Author Topic: rush of early payoffs  (Read 2921 times)

lender_john

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rush of early payoffs
« on: October 07, 2013, 03:59:23 PM »

Has anyone noticed an increase lately?
I've seen about 9 of my notes pay off early in the last few days, many before I received a single regular payment.
Since I bought them all on folio, I am looking at a small loss on most...

core

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Re: rush of early payoffs
« Reply #1 on: October 07, 2013, 04:13:45 PM »
Since I bought them all on folio, I am looking at a small loss on most...

I'm having trouble understanding how the fact that you bought them on Folio created the small loss.  If you bought them at 0% markup and when accrued interest was near 0, your loss would have been exactly the same as if you had invested in a brand new note.  Conversely, with Folio you at least had a chance to pick some of them up at a discount and possibly even came out with a profit.  Something you couldn't have done if you hadn't bought them on Folio.  Now if you chose to pay a premium for the notes, that's a whole different story than how you phrased it.  It would be rather unfair to drag Folio's name through the mud when it has nothing to do with it.

As for your question, I think that Prosper Woman being on TV is causing LC borrowers to cash out and move their debt over to the P side. :)

rlv99

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Re: rush of early payoffs
« Reply #2 on: October 07, 2013, 04:34:50 PM »
Out of 1492 notes bought since April, 2013,  I've had exactly 9 be fully paid.  What irks me the most is that 8 of those 9 were paid off on the first payment-due date causing a loss!  A small loss, but still a loss.  I see no reason for the investor to take a loss when LC enjoys the origination fee which is huge in comparison. 

I have attempted to intellectualize why so many get paid off during the first month.  A conspiracy theorist could go nuts on that one! 

Were your folio notes that were fully paid all new issues?



New Jersey Guy

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Re: rush of early payoffs
« Reply #3 on: October 07, 2013, 05:19:15 PM »
".....paid off on the first payment-due date causing a loss!  A small loss, but still a loss."

SarahV argued the same point a few months back.  She had a full-pay on the first payment and lost a few cents.  There was a lot of discussion on this, but the two main points that were agreed upon were

1.)  A Pre-pay is one of the risks you assume when you purchase a note (despite how unfair you think it is)
2.)  Losing a few cents on a pre-pay is much better than a none-and-out or a one-and-out. 
Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014

core

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Re: rush of early payoffs
« Reply #4 on: October 07, 2013, 05:23:04 PM »
A conspiracy theorist could go nuts on that one! 

You rang?  I think we've already determined from borrowers here that LC sends out letters offering refinancing of the LC loan.  No doubt to rack up more origination fees.  The LC defenders may say this only happens when the borrower's credit improves.  Well gee, what happens when they go from 99% util to 0% in one month?  I doubt LC is quite that quick on the trigger.  But 3 months in, you betcha.

Or these may be those phantom oversold notes.  Hey, no wonder they're popping up more often.  Right after the mysterious uptick in new loans.  If enough of the fake notes are "paid off" early enough, LC doesn't even lose a cent.  Low defaults.  Investors happy with loan selection.  A win for everyone until the cards collapse.

Does anyone know what happens if a borrower changes his mind 3 days (or 3 weeks) in?  If he pays the loan back, with interest, is the origination fee refunded?  This may depend on state laws.  If it is possible to get out without that hit, I can think of many good reasons for the borrower to game the system in this manner.

Dennis

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Re: rush of early payoffs
« Reply #5 on: October 08, 2013, 01:57:24 AM »
I've been waiting for a post on this topic.  For me, LC early payoffs are minimal, but over at Prosper early payoffs are almost epidemic.  I'm now getting one or two early payoffs everyday there.  The vast majority have made 10 payments or less, and as I'm now just over the two year mark at Prosper, I have 171 early payoffs with 626 notes still making payments.  My thinking is that if you invest in higher risk notes, you need to expect a whole lot of early payoffs.  Who in their right mind would stay with a loan that is 20% or higher in interest if they didn't have to?  At Prosper I have many loans in the 22% - 30% range.  I get a good share of defaults, for sure, but in spite of that and all the early payoffs, I'm still earning a damn decent return - so I should have little reason to complain about anything.  But it would be un-American of me not to, so I'm saying right now that early payoffs really suck.

lender_john

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Re: rush of early payoffs
« Reply #6 on: October 08, 2013, 11:23:25 AM »
Since I bought them all on folio, I am looking at a small loss on most...

I'm having trouble understanding how the fact that you bought them on Folio created the small loss.  If you bought them at 0% markup and when accrued interest was near 0, your loss would have been exactly the same as if you had invested in a brand new note.  Conversely, with Folio you at least had a chance to pick some of them up at a discount and possibly even came out with a profit.  Something you couldn't have done if you hadn't bought them on Folio.  Now if you chose to pay a premium for the notes, that's a whole different story than how you phrased it.  It would be rather unfair to drag Folio's name through the mud when it has nothing to do with it.

As for your question, I think that Prosper Woman being on TV is causing LC borrowers to cash out and move their debt over to the P side. :)

For most of these I paid a slight premium, since its very rare to find decent notes at 0% markup and nearly impossible to find them at a discount. 
So I lost the initial markup.. and then paid the LC fee on the full payment.

In the big scheme of things its quite minor and I lost no more than a couple $. Certainly minor compared to the $80 note that I had charged off last week.
The main annoyance is the time spent picking the notes in the first place...

These were all a few months in, so I do wonder if it was a refinance from LC.