Lend Academy Network Forum

Lending Club Discussion => Investors - LC => Topic started by: AmCap on December 18, 2012, 12:00:52 PM

Title: FMV of distressed notes
Post by: AmCap on December 18, 2012, 12:00:52 PM
I'm curious about what you all think on this question: what is the fair market value of a note which has fallen 30, 60, 90, or 120 days (default) late?  By fair market value, I mean the percentage of principal and accrued interest for which a willing buyer and seller would exchange the note. I assume we all agree that a charged off note is worthless...or do we agree on that?

Please let us know what your thought process on this is!  And excuse spelling errors if any - I am on my phone at the moment.
Title: Re: FMV of distressed notes
Post by: william on December 18, 2012, 01:41:00 PM
I base my prices off this chart and it has worked out pretty well for me.
(https://www.lendingclub.com/public/images/43423/transactional/misc/recoveryStats.png)
So for example if a note is in grace period, I mark it down 16% not including folios fee and also not including accrued interest.
For everyday it's still on the market I mark it down 0.5% more. I try to get rid of a note when it's in grace period.
You also have to keep in mind the competition, so what I do is sort by loan id to find out what others are pricing the note at.
Title: Re: FMV of distressed notes
Post by: Mullery on December 18, 2012, 01:46:43 PM
I think the fair market value of any late note is a function of several variables, including:

- % of notes that return to current for the number of days late.  LC publishes their statistics for this as william as shown.
- The credit score trend.  Any note where the FICO score has dropped significantly in the past 30-60 days is worth a lot less.
- The age of the note.  Newer notes carry more risk for default than older notes that are almost paid-off.
- The demand for notes on Foliofn.  Since there are some states that don't allow investing on the primary platform, the only way investors in these states can purchase loans is on the secondary market.  This generates demand.  More demand = higher FMV for the seller and a lower ROI for the investor.

I think of there being two different kinds of Foliofn investors.  Those who can only purchase from Foliofn and those who can buy new notes but who chose to look for bargains on the secondary market.

Personally I would never consider buying a note that is late, but I know there are those who crunch the numbers and invest  in risky notes where the discount is disproportionately high compared to the risk.
Title: Re: FMV of distressed notes
Post by: AmCap on December 18, 2012, 03:38:48 PM
William -  how much of your distressed notes are you generally able to sell?
Title: Re: FMV of distressed notes
Post by: brycemason on December 18, 2012, 04:28:38 PM
If anyone has collected information about *which* notes have gone into grace period, late 16-30, and late 30-120, I would be very pleased to do an analysis of them to find out any predictive factors that I can. It's too bad LC doesn't provide this variable in their extracts.
Title: Re: FMV of distressed notes
Post by: AmCap on December 18, 2012, 04:35:10 PM
Brycemason - that information isn't in Lendingclubs publically available dataset?
Title: Re: FMV of distressed notes
Post by: william on December 18, 2012, 05:29:09 PM
I've sold all my distressed notes, not 1 default in about 2.5 years. The reason is I sell them all during grace period and even before they reach grace period. I've done the math and with my strategy I'm making better returns (unless I discount the not more than 26%).

If anyone has collected information about *which* notes have gone into grace period, late 16-30, and late 30-120, I would be very pleased to do an analysis of them to find out any predictive factors that I can. It's too bad LC doesn't provide this variable in their extracts.

Can't someone make a bot that will gather all the info that can't be downloaded from LC??
Title: Re: FMV of distressed notes
Post by: viking on December 18, 2012, 06:34:25 PM
I've sold all my distressed notes, not 1 default in about 2.5 years. The reason is I sell them all during grace period and even before they reach grace period. I've done the math and with my strategy I'm making better returns (unless I discount the not more than 26%).
@William,
How do you find your distressed notes before they enter the grace period?
Title: Re: FMV of distressed notes
Post by: brycemason on December 18, 2012, 08:14:14 PM
Brycemason - that information isn't in Lendingclubs publically available dataset?

Nope. When you download the file, it tells you their _current_ status, but not whether a note that has ultimately paid in full was _ever_ late.
Title: Re: FMV of distressed notes
Post by: william on December 18, 2012, 08:26:41 PM
I would prefer not to say. ;D But I will tell you it does require extra work and sometimes I screw myself out of 1%.

Proof:
(https://forum.lendacademy.com/proxy.php?request=http%3A%2F%2Fs1.postimage.org%2Fc8rx03nv3%2FIGP.jpg&hash=7d4f3a5fc4f9504e9f9991918e145c3a)
https://www.lendingclub.com/browse/loanDetail.action?loan_id=1636196 (https://www.lendingclub.com/browse/loanDetail.action?loan_id=1636196)
Title: Re: FMV of distressed notes
Post by: william on December 18, 2012, 08:30:58 PM
@Brycemason
Why can't someone make a bot that will gather all the info that can't be downloaded from LC??
Title: Re: FMV of distressed notes
Post by: brycemason on December 18, 2012, 08:59:37 PM
I suppose someone could, but I don't have the time for it. If anyone can harvest the extra variables, I'd gladly chip in the research time to study them.
Title: Re: FMV of distressed notes
Post by: AmCap on December 18, 2012, 09:28:52 PM
I think what a lot of people do is see if a payment takes more than 4 days to process and assume that the note is going to fall behind.  I suspect it is very time consuming once you get over a few hundred notes...

--

I don't even pretend to understand what this bot business is all about haha.  This is where the computer people take over!
Title: Re: FMV of distressed notes
Post by: viking on December 18, 2012, 09:56:20 PM
I think what a lot of people do is see if a payment takes more than 4 days to process and assume that the note is going to fall behind.  I suspect it is very time consuming once you get over a few hundred notes...
Where do you see if a note is processing? My downloaded Notes file only shows the current status, not if it is processing.

I don't even pretend to understand what this bot business is all about haha.  This is where the computer people take over!
I think that all it entails to is find webpages with information and then automatically copying/pasting ("scraping") into a file.
Title: Re: FMV of distressed notes
Post by: AmCap on December 18, 2012, 10:08:30 PM
Do any of the rest of you gals and guys want to weigh in on the op?  I'm curious to know how people are thinking about notes that have gone late.
Title: Re: FMV of distressed notes
Post by: william on December 18, 2012, 10:09:25 PM
A bot is basically like a robot that does something on a computer. So for example if you have a web site that has ad you can download a bot that spend all day clicking on the ad (making you money). But this is how you use a bot for evil, in this case it would goes through loans and gathers info that can't be downloaded from LC like current employer.

I think I can find a couple of people to work on a bot like this, if nobody on here know/has the time to make one. But most likely they will want a "donation" or something.

The major problem would be getting the the urls of the loans
Example:
https://www.lendingclub.com/account/loanDetail.action?loan_id=1690172 (https://www.lendingclub.com/account/loanDetail.action?loan_id=1690172)
https://www.lendingclub.com/account/loanPerf.action?loan_id=1690172&order_id=4222605&note_id=15084777 (https://www.lendingclub.com/account/loanPerf.action?loan_id=1690172&order_id=4222605&note_id=15084777)

One way could be by using folio but that only has 5000-10,000 loans out of the 90,000+ that were issued.

Can anyone think of a solution to this?
Title: Re: FMV of distressed notes
Post by: viking on December 18, 2012, 10:17:24 PM
If anyone has collected information about *which* notes have gone into grace period, late 16-30, and late 30-120, I would be very pleased to do an analysis of them to find out any predictive factors that I can. It's too bad LC doesn't provide this variable in their extracts.
@brycemason,
William showed LC statistics which could be used to predict the probability that a note would be recovered.
What type of predictions do you think that you would be able to make if someone was able to get you the requested data?
Title: Re: FMV of distressed notes
Post by: viking on December 18, 2012, 10:19:23 PM
I base my prices off this chart and it has worked out pretty well for me.
(https://www.lendingclub.com/public/images/43423/transactional/misc/recoveryStats.png)
So for example if a note is in grace period, I mark it down 16% not including folios fee and also not including accrued interest.
For everyday it's still on the market I mark it down 0.5% more. I try to get rid of a note when it's in grace period.
You also have to keep in mind the competition, so what I do is sort by loan id to find out what others are pricing the note at.

Would the same note be included multiple times in the statistics if:
case 1. It was late in several consecutive months?
case 2. It was late for 1-4 months, recovered and then was late again?
Title: Re: FMV of distressed notes
Post by: william on December 18, 2012, 10:23:50 PM
If anyone has collected information about *which* notes have gone into grace period, late 16-30, and late 30-120, I would be very pleased to do an analysis of them to find out any predictive factors that I can. It's too bad LC doesn't provide this variable in their extracts.
@brycemason,
William showed LC statistics which could be used to predict the probability that a note would be recovered.
What type of predictions do you think that you would be able to make if someone was able to get you the requested data?
The problem with what LC provides is this "How to read these graphs: of the loans in Grace Period in April 2011, 84% were partially or fully recovered by October 2011."
Title: Re: FMV of distressed notes
Post by: viking on December 18, 2012, 10:36:46 PM
If anyone has collected information about *which* notes have gone into grace period, late 16-30, and late 30-120, I would be very pleased to do an analysis of them to find out any predictive factors that I can. It's too bad LC doesn't provide this variable in their extracts.
@brycemason,
William showed LC statistics which could be used to predict the probability that a note would be recovered.
What type of predictions do you think that you would be able to make if someone was able to get you the requested data?
The problem with what LC provides is this "How to read these graphs: of the loans in Grace Period in April 2011, 84% were partially or fully recovered by October 2011."
So the data required would not only be if a note was ever late, but also how much was recovered and when. To complicate things, a note can be late multiple times, and that need also be considered. For example, a note that is late a 2nd time may be more likely (or not) to default than a note that was late the 1st time.....
Title: Re: FMV of distressed notes
Post by: viking on December 18, 2012, 10:49:44 PM
The major problem would be getting the the urls of the loans
Example:
https://www.lendingclub.com/account/loanDetail.action?loan_id=1690172 (https://www.lendingclub.com/account/loanDetail.action?loan_id=1690172)
https://www.lendingclub.com/account/loanPerf.action?loan_id=1690172&order_id=4222605&note_id=15084777 (https://www.lendingclub.com/account/loanPerf.action?loan_id=1690172&order_id=4222605&note_id=15084777)
The first URL, or the LoanDetails, is pretty easy to collect. Just download the history file from LC and loop through the Loan IDs.

However, the 2nd URL, LoanPerformance, require an order ID and Note ID because it shows the history of an individual investor's note. 
Simply using https://www.lendingclub.com/account/loanPerf.action?loan_id=1690172 (https://www.lendingclub.com/account/loanPerf.action?loan_id=1690172) doesn't work  :(.

Title: Re: FMV of distressed notes
Post by: AmCap on December 18, 2012, 10:58:17 PM
Viking - why would the second piece of information be necessary?  The payments on a loan are distributed to investors in pari passu right - so if you knew what the recovery was on the entire loan then you'd have all the information you'd' need.  Doesn't interest radar have that info for each note?

-

I'll have more on why I am interested in this information later - PM me if you are dying to know.
Title: Re: FMV of distressed notes
Post by: yojoakak on December 18, 2012, 11:46:41 PM
Viking - why would the second piece of information be necessary?  The payments on a loan are distributed to investors in pari passu right - so if you knew what the recovery was on the entire loan then you'd have all the information you'd' need.  Doesn't interest radar have that info for each note?

It's nice to see the Payment History, so you at least have some idea of what was going on with the loan.

For example, I've got "Late 31-120 days" loans that are making regular payments every month, but since they never quite catch up that information is completely lost at a high level. Here's one for example. (https://www.lendingclub.com/account/loanPerf.action?loan_id=605872&order_id=2018321&note_id=2859677)

Plus, any Recoveries collected after a Charge Off only show up on the Loan Performance page. (Not 100% sure about this.)
Title: Re: FMV of distressed notes
Post by: viking on December 19, 2012, 04:13:55 AM
Viking - why would the second piece of information be necessary?  The payments on a loan are distributed to investors in pari passu right - so if you knew what the recovery was on the entire loan then you'd have all the information you'd' need.  Doesn't interest radar have that info for each note?
Because to calculate predictive factors, it may be important to understand what happened to the note after the initial late payment. For example, as suggested above, did it become late again?
Title: Re: FMV of distressed notes
Post by: veggivet on December 22, 2012, 10:10:33 AM
Calculating FMV rests on the assumption that you are dealing in an 'efficient market'. Does anybody on this board believe that the folio interface allows for this? All the calculations/bots you guys are discussing are, in my opinion, moot in this situation given the cumbersome construction of the interface on folio. 
Title: Re: FMV of distressed notes
Post by: rawraw on December 22, 2012, 11:00:10 AM
Calculating FMV rests on the assumption that you are dealing in an 'efficient market'. Does anybody on this board believe that the folio interface allows for this? All the calculations/bots you guys are discussing are, in my opinion, moot in this situation given the cumbersome construction of the interface on folio.
Which is a great opportunity for those who go through the effort.  For those who aren't familiar with the origins of option pricing and high frequency trading, you may find this podcast interesting: http://www.npr.org/blogs/money/2012/08/21/159373388/episode-396-a-father-of-high-speed-trading-thinks-we-should-slow-down  Although the FolioFN market isn't nearly as large as the options market, that guy became a billionaire off of figuring out how to price things before everyone else did.

But yes, I agree Folio has so many barriers I'm sure it isn't efficient.  And when I logged on last, it seems the YTM calculations are incorrect now.