Lending Club – 2013 Investment Criteria

Since starting with Lending Club in the spring of 2009, my investment criteria has changed significantly. Prior to 2012, I was invested in mostly medium to low risk loans in the B-C grades. Last spring, after reading Peter Renton’s Lend Academy post on how he planned to invest his money in 2012, I quickly changed my perspective and began doing my own research into what criteria would provide me with a potentially higher return, for a limited increase in risk. UPDATE: Peter has released his 2013 Investment Criteria.

Utilizing Lendstats, I spent countless hours manipulating and testing out various filters combinations culminating in my current two filter sets below. Both of these filter sets have been structured in a way that eliminates any duplicity in note selecting to avoid concentration in any particular note.  Links to the below criteria, effective through 12/2012 are available below.

Lending Club – Primary filter, lower risk

  • Loan Grade: C, D, E, F, G
  • Home Ownership: Mortgage, Rent
  • Inquiries: 0
  • Public Records: 0
  • Delinquencies: 10 Months since last
  • Monthly Income: >= $6,000
  • Minimum Loan Amount: >= $5,000
  • Credit History: >= 10 years
  • Job History: >= 6 years on the job
  • Loan Purpose: Credit Card, Debt Consolidation, Home Improvement, House Purchase, and Major Purchase
  • States: Exclude CA, FL, MI, NV, WA
  • Lendstats: Primary Filter

Lending Club – Secondary filter, higher risk

  • Loan Grade:  D, E, F, G
  • Home Ownership: Mortgage, Rent
  • Inquiries: 0
  • Public Records: 0
  • Delinquencies: 10 Months since last
  • Monthly Income: >= $3,000 < $6,000
  • Minimum Loan Amount: >= $5,000
  • Job History: >= 6 years on the job
  • Loan Purpose: Credit Card, Debt Consolidation, Home Improvement, House Purchase, Major Purchase, Vacation, and Wedding
  • States: Exclude AZ, CA, FL, GA, HI, NC, NV, RI
  • Lendstats: Secondary Filter

Some final notes

While I am not a statistician, I am fully aware of the limits of this random “method testing” and would strongly recommend anyone do their own research into what investment criteria you would be comfortable using. Ideally, a brute force method of processing and calculating every possible combination and aggregating the data would be ideal, but I don’t have the technical expertise or programming knowledge to accomplish that task.

Additional statistical analysis can be done at the following sites:

  • Nickel Steamroller: Great website to check investment methods against, as well as have your current portfolio analyzed
  • Interest Radar: Provides comprehensive investment tracking, strategy development, and analysis

Be sure to check out my Lending Club investments to see my updates on my returns!

What filters and statistical analysis have you found successful in your peer-to-peer investments?

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Comments

  1. Great write up! Becoming familiar with the LendStats site (and others) can go a long way in reducing defaults and getting better borrowers behind your account.
    The only suggestion I would have is for your second filter. Having only 700 or so historical loans is a little on the low side. If you remove the Max-income=$6000 from your second filter, your ROI goes up and it returns over 1600 historical loans.
    Hope that helps.

    • writing2reality says:

      Simon, thanks for commenting, and discussing the filters I use. I have specifically not used greater than $6,000 of monthly income for the second filter to avoid any duplicate loans. By removing the upper income limit I start to duplicate the notes found with my first filter. I look at both filters as a combined strategy, with my primary being the lower risk, first filter, and my secondary being the higher risk, second filter, with a total loan pull in excess of 2,000 historic loans.

      Thanks again for commenting, and good luck with your new site as well!

  2. Why did you choose to exclude those states?

    • writing2reality says:

      Thanks for commenting JB! I have chosen to exclude those states based on historic poor performance. While each state’s historic performance might not be entirely statistically significant, generally speaking, these states have been some of the more devastated by the recent economic downturn. Hope that answers your question!

      • My filterset achieves > 13% ROI on the Nickel backtest. I am having trouble determining which filters I use that are BS. I’ve decided to only exclude CA and GA, as they SEEM to be the two worst states.

        What are the top 3 filters you use that you suspect may be the least beneficial to your ROI? In other words, which 3 criteria would you feel most comfortable removing from your strategy?

        • writing2reality says:

          Greater than 13% is fantastic. How old is your portfolio, and what is size of portfolio? The states can be quite variable, depending on the other sorts you have, but CA is consistently the worst or one of the worst. GA struggles, as does FL and NV.

          As far as filters to remove… using my primary filter as an example, I would remove months since DQ, minimum size of the loan, and the length of credit history requirement. Check out after updates: Updated Filter

          Hope that helps, and good luck!

          • 13% ROI achieved is from the NSR backtest here http://nickelsteamroller.com/lendingclub_return

            My actual portfolio is ~2 years old and the NAR is 7.4, so ROI probably more like 6. Not good. I used inferior filters back then.

          • writing2reality says:

            FYI – Your link won’t show any filters, just the blank filter page.

            Glad to see you researching ways to improve your returns! What I would recommend is you find a filter set you are comfortable with and work with that. Sure, you can eek out an extra tenth or two with back testing, but none of that is a guarantee of future returns. The main focus is reducing some of the risk associated with a lower grade set of loans.

  3. Great filters. And I learned something new today; Interest Radar is new to me. Checking it out now.

    I started LC about less than a year ago. Alas, I can only use the secondary market.

  4. Thanks for sharing! I’m going to enter your filter tonight and see how it goes. Really appreciate you sharing your strategy.

  5. These are some nice filters for sure!

    How have you modified them for 2013 / 2014?

    I am right at 11.04% ROI but would like to do better…

    Can you share any updates?

    Thanks – Ray

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