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Lending Club Discussion => Investors - LC => Topic started by: rj2 on July 23, 2016, 06:58:04 PM

Title: What are late notes worth?
Post by: rj2 on July 23, 2016, 06:58:04 PM
LC returns adjustment says that 31 to 120 day late notes have a 9 month loss rate of 56%. However, I listed a dozen of them in folio at a 60% discount and nobody wants to buy any of them. Presumably if LC is right, 4% off their 9 month value is a bargain but obviously no one really thinks so.

So, what are they actually worth?
Title: Re: What are late notes worth?
Post by: AnilG on July 23, 2016, 08:02:22 PM
You might be looking at wrong numbers. According to Lending Club statistics page https://www.lendingclub.com/info/demand-and-credit-profile.action, on average the net charge off for Late (31-120 days) is 75%. On average, no one will buy with less than 75% discount for such loans. But this 75% charge off is based on averages across all loans. There can be wide variation in charge offs, thus desired discount, across loans based on different factors, such as credit grade, vintage, etc. The desired discount also depend on what else available on Folio. Why would I buy at 75% discount when highest discount for Late (31-120 days) loans is 85-90%? Personally, I don't buy Late (31-120 days) loans unless discount is more than 90%.

LC returns adjustment says that 31 to 120 day late notes have a 9 month loss rate of 56%. However, I listed a dozen of them in folio at a 60% discount and nobody wants to buy any of them. Presumably if LC is right, 4% off their 9 month value is a bargain but obviously no one really thinks so.

So, what are they actually worth?
Title: Re: What are late notes worth?
Post by: DuaneLC on July 23, 2016, 09:32:10 PM
Here is a note currently on Folio.  Maybe this will answer your question.  this note is Late 16-30 days and has a YTM return of 424.97%
 66.85% discount.
You will have to discount probably over 80% to sell it.

Loan ID   Note ID   Status   Prncp Left   Ask Price   YTM Return   Remain Pymts   Credit Scr Chng   Never Late   Date Listed   FICO End   Disc MkUp Pct   Int Rate
13126912   43936657   Late (16-30 days)   8.92   3.03   424.97   12   DOWN   false   07/23/2016   620-624   -66.85   15.61
Title: Re: What are late notes worth?
Post by: Fred on July 23, 2016, 11:13:35 PM
Forget about what LC says.

What you need to do is to see your competition.  If there are similar notes (same status, grade, term, FICO trend, etc.) with lower prices, then you should beat their prices.

As a Folio trader, why should I buy your note if there are similar, cheaper ones?
Title: Re: What are late notes worth?
Post by: thezfunk on July 25, 2016, 01:26:12 PM
My 31-120 days late now won't move until I discount 90% or more.  Either everyone has gotten extremely picky or money has pulled out of the secondary market.
Title: Re: What are late notes worth?
Post by: dr.everett on July 25, 2016, 02:17:50 PM
Never been able to sell anything late without 90% off. I won't discount like that until it's 4 months late. Seen too many of my problem children make one last big payment before default and I don't want to miss that by discounting too early.

I do discount on occasion but only for certain things.
Title: Re: What are late notes worth?
Post by: thezfunk on July 25, 2016, 02:32:07 PM
Never been able to sell anything late without 90% off. I won't discount like that until it's 4 months late. Seen too many of my problem children make one last big payment before default and I don't want to miss that by discounting too early.

I do discount on occasion but only for certain things.
8+ months ago I could sell a 31-120 note for a discount in the ~70-80% range.  Since January, the distressed note selling has gotten really bad.  Grace notes that used to go at 15-20% discount won't move until I get to 30% or more.  16-30 has likewise deteriorated.  Even selling current notes needs a discount now.  So many more of my new notes go bad now too.  I used to see maybe ~8 or so notes go grace in a month.  Now the number is easily 3 times that.  I have been selling all my newer notes and switching to buying only seasoned notes on Folio in an attempt to stem the bleeding.
Title: Re: What are late notes worth?
Post by: Larry321 on July 25, 2016, 03:31:12 PM
Never been able to sell anything late without 90% off. I won't discount like that until it's 4 months late. Seen too many of my problem children make one last big payment before default and I don't want to miss that by discounting too early.

I do discount on occasion but only for certain things.
There has got to be a way to determine the best price to sell 31-120 day notes.  If you could figur eout the probability of a 31-120 note finally making a payment (maybe total number 31-120 notes which become current divided by # of 31-120 day late notes which go to default) and figure the average principle lost through default, and figure out a price that is tempting to Folio-feeders.... I once knew how to do factor analysis when I was in grad school. I am convinced that by applying factor analysis to all the variable available describing loans (that stuff that can be downloaded in .csv files) one could determine which are more predictive that a loan will go bust or will be paid responsibly and regularly.  It seems to me, that the best way to maximize profit is to use history of all loans to determine relative risk.

Does anyone on here know statistics well enough to see if this would work?

Title: What are late notes worth?
Post by: rawraw on July 25, 2016, 03:48:16 PM
I have much more trouble selling FICO drops now. I sure help that fellow on this forum who took tons of risk and sold the past dues is doing OK now that he is probably having to hold all those loans.

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Title: Re: What are late notes worth?
Post by: rawraw on July 25, 2016, 03:49:15 PM
Never been able to sell anything late without 90% off. I won't discount like that until it's 4 months late. Seen too many of my problem children make one last big payment before default and I don't want to miss that by discounting too early.

I do discount on occasion but only for certain things.
There has got to be a way to determine the best price to sell 31-120 day notes.  If you could figur eout the probability of a 31-120 note finally making a payment (maybe total number 31-120 notes which become current divided by # of 31-120 day late notes which go to default) and figure the average principle lost through default, and figure out a price that is tempting to Folio-feeders.... I once knew how to do factor analysis when I was in grad school. I am convinced that by applying factor analysis to all the variable available describing loans (that stuff that can be downloaded in .csv files) one could determine which are more predictive that a loan will go bust or will be paid responsibly and regularly.  It seems to me, that the best way to maximize profit is to use history of all loans to determine relative risk.

Does anyone on here know statistics well enough to see if this would work?
I'd suspect people like Fred already do this. And I doubt they want to share

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Title: Re: What are late notes worth?
Post by: dr.everett on July 25, 2016, 04:19:51 PM
Never been able to sell anything late without 90% off. I won't discount like that until it's 4 months late. Seen too many of my problem children make one last big payment before default and I don't want to miss that by discounting too early.

I do discount on occasion but only for certain things.
8+ months ago I could sell a 31-120 note for a discount in the ~70-80% range.  Since January, the distressed note selling has gotten really bad.  Grace notes that used to go at 15-20% discount won't move until I get to 30% or more.  16-30 has likewise deteriorated.  Even selling current notes needs a discount now.  So many more of my new notes go bad now too.  I used to see maybe ~8 or so notes go grace in a month.  Now the number is easily 3 times that.  I have been selling all my newer notes and switching to buying only seasoned notes on Folio in an attempt to stem the bleeding.

Same here. Seeing $4k of notes getting charged off a month has gotten really old.
Title: Re: What are late notes worth?
Post by: Fred on July 25, 2016, 06:01:50 PM
I'd suspect people like Fred already do this. And I doubt they want to share

Some hints: "marked to model" vs. "marked to market."
Title: Re: What are late notes worth?
Post by: LoanShark on July 25, 2016, 07:04:39 PM
There aren't many buyers willing to snap up very late notes.  Over time I've found I'm better off retaining them, some of them DO turn current and I can either hold on to them or sell them at a much better rate.   Plus, I like the idea of retaining my losses,I took the risk, I eat the consequences.

I'm seeing a lot of my charge offs sell to collection agencies at about 13 cents on the dollar, I've also seen the occasional recovery payment.

Also, unless you have more than 3k in losses, you can count the loss against your regular income, so its not such a horrible deal.
(edit: yeah that deduction's for taxable accounts)
Title: Re: What are late notes worth?
Post by: thezfunk on July 26, 2016, 12:07:02 AM


Also, unless you have more than 3k in losses, you can count the loss against your regular income, so its not such a horrible deal.

Not if my money is in a Roth IRA, correct?
Title: Re: What are late notes worth?
Post by: anabio on July 26, 2016, 07:38:20 AM


Also, unless you have more than 3k in losses, you can count the loss against your regular income, so its not such a horrible deal.

Not if my money is in a Roth IRA, correct?

No...can't deduct losses in a Roth.

One piece of info that is probably not apropos to this but might be of worth to someone who has a lot of losses in a Roth (like I did around 2008). You can deduct losses in Roth if you close ALL your Roth accounts (not just the one that had the loss). Then you list the original purchase price of all Roths on you tax return and the price at the time of closing. The loss can be deducted on your taxes. Of course that means you have NO Roth after that point and have to start all over. In my case I only had a small amount in the Roth and wasn't that big of a deal to start over.

Since you had a loss you won't be hit with the early withdrawal penalty because the law allows you to withdraw your contributions to a Roth at any time...not just after you are 59 1/2 years old.
Title: Re: What are late notes worth?
Post by: RT45 on July 26, 2016, 02:35:57 PM
Quote
the law allows you to withdraw your contributions to a Roth at any time.

Not a registered investment advisor, but I think you have to wait 5 years before you can withdraw up to the contribution amount in the Roth. Otherwise same idea.

Also, helpful to know on the losses in a Roth - was not aware of this.
Title: Re: What are late notes worth?
Post by: anabio on July 26, 2016, 04:14:24 PM
Not a registered investment advisor, but I think you have to wait 5 years before you can withdraw up to the contribution amount in the Roth. Otherwise same idea.

I pulled this off a Schwab website. Not sure if I am interpreting it correctly but it appears to say that you can withdraw your contributions without regard to the 5 year point but any EARNINGS withdrawn before that 5 year point will be subject to that tax and penalty. Of course the only reason you would do this is that you have a huge loss and therefore you would not have any earnings.

Bold words are my emphasis.
=====
Age 59 and under.

You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. However, you may have to pay taxes and penalties on earnings in your Roth IRA.

Withdrawals from a Roth IRA you've had less than five years.

If you take a distribution of Roth IRA earnings before you reach age 59˝ and before the account is five years old, the earnings may be subject to taxes and penalties. You may be able to avoid penalties (but not taxes) in the following situations:

    You use the withdrawal (up to a $10,000 lifetime maximum) to pay for a first-time home purchase.
    You use the withdrawal to pay for qualified education expenses.
    You're at least age 59˝.
    You become disabled or pass away.
    You use the withdrawal to pay for unreimbursed medical expenses or health insurance if you’re unemployed.
    The distribution is made in substantially equal periodic payments.1

===========

In my case in 2008 I don't think I had the Roth for more than 5 years ... but I could be mistaken...that was a long time ago. I do know that I closed the account (it was the only roth I had) and claimed the loss and did not get in trouble with the IRS...but maybe that was luck? I do know I researched that capability and a lot of financial web sites said you could do that...so I did.
Title: Re: What are late notes worth?
Post by: bluto on August 04, 2016, 09:10:49 AM
Back when my account was relatively new, I looked at the recovery rate of late notes compared with the discounts being offered and attempted to speculate on a few "bargain" falling knives.  One note ended up with positive performance, and it took 6 years (I got a surprise settlement long after it had been written off).