason that investors have more choices. If you are just reinvesting your cash or if you have a fixed deposit going in every month you have probably found there are more loans to choose from. What do you do?
What Lending Club would no doubt like you to do is to transfer more money in to take advantage of the increased loan inventory but if that is not possible you can refine your choices. One thing I have done is increase my investments in 36-month loans. I have been investing about 70% of my money in 60-month loans this year – because in the D-G grades that I like to invest in there is a much higher percentage of 60-month loans than average.
So for the last couple of months I have been investing almost exclusively in 36-month loans to bring more balance to my portfolio. When the number of available loans is close to 2,000 I can usually find enough loans that meet my investing criteria just in 36-month loans. Of course, you have other options. You could take advantage of the Approved filter that Lending Club blogged about earlier this month. Or you can spend some time at Nickel Steamroller or Lendstats (it is working now for Lending Club investors) to refine your investing filters.
The other good point about this is if you put your money to work in the last week of the month the chances are that many of the loans you are funding will issue when LC Advisors fully funds the balance of the loan. This means you can put your money to work more quickly.
What do you think? Have you adapted your Lending Club investment strategy? As always I am interested to hear your comments.
I deposit $500 every 2 weeks via automatic transfer. That, coupled with the payments I receive, means I’m looking for 25-30 notes every 2 weeks.
I’ve also switched to mostly (but not exclusively) looking at 36 month notes… probably 75% 3year, and 25% 5year. I’ve also stopped investing in C notes as well, almost exclusively focused on D, E, F grade notes. I’m finding that I can find enough notes to keep myself fully invested and my returns continue to climb, now showing nearly a 13%NAR.
I’ve also noticed that with my (manual) filter of only investing in notes where the monthly payment is always less than 10% of person’s reported income has resulted in only three notes (out of 200+) going beyond 30 days late … for the last six months that I’ve been using this guideline. So far, so good!
Hi Danny, Thanks for sharing. I have looked at your manual filter in Lendstats and while it makes logical sense that these would be the best loans, the data suggests that there is not much difference in returns for higher income percentages than 10%. But it sounds like it is working for you so I would stick to it.
Fascinating. Now that lendstats is working again, I need to check on this myself. Because yes, this manual filter of keeping a low payment to income ratio has been incredible for me so far, and I’m actually quite surprised that there might not be a strong correlation to lowering defaults.
When you are looking at Lendstats be sure to click on Show complete performance breakdown and then select ratios from the dropdown box. This gives all kinds of interest ratios similar to the one you describe above.
Danny, Interesting that you mention this 10% limit filter item. I’ve been using this for about three years and have been happy with the results. However, I am often stymied by Lendstats, so I may not have a good grasp on whether that parameter is truly helping.
Peter, on Lendstats I tried what you told Danny S to do. I found the ratio category of payment/income. But what do the ratios on the left mean? E.g., what does “0<.025" mean?
Thanks
Thank you
Linda, those are the different ranges for the ratios. To for the monthly payment/income ratio 0<0.025 means that the monthly payment is less than 2.5% of the borrowers monthly income. So you convert the number into a percentage and Lendstats provides you with the various ranges.
Danny, this is just my hunch. For lower income earners, there is a lot less margin for error. A car breakdown, a trip to the ER or any large unexpected expense could put tremendous pressure on their already tight budgets. Higher income earners have more leeway to maneuver. The 10% monthly payment to income ratio may apply more to lower income earners than to higher ones. But as Peter said, if it works for you, you should stick to it.
The big question is how is lending club finding more lenders to meet investor demand….
Lower quality loans?
Lower interest rates (at a given risk profile)?
Increasing market share?
Growing Market?
I assume you mean how is LC finding more BORROWERS.
I’m also concerned about. Lowering their qualification standards would be the “easiest” way, but not the “right” way. If investors suddenly find themselves holding lots of Defaulting loans, they will quickly move away from new investment with LC. So I hope (and think) that wont occur, as it would be a very shortsighted and short-term solution to meeting investor demand.
Charlie, I agree with Danny. Lending Club have made it very clear to me that the increased number of borrowers comes from marketing initiatives and their underwriting model will never be compromised in this way. They are just getting better at marketing and can increase the number of loans on their platform very quickly.
I have had similar questions as Charlie. When you had a chance to sit down with LC and Prosper, were you able to get information on how LC seems to be growing at a much quicker rate than Prosper?
There a few big differences between LC and Prosper right now as I see it:
1. LC has better marketing including a larger marketing budget.
2. LC is doing much better at attracting institutional money.
3. Growth begets growth – many investors, large and small, want to invest with the market leader.
If they are growing the market or taking market share that is great.
If they are tempted to lower UW standards or lower the interest rates for a given risk profile that’s bad. 🙂
Charlie, Clearly the market itself is growing and LC is leading the way. What is interesting is that during this rapid growth interest rates for borrowers are actually rising. It is not like they are luring borrowers in with low rates – the opposite is happening.
Lendstats is working now for LC? I’ve never looked at the Lending Club loan filters page…so, is this new since the Prosper filters went down? I’m just wondering whether Ken is active on his website again. …and I’m not sure whether his work on the LC loan filters would be a good thing or a bad thing? I’m hoping that it means Ken is back doing yeoman’s work for the the p2p lending community, but I’m also concerned that it might mean he is ignoring the Prosper side of things. Maybe that’s just another reason for me to move on over to LC…
Yes, apparently the fix for LC was relatively easy. Prosper’s data is more complex and requires more work but Ken indicated to me that he still planned on getting it fixed at some point. In the meantime I know Nickel Steamroller is working on some data analysis for Prosper and Numberwhale.com is going to launch soon for Prosper investors. By the end of the year I think there will be multiple options for data analysis for both LC and Prosper investors.
Hold on. How about the guys that collected money on Indiegogo in order to launch their service? Or is that numberwhale?
The Indiegogo project was for p2ploanstats.com. I don’t know how far along they are so I didn’t include them above. But they are another possible source for data analysis and there are at least two others that are in some stage of development.
We are hoping to have our beta version ready soon. Stay tuned for an announcement in the coming weeks.
Peter,
It’s amazing to me how much I learn from the comments to your posts. I mean I like the posts and the data you are presenting there, but there is so much that is gained in the comments sections as well. Thanks for providing this resource to the lending community.
I couldn’t agree more Megan. I have learned more about p2p lending in the comments section of this blog than from any other source. Everyone keeps me on my toes :-).
The primary change that the institutional investors has made to my lending strategy is that I now invest in loans later in the month, and I tend to avoid the platform earlier in the month. If I get on and want to try to invest money I will sometimes let some of my loan selection standards drop if there isn’t any loans available that I would normally invest in. So it’s generally better if I don’t even look at loans early in the month. But I do like the idea of picking up good loans towards the end of the month (now) and letting the big guys get them the rest of the way funded early in the month.
If you are not putting a lot of cash to work then this is a very good strategy.
The only thing I’ll say is that yes, maybe LendingClub is doing more PR work, because there are a lot more loans at the end of the month, but I also wonder if they are seeing more loans because the economy is still hurting a lot of people. If that’s the case, I assume that we should expect more defaults over time, no matter what the requirements to get a loan are.
If LendingClub is not changing any of their requirements whatsoever, then those are the only reason I can see loans increasing. Do we have 100% guarantee that LC is not changing any of their requirements?
RayJ, I have asked LC if they are changing underwriting to meet this new loan demand and they have said no. I believe them but there is obviously no guarantees with this. Only time will tell but if defaults start to go up there will certainly some investor backlash. I believe it is a function of marketing primarily because people are always looking for loans.
I disagree with your assertion that we are seeing more loans because the economy is still bad. People like to borrow money in good times and bad, in fact if you look at the total numbers overall borrowing is down considerably since the financial crisis.
Just an FYI, is anyone else having these issues @ LC today?
Your account is currently under maintenance. Please try again after 5:00 PM Pacific Time on 8/30.
I called and they stated it was a bug for certain accounts, due to maintenance that was done overnight. I don’t know how many people this is currently effecting, but this has been going on since at least 4am PST, if not earlier.
RayJ, My four accounts are all doing fine. Not seeing anything unusual today.
My accounts are fine too…………..but updating yesterday afternoon started late & took all night & into this morning. Other than that, no issues.
Yes, my account is down as well.