Thursday, June 18, 2009

Progress with Lending Club P2P loan investments

I got off to a great start with my initial peer-to-peer (P2P) loans ("notes") through Lending Club, but then things bogged down. Now I am starting to catch up again.

I started by making five small $25 investments in five different notes. I was done, for now. Or so I thought. But only two of the notes were eventually issued. For various reasons, the other three fell through. Two days after I made the investments those three were showing as 100% funded, but still "In Review." At first I thought that simply meant that Lending Club review staff was behind and would eventually catch up. Not quite.

The review process is really two steps. First, the credit bureau is consulted and credit history and credit score and all of that credit history stuff is evaluated. That is actually an automated process. Then the loan is made available for us investors. We get to see a combination of that auomated credit information as well as unverified employment and income information. Why unverified? Well, simply because it takes time and separate manual processes that can only be automated in some cases. The loan description actually does indicate whether the employment and income information has been verified (with an asterisk if it has been verified) and Credit Status Review does say "Under Review" if the displayed information is still unverified. The status will change to "Approved" once Lending Club has completed the employment and income verification. Lending Club is up-front and transparent with all of this, but you (I) need to understand the jargon and I had failed to do so initially. Now I know.

At least now I can understand why so many mortgage originators were so willing to issue "no doc" mortgages back before the financial crisis -- it is a real pain to verify income and employment.

Lending Club says that they are in talks with a number of payroll service providers so that they will gradually be able to automatically verify employment and income for an increasing portion of loans.

Why not wait until Credit Status Review says "Approved" before selecting a loan for investment? Simple: Because a lot of the "best" loans will already have gotten to 100% funded by that time and no longer be available for you to make an investment. There is no risk selecting an "Under Review" note, it is simply the inconvenience that your investment will be returned within a few days and the money is tied up during that review period.

So, I went ahead and selected another four loans (total of ten). My goal is still to get five or six loan investments.

So far, another loan has been issued (four so far), two more are "In Review" (fully funded), and three are "In Funding."

It is difficult to say how many of those five "open" investments will finally be "issued." I did not intend to do five more, but it's okay if all five get issued. Maybe only one or two will ultimately get issued and that would be ideal for me. Or, maybe they all fall through and then I will have to go back and search for new loans to invest in.

But the bottom line is that I am starting to get into the swing of the whole process.

I actually got to meet the executives of Lending Club last week. I'll post about that separately.

-- Jack Krupansky


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