Seasoned Loans for Lending Club Investors

One thing I really appreciate about Prosper is their promotion of seasoned loans over the current ROI. When you buy a note, 5 payments must be missed for the loan to be charged off. In the mean time that note has no impact on your ROI in a negative way. As a result it can artificially inflate your ROI for up 5 months.  In the past we have also talked about a default curve for Lending Club which shows defaults tend to rise in the earlier part of its loan term then start to stabilize.

From Prosper:

“As Notes age, you may see initial defaults between their fifth and ninth months – based on our own research, our Note returns show increased stability after they’ve reached ten months of age. For that reason, we define “Seasoned Return” as the Annualized Return for Notes aged 10 months or more. We encourage you to pay closest attention to your Seasoned Return when evaluating the performance of your portfolio.”

Prosper states stabilization starts to occur around 10 months, and as you can see from the default curve its about the same for Lending Club. What I’ve done is add a button to the portfolio analyzer that will set the data ranges so that the last 10 months of notes will be excluded from the the ROI.This will effectively give you a closer translation to Prosper’s seasoned loans. All you have to do is click his button once and the date range will be automatically set for you using today’s date.

I only have about 18 notes that are > 10 months old and they are all current or paid in full. But as time progresses I can see this seasoned ROI metric being a far better indicator of ROI than both Lending Club’s return and the portfolio analyzer without the  seasoned loan selection dates.

 

Michael

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