They say you always remember your first more than the others…
So yes, after 1 1/2 to 2 years as a Lending Club investor, I finally got hit with my first default where a small $24 loss took my pretty little 15.64% NAR out behind the woodshed to a tune of 0.86%. A 14.78% NAR and 1 default out of 300+ notes is still very respectable in my opinion, but considering that I have 8 loans 31+ days late, I’m naturally feeling a bit more cynical about my current portfolio of borrowers.
Ironically, my first default came from someone working in a profession that I never suspected would take the easy way out of reneging on their financial obligations: a dual income family of law enforcement officers. Apparently they elected to go the Chapter 13 bankruptcy after making a measly 3 out of 60 payments. I can only hope no serious ills came to them since they do work in a very dangerous profession, but if they gamed the system, my faith in the system just took another hit.
I’m not what you would call “well versed” in the legalese of bankruptcy law, but it’s my understanding that one of the caveats of Chapter 13 bankruptcy is the borrower must repay their creditors at little to no interest. However, after 5 months of waiting, it looks like Lending Club has been unsuccessful in coaxing money from the trustee handling the case. Whether they can recoup the loan principal, or any future funds for that matter, is unknown at this time.
I don’t plan on changing anything major to my original investment strategy or reducing my weekly contributions, but I do expect I’ll review and opine with a few members of the Lending Club investment club to see what conclusions we can infer (I’m reluctant to say prove) from my first default, and potentially, identify any significant variables present in this note to avoid them in the future. In other words, more analysis to come.