CommunityLend blog

Here is a review of the household banking balance sheet over the last 4 years.  These numbers are interesting and display change amongst consumers and how they manage their money. (Note these statistics do not include any money other than with Canadian banks.

The shift towards non-amortized debt is $114 Bn during this period.  The increase in mortgage debt is nominal in comparison, so clearly people are moving towards lines of credit, with low interest rates and low monthly payments.

Next I looked at savings behaviour during the same period and interestingly the numbers are surprisingly healthy although there is a clear shift towards shorter term, non fixed rate deposits.

The numbers seem to reflect a positive position for Canadians in that there is enough cash in the aggregate. 

But we we do know that approximately 45% of Canadians keep balances on their credit cards permanently so it bears asking how much of the disposable cash is also owned by credit card holders or the lines of credit holders.  Those are the ones that will feel the difference if we see interest rate adjustments in the next couple of years.

Lending Club are featured in this article here in Forbes.  This is a Forbes blog summary,

Are Bankers Mere Middlemen? | Forbes

Even if you consider yourself an active, savvy investor, these have been tough years. The market is predictably volatile, and that’s about it. The Lending Club investors I spoke with (some are quoted in the story) are seeing above 10% returns while taking what they consider moderate risk. Lending Club filters its borrowers, and rejects 90%. Defaults have averaged 4.9% over the past three years.

Nice article on P2P lending from Wall St Oasis.  He explains how he uses a portfolio approach to diversify and build out a  return that meets his needs and risk expectations.

Build your own CDO

MY CDO

I chose LendingClub over Prosper because they appear to have a platform better suited to sophisticated investors. That’s not a slam on Prosper, it’s just my impression. LendingClub chose toregister with the SEC right away, but Prosper operated outside the regulators for awhile before registering (I’m not sure there’s any requirement for them to register, but it certainly makes investors feel better). LendingClub also instituted stricter lending standards coming out of the gate, which Prosper has now emulated.

I was more comfortable with the LendingClub platform as well. It’s very straightforward; you simply filter the available notes by interest rate, credit rating, term, purpose, or a variety of other factors that are important to you. I liked that I could lock in an interest rate when I found a loan I was comfortable funding, rather than seeing the rate fluctuate according to auction results.

So I joined LendingClub and built a portfolio of loans whose results I could report back to you. The CDO I built has a weighted average rate of return of 10.79% [Ed note:  The writer must mean potential average Rate based on historic returns] annually and this is how it breaks down:

• A paper – 20%
• B paper – 40%
• C paper – 20%
• D paper – n/a
• E paper – 20%
• F paper – n/a
• G paper – n/a

80% of the portfolio is made up of loans to people consolidating debt (mostly high-interest credit cards) and the other 20% went to hard asset investment purchases (collectible automobiles for resale by guys with demonstrated expertise in that market). 60% of the portfolio is in 3-year notes, the other 40% in 5-year notes.

For the record, LendingClub only offers loans by those borrowers with FICO scores of 660 or better, debt-to-income ratios of 25% or less, at least three years of credit history with no current delinquencies or recent bankruptcies (7 years), and a variety of other fairly strict criteria.

CommunityLend Marketplace Update for October 2010:

It is hard to believe that we are already half way through November and coming up fast to the end of 2010. It has been an incredible first year of operation for the CommunityLend service and we wanted to devote a big part of this month’s newsletter to thanking the people behind our success: our customers. We also wanted to do a big shout out to two new members of our rapidly expanding team.

Finally, we even wanted to throw out a “knowing nod” to some Canadian politicians who have recently joined our chorus on the imperative of reining in household debt through more responsible lending practices.

But first, here are the key market statistics for our year to date to October 31st, 2010.

• Loan Demand at www.communitylend.com increased significantly in October to over $5.4 Million.
• Loan Requests Accepted and available for investment was also up significantly to over $850,000.
• User Membership grew to just shy of 3,000.
• Our Average Loan Size for Accepted Loans was lower in October at $6,669 (from $7,421 last month).
• And, our Average Offered Interest Rate fell significantly to 13.39% (from 16% last month) due mostly to an increase in the credit quality of Borrower applicants this last month.

The Voice of Our Customers:

As the name CommunityLend would imply, we are very focused on building a unique online community focused around a better way of lending and borrowing here in Canada. Last month we took some time to ask some of our early customers what they thought of their CommunityLend experience. We were very pleased with the feedback we have received and wanted to share it with all of you. Thanks for being part of our community and keep the feedback coming at info@communitylend.com .

Borrowers:

• Liza123: "I am excited to see a real alternative to banks for borrowing money and all online"
• Thorpes: "My baby was due right at that time, and we needed to complete the nursery. CommunityLend came through for me"
• Nicole: "I was facing a huge obstacle to attend college in another country and I sought out CommunityLend to help me pursue my career"

Lenders:

• 258W22: "At a time of instability in the capital markets, I was pleased to be able to find a “fixed income” type of investment opportunity with a higher return potential"

We’re Growing … Again:

CommunityLend added two new members to our team in the last month who bring with them unique skills and experience to make our team better. Welcome both Casper Wong and Paul Sehr!

Casper Wong, Vice President of Operations and Business Development

Casper joins us after a stint with Easyhome where he was Director, e-Business & Business Development. Easyhome is Canada’s largest publicly traded merchandise leasing company with over 240 store locations and annual revenues in excess of $170MM. While there Casper developed a growth strategy for their online lending business and led his team to double loan book and revenue growth in a span of 6 months. He was also responsible for sourcing, implementation, and negotiation of key partnerships including an underwriting platform with TransUnion. Furthermore, he organized and set up their credit, adjudication and customer service areas for the online lending business as the company expanded. For more on Casper.

Paul Sehr, Director of Engineering

Paul adds significant horsepower to our innovation engine. For 3 years he has worn the entrepreneur’s hat as Partner & CTO of MomentVille, an online wedding website and planning service with hundreds of thousands of monthly users. More recently, Paul was a consultant at Form & Method, Toronto’s elite shop for cutting-edge web & mobile development work and our long-time development partner. For more on Paul.

A Note on Responsible Lending:

The Quebec government has been one of the first so far this year to recognize publicly that the average level of consumer debt in Canada is at record levels following a further unprecedented growth over the last 2 years and has announced its intention of taking some actions.
Jean-Marc Fournier, Quebec’s Justice Minister who is responsible for consumer protection, says that during the next few weeks he will urge financial institutions and retailers to change their lending practices. He is particularly critical of credit card issuers who he says have consistently reduced minimum monthly payments over the past several years.

As we have written before, personal lending used to be based on purpose and amortized over a reasonable period. That is the CommunityLend approach and we intend to continue trying to move the market back to this responsible lending practice.

Questions on Lending and Borrowing at CommunityLend?

• Have Questions?
• Contact us anytime at info@communitylend.com • Or call us toll free: 1.888.536.3025 (9:00am – 5:00pm EST)

Few Canadians know their own credit score.  There are many reasons to know yours, including saving yourself money, and protecting yourself against fraud and identity theft. 

This is a very practical guide and worth the few minutes to check it out.

Nine steps to a better credit score | Globe and Mail

1. Know your score.

2. Pay your bills on time.

3. Never exceed your credit limit

Click through to the Globe and Mail for the remaining 7 tips

We believe in responsible lending and responsible borrowing.  The average level of consumer debt in Canada is at record levels following a further unprecedented growth over the last two years which has surprised the politicians somehow – the same politicians who were complaining that the banks were not lending during the economic crisis in 2008 and 2009.

Quebec moves to tighten credit to debt-burdened citizens | National Post

Mark Carney, the Bank of Canada Governor, has said repeatedly that he is concerned about household debt, which stands at a record 146% as measured by a ratio of debt-to-income. “Authorities have to be vigilant about the possibility” of fatter personal debt loads amid a weaker global economic recovery, he said last month.

The government actually got their wish and are now rightly concerned that the level of debt raised under these low interest times has created a debt bubble that will explode in the faces of up to 11% of Canadians when interest rates inevitably begin to rise.

The Quebec government is the first to step in and announce the intention of taking some actions.

Jean-Marc Fournier, Quebec’s Justice Minister who is responsible for consumer protection, says that during the next few weeks he will urge financial institutions and retailers to change their lending practices. He is particularly critical of credit card issuers who he says have consistently reduced minimum monthly payments over the past several years.

Going back to the point of responsible lending.  As we have written before, personal lending used to be based on purpose and amortized over a reasonable period.  That is the CommunityLend approach and we will support anyone who is trying to reduce their debt now.

Ellen Roseman the Toronto Star has some highy useful information about what she terms the Top Three online scams.

Top three online scams | Toronto Star

You can be fooled into parting with your hard-earned money if you don’t keep up your guard at all times.

Bottom line is if you are parting with payment or credit card information, be very sure you know where it is going. If it appears to good to be true it probably is. The most insidious is the last of her three;

Free trial offers.

Try before you buy. That’s the pitch behind online appeals for vitamins, cosmetics, diet pills and teeth whiteners.

Maybe you say yes because the offers come from your Facebook friends. You don’t realize their accounts have been hacked.

Andreas told me his wife signed up for a free trial of weight loss pills at MyDietMaxCleanse.com.

She had to give her credit card number, since there was a small charge for shipping and handling. About a week after receiving the product, he saw an $87 charge on his credit card from a company based in Panama.

Basically this one says that you are going to get something for free and all you have to pay for is the shipping. Sounds great, but they need your credit card number. Amongst other things you may be inadvertently signing up for a monthly supply of the product for ever and cancelling is never going to be easy. Also these may be simple fraudsters in which case who knows what will be charged. Generally speaking free offers that find you are worthwhile being wary of.

We welcome Casper Wong to CommunityLend as we continue our expansion of the business model.

Casper joins us after a stint with EasyHome.ca. He brings significant experience and expertise in finance. He was with BMO Capital Markets having worked on Mergers and Acquisitions at BM. At EasyHome he was Director eBusiness & Business Development. EasyHome which is Canada’s largest publicly traded merchandise leasing company with 243 store locations and annual revenues in excess of $170MM, incorporated EasyFinancial where Casper lead a team of 20 employees that doubled loan book revenue in national lending team within 6 months. He was also responsible for sourcing, implementation, and negotiation of partnerships. He organized and set up their credit, adjudication and customer service area as the company expanded, and these backgrounds sets him up nicely for the next phases of CommunityLend.

These are the strengths that are essential to help drive CommunityLend with our latest expansion plans that we will be sharing very soon.

More to come on that ….