Friday, December 26, 2014

Lending Club is a no-go in Texas


One of my goals for 2015 is to diversify my income streams. After seeing many bloggers report their peer to peer lending successes, I thought it might be a good idea to jump in the waters as well.  There are many bloggers out there who are exceeding 10% in interest returns which I find very exciting. I actually set up a LC account back in 2007, but I never entered my banking information and for whatever reason I didn't  pursue the matter further.

After spending a few hours browsing through many different types of loans, I finally went through the different application pages and set up a transfer. The whole process was incredibly easy and I was certainly excited to make my first loan.

While browsing through the many types of loans, I noticed that the credit scores were all over 680 and I was also surprised to see some individuals with high 700s and low 800s credit scores who were prepared to enter into loans in the 6-8% range. I actually find this difficult to believe because people with credit scores in the high 700s and above have a virtually 0 percent default rate. While many investors might chase some of the high risk borrowers, I would probably stay with the more stable loans and could live a 5-7% rate of return.

Once my initial transfer of $500 went through, I saw the standard "Welcome to Sharebuilder" acknowledgement, but they also mentioned that due to restrictions from the state of Texas I could not initiate any loans right now. I find it funny that in Texas, which probably has the fewest number of business regulations in the country, one cannot enter into LC transations. I guess it is easier to erect an oil derrick in your back yard than it is to loan money in Texas.

LC did say that I could purchase existing loans on another website called Foliofn I believe. At this time I will probably pass on this option. Hopefully sometime during the next few years LC will become available in Texas.

It has been almost a year since I have purchased any high yield bonds, so I might start adding to my bond positions as an income alternative. Also I have noticed that many BDCs have been dropping in value recently. I may investigate this option as well.

If anyone has any other ideas, I am very interested in hearing about them.

6 comments:

  1. Don't write off P2P loans just yet... Since Lending Club is now public, they will likely look to open investing to all 50 states under the 'Blue Sky Exemption'. While I don't know all of the details associated with this, I'd imagine that at some point in the next year or two Texas investors will be allowed to invest directly instead of purchasing notes off the secondary market.

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    1. W2R,

      Don't worry, I am still interested in P2P lending. I just wish Texans weren't restricted from investing in these loan opportunities. Thanks for bringing up the point about LC being a public company now. I never thought about how that may remove some of the state regulations across the country. It will being interesting to see how things develop in the coming years.

      MDP

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  2. MDP,

    I haven't really posted about it yet because my account is small, but I have a lending club account and I live in Texas. I have to purchase the loans on the secondary market that you mention. The screening isn't as good as the normal process but I haven't had a single default in over a year. I'm also targeting the high yielders and riskier buys but I screen out certain things. My account currently says my adjusted net annualized return is 17.5% with 44 notes traded so far. My balance is only $1800 so it's still a small sample but so far so good. I wouldn't completely write them off.

    Cheers!

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    Replies
    1. AAI,

      I may look into buying some existing loans in the secondary market, but I would rather just stick with the original loans through LC. Hopefully in the next year Texans will be allowed to fund new loans.

      MDP

      Delete
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