Author Topic: >95% off notes  (Read 12786 times)

Bohb Daishi

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Re: >95% off notes
« Reply #15 on: January 15, 2014, 04:56:30 AM »
I had 26 charge-offs in 2013.  Surprisingly, a lot of them are making some sort of payment.  Granted, there were a small few that went BK-7, but I've received $25 back so far on those 26 loans.  Obviously, I am not even close to breaking even because of what I paid for those. 

But, what if I had only paid $26 ($1 ea.) for those notes?    I'd have $26 dollar invested against $640 of potential principle.  Nothing you can do but let them sit and hope they pay.  But, isn't that what we do every time we pay $25 for a new issue?  Hey, at least you won't have to worry about them defaulting.   

I think over a 3-5 year period you have a pretty good chance of making a decent return on a small investment.

Here's my question: of your 26 charge-offs that paid, how many were bankrupt? Deceased? 1-and-outs? Or ones that had zero payments for 4-5 months straight, with zero contact from the borrower?

Or are your recoveries from notes that were already paying monthly, but in such small amounts that they were stuck in the "perpetual late" status?

The odds of finding a trash note at a discount that makes them investment-worthy are extremely low. Or if you do, the profit potential is too low to even make it worth your time.
« Last Edit: January 15, 2014, 04:58:31 AM by Bohb Daishi »
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New Jersey Guy

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Re: >95% off notes
« Reply #16 on: January 15, 2014, 08:33:32 AM »
Quote
The odds of finding a trash note at a discount that makes them investment-worthy are extremely low.

I think you're missing the point here.  This is not about building a "Quality" folder.  It's about buying active notes that have quit performing.

Regardless if you paid $1 for the note or $12 for the note, by the time they default, they are equally as bad.  The difference is, you lose much, much less when you spent $1 for the note.

Face it.  None are going to go current.  So in order to find out if this would work or not, you'd have to spend no more than $1.00 or 1.05 for each note.  Now, don't buy BK-7's, as these will not return anything.  However, a BK-13 just might as BK-13 filers get put on a payment plan with all their creditors.

So, if you spent $100, you'd have 100 notes.  And let's say each note had $19 of remaining principle.  That comes out to $1900.

$100 spent against $1900 potential gain.

I'm not saying you'll get $1900 back.  Far, far from it.  Yes, some of those notes will go BK-7.  Some will never pay another dime.  One or two might end up pushing daisies.  However, many of those notes will still pay something in collections.  The whole idea is to let them sit (or fester, like Core said) and see what happens.

If it takes 1 year to get your $100 back, you lost nothing.  But, what would happen after that from years 2-5?  If you got another $100 back, you doubled your money.  If you got $150 back in profit after 5-years, what kind of a YTM does that figure out to be?

Look at it like buying a new 60-month note for $100.  How long would the borrower have to pay before you got your original $100 back?  And, would any 60-month note give you the opportunity to double your money?  I think not.
Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014

RaymondG

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Re: >95% off notes
« Reply #17 on: January 17, 2014, 10:32:18 AM »
I looked at my charge offs $1980 and recoveries $46. Portfolio age 17 months  The recovery rate now is about 2.3%. But I guess the real recovery rate can very likely bove 5%, since most of the defaults happened recently, in last half year.

New Jersey Guy

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Re: >95% off notes
« Reply #18 on: January 17, 2014, 11:16:37 AM »
Okay....so how many defaults was that? (The number, not principle amount)
Return over deposits:   66.82%
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RaymondG

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Re: >95% off notes
« Reply #19 on: January 17, 2014, 11:24:00 PM »
69 defaults and recovered $46. So, these defaults do worth more than $1. BTW, average default is $ 1980/69= 28.7 for an occurance.

New Jersey Guy

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Re: >95% off notes
« Reply #20 on: January 18, 2014, 11:21:25 AM »
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69 defaults and recovered $46

So basically, if you had paid $1 each for those notes, you'd be about $23 away from breaking even.  And, most of your defaults happened in the past 6 months.  So pretty much, those notes aren't even a year old yet.

Now, you should be able to get an idea of how many of those 69 defaults are producing.  You're going to have 3 categories here:

1.)  The ones that are paying.
2.)  The ones that haven't paid a single cent since default.
3.)  The one that went BK-7 after they were charged off (these are pretty much dead).

Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014

Ran

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Re: >95% off notes
« Reply #21 on: January 18, 2014, 01:57:57 PM »
I just found I actually received Christmas gift from LC.

652070778   12/25/13   Recovery   Recovered from Charged-off Loan 1619006   $0.02   $0.00
652067156   12/25/13   Recovery   Recovered from Charged-off Loan 1397260   $0.02   $0.00

The principal for these notes around $22.  However, I was wondering why LC does not publish recovery as part of note collection logs or payment history instead put in account activity section.
No one looks at account activity, and worse it's totally detached from a note history.

New Jersey Guy

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Re: >95% off notes
« Reply #22 on: January 18, 2014, 03:38:13 PM »
Quote
However, I was wondering why LC does not publish recovery as part of note collection logs or payment history instead put in account activity section.

You'll need to go the prospectus for all the fine details.  In a nutshell, though, once a note is charged-off, it's pretty much considered dead as far as LC is concerned.  That does not mean that all collection attempts cease.  An outside collection agency handles it now.  The borrowers still get hounded.
Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014

edward

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Re: >95% off notes
« Reply #23 on: January 18, 2014, 03:47:19 PM »
http://www.orchardplatform.com/recovery-rates-for-lending-club/

Here is an analysis article from Orchard regarding recovery data at LC.

dontvote

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Re: >95% off notes
« Reply #24 on: January 20, 2014, 01:04:48 PM »
Lots of Orchard stuff being posted recently. Not sure what the usefulness is of their charts of recovery by 'month charged off' is. I do agree with their conclusion which is if a note is charged off don't count on getting anything. I don't know much about recovering this kid of debt outside of what has been discussed in these forums but I don't understand why this debt isn't sold to Encore or another agency for even some small amount of money. They are better at collecting having built a huge business doing it. I would trade a 7% (if they could get that much) dump for those charged off notes vs my current 0%.

I'll also note that my personal recovery levels are not even at the levels on these graphs. I guess I'm stuck with particularly deadbeat deadbeats. My recovery over this time period is less than 1%.

dontvote


http://www.orchardplatform.com/recovery-rates-for-lending-club/

Here is an analysis article from Orchard regarding recovery data at LC.
dontvote

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