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Teaching the World About Peer to Peer Lending

Marketplace Lenders Lending Club and Prosper Respond to Hurricane Harvey

Lending Club and Prosper announce changes to help borrowers affected by the storm.

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Hurricane Harvey has already had a tremendous impact on Texas. Part of the impact is the financial stress it has put on families as businesses struggle to restore normalcy. During these difficult times many companies are stepping up to serve customers in this time of need.

To ease the financial burden on borrowers, Lending Club and Prosper have announced special programs to help those affected. Lending Club stated in the below email that approximately 30,000 of their borrowers reside in affected areas. Here is the email that Lending Club investors received on Friday:

Hurricane Harvey is an unprecedented tragedy and our hearts go out to those whose lives have been turned upside down. We wanted to provide you with an estimate on how many LendingClub borrowers could be impacted and let you know what we’re doing to provide relief for them.

Estimated Scope of Impact
We estimate approximately 30,000 LendingClub borrowers are potentially affected by Harvey (based on zip codes identified by FEMA and on the counties declared as in a state of emergency by respective state governors as of August 31, 2017), which amounts to about 2% of LendingClub’s total borrower population. Of potentially affected borrowers, about 2,000 are currently delinquent as of August 31, 2017.

For the vast majority of investors who have diversified portfolios, we expect little to no impact to returns. The affected population is a small portion of our total borrower base of 1.5 million, and we’re committed to keeping borrowers on track.

What We’re Doing for Borrowers
LendingClub believes in doing the right thing for both borrowers and investors. Given the scope of the disaster, we’ve taken several steps in line with guidance from the FDIC to treat borrowers with respect, provide resources, and help them stay on track:

  1. Collections call adjustments. Starting on August 26 and through September 5, internal and agency collections teams stopped making calls to delinquent borrowers in Texas and Louisiana (approximately 6,000 borrowers) as the storm made its way through the area. We will resume calling delinquent borrowers who live outside of affected zip codes in Texas and Louisiana on September 5. We will not resume calling borrowers who live in affected zip codes until September 15. Likewise, we are suppressing direct mail and email collections communications to those same borrowers until September 30.
  2. Late fees. We are not charging late fees for borrowers in affected zip codes starting on August 23 through September 30.
  3. Credit bureau reporting. For borrowers who live in affected zip codes and who become delinquent, we will append a note to our report to credit bureaus that they have been affected by a natural disaster.
  4. Hardship plans. We typically offer hardship plans (where borrowers are allowed to temporarily make interest-only payments to accommodate an unexpected life event) to borrowers when they meet certain eligibility criteria. In response to Harvey, we are relaxing our eligibility criteria for borrowers in affected zip codes. Hardship plans work to protect investor returns as borrowers whose loans may otherwise progress to charge-off status have the opportunity to make interim payments and some portion may revert to current status. Importantly, our teams will follow our standard process, where we offer progressively more relief to borrowers who ask for help, with hardship plans made available only after other options are exhausted.

This is a difficult time for many Americans, and we’re committed to doing what’s necessary to help our customers stay on track while protecting investor returns.

If you have any questions or concerns, feel free to reach out to us at 888-596-3159, Monday through Friday 7 a.m. through 5 p.m. PT, or investing@lendingclub.com.

Prosper, like Lending Club, have also been communicating with investors and are including some similar help for borrowers impacted by Hurricane Harvey. They are waiving late fees and NSF fees including unpaid fees that may have already been applied. They are adjusting payment schedules so borrowers don’t accrue late fees for one month.

Prosper noted that the programs they are putting in place will not have any effect on the total principal and interest payments due to investors, but payments may be delayed. Their team is still monitoring the scope of the impact and will make any necessary changes to the scope and duration of the programs they have put in place.

Conclusion

It’s great to see both Lending Club and Prosper step up to support their borrowers during this difficult time. They have struck a good balance between supporting borrowers and protecting investors. The dedication to better serve their customers will ultimately lead to better customer satisfaction and better payment outcomes for the investors.

My Quarterly Marketplace Lending Results – Q2 2017

My latest quarterly investment results show an overall 7.28% return for the year ending June 30, 2017

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Every quarter around this time I get emails from readers asking when I will be publishing my quarterly returns post. For many years now it has been one of the most popular features on Lend Academy. People like to know how others are doing so I have been sharing my returns here every quarter since Q4 2011. Over the years I have diversified beyond my initial investments in Lending Club and Prosper into the three major asset classes within marketplace lending: consumer, small business and real estate.

Overall Marketplace Lending Return at 7.28%

One could almost say my returns are in a downward spiral. Since peaking in Q1 2014 at 12.44% my returns have decreased pretty much every quarter and for the last two years that decrease has averaged around 0.5% per quarter. Two years ago I stood at 11.3% and my weakest Lending Club account earned a respectable 8.19% and the average return of my original six accounts was 9.51%. Times have indeed changed since then.

This past quarter my overall returns stood at 7.28% and the returns for my original six accounts were 5.07%. My worst Lending Club account was my original account there and it came in at 1.95% for the year. The only good news, if there was any, was that I did not have a negative quarter in any of my accounts this quarter unlike in Q1.

For those readers who may be new to my quarterly returns post the reason for the drop in my returns are issues, primarily at Lending Club, in the D and E grade loans issued in late 2015 and early 2016. These have underperformed significantly, particular the 36-month loans, and these are the loans I have made the bulk of my portfolio. Now, I made some adjustments at the start of this year but these loans are still defaulting at higher than expected rate and it will be the end of the year I expect before I will see things begin to improve.

Now on to the numbers. Click the table below to see it at full size.

As you look at the above table you should take note of the following points:

  1. All the account totals and interest numbers are taken from my monthly statements that I download each month.
  2. The Net Interest column is the total interest earned plus late fees and recoveries less charge-offs.
  3. The Average Rate column shows the weighted average interest rate taken directly from Lending Club or Prosper.
  4. The XIRR ROI column shows my real world return for the trailing 12 months (TTM). I believe the XIRR method is the best way for individual investors to determine their actual return.
  5. The six older accounts have been separated out to provide a level of continuity with my earlier updates.
  6. I do not take into account the impact of taxes.

Now, I will break down each of my investments from the above table grouped by company. [Read more…]

Prosper Reports Strong Q2 Numbers – Is Cash Flow Positive Again

Prosper sees strong loan origination growth in Q2 as well as a return to profitability

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Prosper announced their second quarter numbers today and the results are quite promising. Even though Prosper is a private company they are regulated by the SEC and have to file quarterly and annual financials just like public companies. It has been a while since we reviewed Prosper’s numbers so I thought it was time to share.

As you can see in the graphic above Prosper had a rocky 2016. They went from a quarterly origination high of over $1.1 billion in Q4 2015 to a low of $312 million in Q3 2016. Since that time they have shown some solid growth with originations in Q2 2017 coming in at $775 million up from $586 million in Q1. They still have a long way to go before they reach record levels but growth has returned to the first US marketplace lender.

More important than growth, though, is profitability. I copied some detail from the 10-Q filed today and you can see that Adjusted EBITDA was $6.7 million last quarter. While officially their net loss was over $41 million that included $39 million of a one-time charge related to warrants. The solid quarter was also demonstrated in their positive cash flow, they generated $8.6 million of cash from their operating activities in Q2. [Read more…]

Prosper Shutting Down Their Prosper Daily Finance App

Their personal financial management app will be shutdown on August 31 as Prosper decides to focus on their core business

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It was back in September of 2015 when Prosper announced they had purchased the personal finance analytics company called BillGuard for $30 million. At the time this acquisition made sense, it was a way for Prosper to maintain engagement with their customers and prospects beyond just a loan transaction.

BillGuard was relaunched in March of last year as Prosper Daily with a focus on financial well-being. By downloading the app users could keep track of their spending on their credit card and bank accounts, protect their identity and track their credit score.

Alas Prosper Daily will shortly be discontinued. Prosper told me that as of August 31 Prosper Daily will be no more. I reached out to David Kimball, the CEO of Prosper to get his reasoning behind this move.

He told me that the decision was based around focus. While the app was great it was not consistent with the core focus of their business. It was more of an ancillary service and Prosper has become laser focused on their core business this year. Existing users will be notified about a similar app, called Clarity Money, where they can transition and continue to track their finances.

Prosper has retained a few people on the Prosper Daily engineering team and this move will enable them to work on creating a better borrower and investor experience. Improving the web-enabled mobile experience is a key goal for that team now as mobile remains a central part of their development efforts. David didn’t rule out releasing another app at some point in the future but it would be different to the Prosper Daily app.

[Read more…]

Ron Suber, Prosper President and Industry Legend, Stepping Down

After nearly five years on the leadership team at Prosper the Godfather of Fintech is moving on to a new chapter.

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I first connected with Ron Suber back in 2011. He was a Lend Academy reader and an individual investor like myself, but more importantly we shared a common passion for the nascent marketplace lending industry. We used to email back and forth and have an occasional phone call to discuss our investments and what the industry needed to do to grow.

Then suddenly in late 2012 Ron stopped responding to my emails. In mid-January of 2013 I received a call from Ron with some big news. He apologized for being out of touch but he had been working on a big deal, the recapitalization of Prosper. Back then Prosper was really struggling and I was starting to worry about them. Founder and former CEO Chris Larsen had left the company a few months before and while there was an interim CEO, there seemed to be a real leadership vacuum at Prosper.

This was all about to change as Ron, along with his friends and business partners, Steve and Aaron Vermut, looked to take over the company. Together with Sequoia Capital and some of the existing investors, they injected new capital into Prosper and rebooted the company. The Vermuts and Ron invested their own personal money and became a three-person executive team leading Prosper into a new era.

At the time of the reboot Prosper was doing $9 million a month in new loans. The new executive team grew the business to over $400 million a month before the slowdown began in early 2016. Today, Prosper is growing again, albeit in a more measured way. Loan originations have grown consistently since July of 2016 and the company recently facilitated a successful $495 million securitization. And most important of all I have heard they will be cash flow positive in Q2.

The Godfather of Fintech

Since joining Prosper in early 2013 Ron has traveled to all corners of the globe sharing his passion for marketplace lending and how financial services is being reshaped today. He has given literally hundreds of presentations at various industry conferences including five keynotes in a row at LendIt. One of the things that always made Ron’s presentations interesting is that they were never advertisements for Prosper, they were his vision for the industry including both the challenges and opportunities for the future.

Along the way Ron has gathered the largest network by far of anyone in fintech. If you wanted an introduction to someone, whether it was a brand new entrepreneur, an investment banker, a VC, a hedge fund partner, or really anyone involved in fintech, Ron would almost always know them and oblige. Not only that but he would likely have had a recent contact and would know something new about them.

I still don’t know how he is able to maintain not just hundreds but literally thousands of relationships simultaneously. And then, despite how busy he always was, he would often say to me, “Peter, how can I help?” Therein lies the secret to his success. He was often looking to help, not in a self-serving way, but because he really wanted to be helpful. He wanted to help grow the industry.

Someone coined the term “The Godfather of Fintech” for Ron a few months back. While not a perfect moniker, it does reflect the importance of Ron to the fintech community. [Read more…]

The Fastest Consumer Lenders to $1 Billion in Originations

We look at the six major online consumer lenders and share how quickly they reached their first billion dollars in originations.

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In an interview on CNBC last week Goldman Sachs CEO Lloyd Blankfein shared some news about their consumer lending platform. He said that Marcus had already crossed $1 billion in total loans issued and was on track to cross $2 billion by the end of the year.

Having launched in October 2016 Marcus crossed $1 billion in just eight months. For the online lending industry that is truly breathtaking speed. And it got me wondering. How does that speed compare to many of the industry leaders we know today?

Now, before I present this research let me say one thing. While it is an interesting data point, the speed at which a platform reaches $1 billion in total loans issued it is not an indicator of how successful a platform will become. Clearly, there are many other factors that are more important than speed of growth.

Anyway, I did a little digging and through publicly available information I was mostly able to figure out how quickly many of the major platforms reached their first billion in total loans issued. While the data here may not be exact I am confident it is close and the order is correct.

1. Marcus – 8 months

Marcus has something of an unfair advantage given that it has access to the many billions of dollars sitting on the balance sheet of its parent company, Goldman Sachs Bank. It did not need to secure outside capital to fund its loans and is able to grow as fast as the company wants.

2. SoFi – 14 months

SoFi made its start with its student loan refinance product, a category it invented but in this article we are looking only at personal loans. SoFi launched a personal loan product in February, 2015 and while they never publicly disclose the breakdown of their business lines we can glean enough information from its securitizations to make an educated guess as to when they reached $1 billion in total loans funded. Based on data from Kroll Bond Rating Agency, we know that by August 1, 2016 (when the SCLP 2016-2 securitization closed) SoFi had issued at least $1.3 billion in loans based on the loan pool balance of their first three personal loan securitizations. Based on that data I estimate they crossed the $1 billion mark around April of 2016, 14 months after they launched the product.

3. Marlette – 17 months

We first wrote about Marlette back in June of 2015. Back then they had been in business just 15 months with the Best Egg brand having made their first loan in March 2014. In those 15 months they had reached $800 million, taking just five months to go from $400 million to $800 million. So, most likely by August they had crossed the billion dollar mark. [Read more…]

Prosper’s Recent Securitization Well Received By Investors

We dig in to Prosper's recent $495 million securitization and find a positive outcome for the company

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On May 25th, Prosper announced the closing of the first securitization they facilitated themselves. The news was not widely reported, with the exception of this excellent piece by PeerIQ, and we believe the securitization marked an important milestone for the company. In order to learn more about this deal we reached out to Usama Ashraf, Prosper’s new CFO, for his take on the transaction and highlight below why this securitization was a big deal for the company.

The Prosper Marketplace Issuance Trust, Series 2017-1 or PMIT 2017-01 initially planned on issuing $450 million of notes, but the deal was increased to $495 million due to heavy investor demand. Approximately 30 investors participated in the oversubscribed deal, and the strong investor interest was a good sign for Prosper. The securitization included solely loans purchased by the large consortium that committed to purchase up to $5 billion of Prosper loans.

When we asked Usama about how this securitization will affect Prosper going forward he had several comments. Firstly, he stressed the importance of having 30 investors on the deal with some investors buying more than one class of the securitization. As we’ve learned in the past in the online lending industry, investor diversification is very important. Additionally, the transaction was rated by both Kroll Bond Rating Agency, Inc. (KBRA) and Fitch Ratings, Inc., which haven’t rated Prosper deals for a while. The details of the ratings are outlined below courtesy of KBRA.

While Prosper was pleased with having the deal rated by two rating agencies, Usama said there is still room to improve the structure. From Prosper’s perspective, the rating agencies were conservative in their approach. Moving forward Prosper will continue to focus on demonstrating solid credit performance and stability. This may give them the ability to reduce credit enhancement requirements over time. [Read more…]

My Quarterly Marketplace Lending Results – Q1 2017

My latest quarterly investment results show an overall 7.73% return for the year ending March 31, 2017

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It is that time again when I share my investment returns. I like sharing these details because I believe in transparency and I know people are interested in my returns and how they are trending over time. I started out in marketplace lending many years ago with just Lending Club and Prosper but slowly have added new investments over the years. I included a relatively new account this quarter, StreetShares, they are a small business lender with a difference – you can read about them here and also listen to my podcast with the co-founders from last year.

Overall Marketplace Lending Return at 7.73%

The downward trend continues unabated in my returns. And while I said last quarter that was my worst ever, unfortunately I can now say the same again. In fact, this quarter set new lows, with one of my Lending Club accounts actually losing money during the quarter. This is the first time that has happened with any of my marketplace lending accounts.

I complained last quarter that the annualized return, based just on the latest quarterly numbers, on my main Lending Club account had dropped to 2.1% in Q4. Well, this quarter it dipped further. The balance on this account on December 31, 2016 was $39,733, the balance on March 31, 2017 was $39,472 for a -2.6% annualized return according to Lending Club’s own statements. I have had negative months here and there but never before have I experienced a negative quarter at Lending Club or Prosper since I started investing almost eight years ago.

When I look at where the recent defaults have been coming from the majority are in the D and E grade 36-month loans issued in 2015. These loan grades have underperformed significantly, something we covered in some depth earlier this year. When I said last quarter that I hoped the worst is behind us that clearly was not the case. I now expect my returns to continue to drift downward as more of this 2015 vintage hits their peak default months.

Now on to the numbers. Click the table below to see it at full size.

As you look at the above table you should take note of the following points: [Read more…]

A Review of the Biggest Allocations to Consumer Lending Platforms

We take a look at what these investments mean to online lending and fintech overall.

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With worldwide rates continuing to stay low investors continue to look at alternative fixed income assets to earn larger returns. Online lending platforms offer a stable environment for higher yielding products and three large investors have made big plays in the last year.

Credigy, a U.S. subsidiary of National Bank of Canada struck a $1.3bn purchase program with Lending Club. Aegon, Dutch provider of life and annuity insurance products, will invest $1.7bn in loans issued by the German based Auxmoney platform. NewOak, New York-based asset management and institutional advisory firm, partnered with Canadian platform LendingArch to purchase up to $2bn in consumer loans.

Now, those three commitments represent the largest investment commitments to date coming from one firm but by far the largest commitment of all is the $5bn consortium deal for Prosper loans. Here several firms have combined to form a new entity that has been buying Prosper loans for several months. The firms are Jefferies Group LLC, Third Point LLC, Soros Fund Management and New Residential Investment Corp.

These large deals have given the online lending industry a big boost after recent turmoil and the nature of the assets allows for investors to see results fairly quickly. The trend of these sizable allocations shows that the consumer space is in a strong position to provide investors with the type of yield they are more accustomed to seeing.

These platform CEOs all say that big investors like these firms allow them to diversify their funding sources and create a more stable environment. This also helps to create more credibility to the fintech industry in general. One of the bigger barriers to entry that fintech companies have seen is that asset allocators like pension funds, insurance companies and family offices don’t have enough knowledge to be willing to allocate some of their alternative investment capital. [Read more…]

Prosper Corrects Annualized Return Calculation

Prosper recently discovered an error in their return calculations and have now corrected it.

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Today Prosper sent an email to their retail investors notifying users of a change in calculating Annualized Net Return and Seasoned Annualized Net Return. The company recently discovered an error in their calculation which they are now correcting. The note to investors clarified that no other parts of the account were impacted including payments, deposits, monthly statements, tax documents, and note and loan level information – including estimated returns.

We reached out to Prosper to get more information on how stated investor returns were affected. If you login to your Prosper account and view more information about how returns are calculated you’ll see the following statement:

To calculate annualized net returns, a total gain or loss is calculated by summing all payments received (including investor rebates received from Prosper) net of principal repayment, credit losses and servicing costs. The gain or loss is then divided by the average daily amount of principal outstanding to get a simple rate of return. This rate is annualized by dividing by the dollar weighted average Note age of your portfolio in days and multiplying by 365. The calculation (i) excludes Notes bought or sold on Folio; (ii) only includes Notes issued after July 15, 2009; and (iii) is updated monthly.

The Seasoned Annualized Net Return is the same calculation but only includes notes that are at least 10 months old. Prosper clarified that the method of calculating returns is the same and that the error was with the inputs into the calculation. The majority of investors will see a corrected annualized net return lower, although in some cases returns were understated or not impacted at all.  We learned that the error was discovered a little over a week ago and the company has been working on a fix since then. The time period that returns have been misstated ranges between investors but is up to several quarters.

I took the below screenshots from my account showing the original net annualized return and the corrected net annualized return. In my account the stated annualized net return dropped from 13.55% to 9.27%.

Prosper account before Annualized Net Return correction.

Prosper account after Annualized Net Return correction.

Conclusion

In the past p2p lending investors have relied on different ways to calculate returns outside of what the platforms provide. This is because calculating returns is complex and there is no consensus on what method is best. At Lend Academy we prefer using XIRR in addition to platform stated returns to calculate returns in our own portfolio. We wrote a post last year on the different ways of calculating returns with Lending Club and Prosper. However, many investors rely solely on the stated returns provided by the platforms. Although it is disappointing that Prosper had an error in their calculations we are glad they were transparent about the issue and addressed it head on with the retail investor community.

About Lend Academy

Lend Academy has been bringing you all the news and information about peer to peer lending since 2010. Founded by Peter Renton, Lend Academy not only has the most active news site, but also the largest online forum and the first and most popular podcast in the industry.

The Lend Academy team loves peer to peer lending and our staff have all invested their own personal money in one or more of the platforms. Lend Academy Media is part of Cardinal Rose Group which also owns LendIt, the leading industry conference, and has a majority interest in NSR Invest.

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