Well, I knew this day would come. I have had seven notes that have gone past the Grace Period into the Late Period. Lending Club states that those within the Grace Period, I have an 83% chance of getting some money back from. Those that are Late 16 to 30 days, 75% chance of getting some money back. Late 31-120 days yields 55% chance. Note that this does not state that you will get all your money back, but get some back.
I'm changing my pricing strategy a little. Any notes in the Grace Period, I am now selling for Principal + Interest. This means I could lose up to 7 days of interest if it sells on the seventh day from when I put it up, but given that there is a 17% chance I could lose the entire note, it's little to give up. Then when a note goes Late, I start decreasing it's sales price by $0.10/day.
Of the 7 notes that have gone into Late, I've sold one so far. This is my first chance to get real data (although not enough for statistical significance) as to who defaults. Of the six notes I still own that are Late here is the info (notice that I bought all of these notes right before they stopped making payments):
|Months Old||Payments Made||Latest Action|
|7||4||Collections Agency attempted to contact|
|7||5||Borrower provided Bankruptcy counsel information|
|8||6||Borrower filed for Chapter 7 Bankruptcy|
|18||16||Sent email to borrower|
We'll see how this plays out as far as collections. However, I'm still optimistic. My account is currently worth 5.1% more than the money I put in. On notes I sell, I get a median return of 38.5%. On average I sell notes after holding them for two weeks. The notes in my portfolio I've held for an average of 40 days. So it looks like my strategy holds on to some notes and cycles through others.
The main thing I've been focusing on is keeping my time to a minimum on handling my account. My routine is to spend about 5 to 10 minutes a day each morning buying and selling notes.
I'm still a small investor. I am over the 100+ Note range but not quite to the 400+ Note range. Of the 100+ Note investors, if I can stay in the top 6.5% of investors, I will still have a 15%+ return. My target is 16% per year, so 21.22% gives me some wiggle room.
#1 Do not buy notes that are in Grace Period
#2 Sell notes that reach Grace Period at value
#3 Discount Late notes by $0.10/day
This is where it gets really fun, how to mitigate risk and still make a good return. When I said I've been lucky so far, this is where we see what the real possibilities of Lending Club are.