Wednesday, January 02, 2013

Lending Club 2012 in Review, Part I: Loan Volume and Amount Funded

Happy New Year to all my readers and to lenders on Lending Club platform. As Peter mentioned in his post In 2012 U.S. P2P Lenders Issue $871 Million in New Loans, Lending Club had terrific 2012.

Loan Volume

In 2012, Lending Club issued 53,367 loans, more than double the number of loans issued (21,721) in 2011. On monthly basis, in recent months the number of loans issued seem to be reaching plateau of little over 6,000 loans.

Lending Club 2012 Monthly Loan Volume
In 2012, over 90% of loans issued were of higher quality with credit grade of A, B, C, and D. Only 8.92% of loans (4,761 loans) were issued with credit grade E, F and G. In comparison, Lending Club issued 12.26% of loans with credit grade E, F, and G in 2011. Lending Club continues to show commitment toward improving listing of higher quality loans on its platform.

Lending Club Loan Volume by Credit Grade 2010 - 2012
As Lending Club announced in its blog post Investor Updates and Enhancements, beginning October 2012, LC started to reserve some loans for institutional and other investors who wanted to fully fund loans themselves. Since then percentage of loans offered initially as Whole on monthly basis is continuing to increase. In October 2012, only 13.51% of loans were initially offered as Whole and that ratio more than doubled to 29.10% by December. Overall in Quarter 4, 20.85% of loans were initially offered as Whole.

I will recommend lenders, who would like to filter loans using initial list status as criteria, to consider using PeerCube filters. PeerCube now enables users to filter loans using 41 different loan and borrower attributes including Initial List Status.

Lending Club 2012 Loan Volume by Initial List Status
As I expressed concerns in my blog post Lending Club Loan Length and Default Rate about excessive 60 month term loans in 2011, it appears that the share of 60 month term loans in 2012 dropped to 18.55% of total loans issued, almost half of the 35.08% share in 2011.

Lending Club Loan Volume by Loan Term, 2010 - 2012

Loan Amount

Lending Club lenders funded $718 million in loans issued in 2012. This amount is over two-and-a-half times more than $257 million funded in 2011. As mentioned earlier, while the number of loans issued in last four months of 2012 stagnated, the amount funded continued to rise in the same period.

Lending Club 2012 Loan Amount Funded
The stagnant number of loans but higher loan amount funded in last quarter of 2012 indicates that most likely the amount funded per loan was much higher than loans issued prior to last quarter. In fact, on average $14,100 was lent per loan in last quarter, almost 10% increase from previous quarter. This also reverses the declining trend in average amount funded per loan for past three quarters.

Lending Club 2012 Average Amount Funded per Loan
While only 8.92% of loans with credit grade E, F, and G were issued in 2012, such loans received 15.29% of the funding. The funding for such loans was slightly lower compared to 18.74% in 2011.

Lending Club Total Amount Funded by Credit Grade, 2010 - 2012
The small reduction in funding for lower quality E, F, and G grade loans doesn't match the significant reduction in number of such loans issued in 2012. The average amount per loan increased across all credit grades but the increase in average amount was much higher for loans with credit grade E, F, and G.

Lending Club Average Amount per Loan by Credit Grade, 2010 - 2012
Going forward, I am particularly interested in monitoring Initial Listing Status and how it impacts retail lenders like myself. I was surprised to see that the percentage of total amount funded for Whole loans is almost same as the percentage of loans initially listed as Whole loans. With such a short duration since initial listing status went into effect, it is difficult to make any significant observations.

Lending Club Total Amount Funded by Initial Listing Status

Lending Club Average Loan Amount by Initial Listing Status
Similar to decrease in number of loans with 60 month term, the percentage of total amount funded in 60 month term loans also decreased from 48.50% in 2011 to 29.39% in 2012. Still, over $200 million were contributed toward 60 month term loans in 2012, almost 70% increase from 2011.

Lending Club Total Amount Funded by Loan Length
The average amount funded per loan significantly increased (by almost 30%) for 60 month term loans from $16,382 in 2011 to $21,246 in 2012. Similar increase (by almost 25%) is observed for 36 month term loans.

Lending Club Average Loan Amount by Loan Length
Lending Club had spectacular year 2012 as observed by total amount funded. There is significant increase in larger loans issued last year. I expect the growth in 2013 to be driven by loans of larger amounts rather than increase in number of loans listed on LC platform.



2 comments:

  1. I notice a few things going on here.

    1) The new November, 2012 prospectus explains that Lending Clubs method of assigning grade has significantly changed. Prior to 2012, one could look at a loan and figure out exactly how the grade was assigned. Now it is accomplished through a "proprietary model".

    2) Since November, 2012, I have noticed a huge decrease in the amount of F-grade loans available. Specifically, loans with good attributes such as high reported income.

    3) Your observation that LC issued fewer, but larger loans in 2012.

    When I add it up, it appears like LC is finding it more difficult to find people who want to take out a loan through their platform (and pay high interest rates). In an effort to find more customers, they are lowering interest rates (by changing the way loan grade is assigned). Additionally, they are accepting higher loan amounts.

    What do you think?

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  2. Thanks for the comment. Yes, grade assignment change seem to explain lack of low quality loans as well as some lower quality borrowers such as with public record and previous bankruptcies showing up in better grades. The major shift in grade assignment will have wider impact as it will make historical analysis much more difficult and results applicable to new loans. The growth in loan volume in 2012 was spectacular. How the 'proprietary model' impacts volume, remain to be seen.?

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