Author Topic: Always Pay in Grace Period  (Read 6774 times)

twigster

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Always Pay in Grace Period
« on: April 21, 2014, 09:58:01 AM »
How about current but previously late notes that have:
* a long payment history, 7+ payments
* almost always pay in grace period
* recent credit score is even or up

 Basically wondering if those buying folio notes have found that previous grace payment is a good indicator of future default or not. 

 

yojoakak

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Re: Always Pay in Grace Period
« Reply #1 on: April 21, 2014, 10:43:59 AM »
I'm not even sure how it can happen (but it does)

"Topic: If loans are auto-payed how do some loans pay in the Grace Period every month? "
http://www.lendacademy.com/forum/index.php?topic=1177.0

Bohb Daishi

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Re: Always Pay in Grace Period
« Reply #2 on: April 22, 2014, 01:11:18 AM »
How about current but previously late notes that have:
* a long payment history, 7+ payments
* almost always pay in grace period
* recent credit score is even or up

 Basically wondering if those buying folio notes have found that previous grace payment is a good indicator of future default or not.

There is a trading strategy here, but there are several issues with it:
  • The margins are very slim. If one note goes bad, it'll take 4+ good trades just to break even.
  • IGP notes are highly competitive. Many traders only focus on this area.
  • If the note goes current, you have a very short window to sell it before it goes IGP again.
  • If the note goes current, you will be forced to sell it at >10% discount (that is, unless you are ok with holding onto it for a few months).
There are three ways to make a living in this business: be first, be smarter, or cheat.

twigster

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Re: Always Pay in Grace Period
« Reply #3 on: April 26, 2014, 10:46:02 AM »
Quote
There is a trading strategy here, but there are several issues with it:
Yes, I am not keen on buying IGP notes, because they seem to normally move quickly on to late 16 - 30, if I was sub par notes would go for the late 16 - 30.  My question was more along the lines of buying Late Now Current notes, that normally pay in grace period and have a long history of it.   Or those that have just one or two payments in GP.  If the lendee always seems to pay but is a bit flakey with the dates and gets dinged with Grace period payments how much of a discount is fair value for such a note, given that the credit score is even or up?   

Quote
"Topic: If loans are auto-payed how do some loans pay in the Grace Period every month? "
http://www.lendacademy.com/forum/index.php?topic=1177.0
Very good, thanks for the link.  Some interesting commentary on those notes that always pay in Grace Period.


Bohb Daishi

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Re: Always Pay in Grace Period
« Reply #4 on: April 29, 2014, 06:55:02 AM »
Quote
There is a trading strategy here, but there are several issues with it:
Yes, I am not keen on buying IGP notes, because they seem to normally move quickly on to late 16 - 30, if I was sub par notes would go for the late 16 - 30.  My question was more along the lines of buying Late Now Current notes, that normally pay in grace period and have a long history of it.   Or those that have just one or two payments in GP.  If the lendee always seems to pay but is a bit flakey with the dates and gets dinged with Grace period payments how much of a discount is fair value for such a note, given that the credit score is even or up?

If you are looking to make investment purchases, then this strategy is much better. Focus on current notes at a >7% discount and you should make a good return.
There are three ways to make a living in this business: be first, be smarter, or cheat.

twigster

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Re: Always Pay in Grace Period
« Reply #5 on: April 29, 2014, 07:03:10 AM »
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If you are looking to make investment purchases, then this strategy is much better. Focus on current notes at a >7% discount and you should make a good return.
Thanks for the tip.  I have been looking at current notes, never late with long payment history that sell at 0% discount to some small discount.  If you allow for previously late notes the discounts go up quite a bit.  So you think it is better to look at notes that have some lates with 7% or more discount vs no previous lates?   

Bohb Daishi

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Re: Always Pay in Grace Period
« Reply #6 on: April 30, 2014, 02:51:11 AM »
Quote
If you are looking to make investment purchases, then this strategy is much better. Focus on current notes at a >7% discount and you should make a good return.
Thanks for the tip.  I have been looking at current notes, never late with long payment history that sell at 0% discount to some small discount.  If you allow for previously late notes the discounts go up quite a bit.  So you think it is better to look at notes that have some lates with 7% or more discount vs no previous lates?

In general, I do believe it's better to purchase these notes when you can get them at a good discount. Keep in mind, most people probably don't even know these notes exist because the filters default to "never late". As a result, the discounts are pushed much higher than they should be.
There are three ways to make a living in this business: be first, be smarter, or cheat.

twigster

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Re: Always Pay in Grace Period
« Reply #7 on: April 30, 2014, 06:01:27 AM »
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it's better to purchase these notes when you can get them at a good discount.
I have bought a couple of previously late notes before just to see how they do.  There are a number of factors obviously affecting the price.

Here is an example note I just pulled up now which I realize I do not really know how to evaluate.  It has several negatives.  Drop in credit score by 100 points or so, several grace period payments, a late payment, a partial payment and now the loan is current.  It is the largest discounted note for lates now current that my search pulled up, discount = 22.15%.  At this discount level is this not a good buy?  How much discount would you say it takes to make up for 100 point drop in credit score on a long paying previously late now current note?

https://www.lendingclub.com/foliofn/browseNotesLoanPerf.action?showfoliofn=true&loan_id=4568869&order_id=22450214&note_id=24130956

core

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Re: Always Pay in Grace Period
« Reply #8 on: April 30, 2014, 06:11:43 AM »
It is the largest discounted note for lates now current that my search pulled up, discount = 22.15%.  At this discount level is this not a good buy?

Yes that's a very good buy.  Any cheaper and you'd be stealing it.  I'd snatch that puppy up now.

It just so happens that it's my note and I have to have it sold by tomorrow night, but that didn't bias my answer of course.

P.S.  The fico went up +15 this month.  The 100 pt drop was several months ago.  Borrower promises to be a good boy.
« Last Edit: April 30, 2014, 06:15:57 AM by core »

twigster

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Re: Always Pay in Grace Period
« Reply #9 on: May 01, 2014, 01:45:26 AM »
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I'd snatch that puppy up now.
Core thanks for your insight, I'm sure it is not biased the least bit by the fact that it is your note! ;D 

Actually not currently buying any notes at month end, but just trying to get a handle on how to view different events which have happened that affect notes value on the secondary market (for buy and hold).  Not an easy endeavor I might add!