Author Topic: Blog Post: Automated Buying of Notes on Lending Club Folio Secondary Market  (Read 18272 times)

AnilG

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You pretty much summed up my opinion. The note 28749387 from this loan was actually in my portfolio. I sold it for 4.85% premium (16.31% YTM). I thought this loan was a good example why recent information should be given more weight.

Sure at the time of the origination, this borrower had public record/bankruptcy but the record was 105 months (> 8 years) old. How long can you ding someone for a record? The age of record is more important than the record itself.

By now, borrower has made 32 monthly on-time payments (Never Late) and the bankruptcy record is 137 months (> 11 years) old. Borrower FICO never dropped below the application FICO 680-684, went as high as 744 in past 32 months. With 28 remaining payments, this note can effectively be treated as almost a new 36 month loan being issued to a borrower with FICO of 700-704 at interest rate range from 7.40% to 19.13% depending on other current credit information and loan amount.


Looks like a perfect example of on time payment history becoming more important that credit history at loan origination.
Q1a) I never bought 60 month loans so can't say if I would have bought it. Since it took 458 lenders to fund then it probably was not a popular bet.
Q1b) Up until a few weeks ago I was only buy and hold, so definitely would not have sold it.
Q2) Except for the fact I'm not buying anything then sure I'd buy it for the right price. Perfect on time payments, 33, with 27 to go. FICO up 20 AND it is an E5 22.7% loan. In my book the 33 on time payments have shown me the current risk is much lower than it was at origination. One of your example notes was priced at 20% markup giving a 3% YTM; a little high (LOL). One was at a 2.8% markup and 18.6% YTM which "seems" quite good.
Q3) Yes, I'm in the sell mode of course. I'd have trouble listing this one for less than a 2-3% premium. 1% to simply break even and liquidate if very motivated. That would be almost giving it away.

What are your answers Anil?
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Anil Gupta
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fliphusker

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You pretty much summed up my opinion. The note 28749387 from this loan was actually in my portfolio. I sold it for 4.85% premium (16.31% YTM). I thought this loan was a good example why recent information should be given more weight.

Sure at the time of the origination, this borrower had public record/bankruptcy but the record was 105 months (> 8 years) old. How long can you ding someone for a record? The age of record is more important than the record itself.

By now, borrower has made 32 monthly on-time payments (Never Late) and the bankruptcy record is 137 months (> 11 years) old. Borrower FICO never dropped below the application FICO 680-684, went as high as 744 in past 32 months. With 28 remaining payments, this note can effectively be treated as almost a new 36 month loan being issued to a borrower with FICO of 700-704 at interest rate range from 7.40% to 19.13% depending on other current credit information and loan amount.


Looks like a perfect example of on time payment history becoming more important that credit history at loan origination.
Q1a) I never bought 60 month loans so can't say if I would have bought it. Since it took 458 lenders to fund then it probably was not a popular bet.
Q1b) Up until a few weeks ago I was only buy and hold, so definitely would not have sold it.
Q2) Except for the fact I'm not buying anything then sure I'd buy it for the right price. Perfect on time payments, 33, with 27 to go. FICO up 20 AND it is an E5 22.7% loan. In my book the 33 on time payments have shown me the current risk is much lower than it was at origination. One of your example notes was priced at 20% markup giving a 3% YTM; a little high (LOL). One was at a 2.8% markup and 18.6% YTM which "seems" quite good.
Q3) Yes, I'm in the sell mode of course. I'd have trouble listing this one for less than a 2-3% premium. 1% to simply break even and liquidate if very motivated. That would be almost giving it away.

What are your answers Anil?

I understand completely what your exercise was and appreciate the analogy. 
The question I have for you is do you feel this note was sold erroneously?  I do not buy at a markup on FOLIO, well mainly because it is a buyers market.  Why would someone pay a prem and a lower YTM?  Just for the nice size of the YTM on a stable note?  It is not even a small prem, it is HUGE.  Have another similar notes sold for the same amount, or even close to that markup?  Was this recent?

AnilG

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The note was listed June 10th, sold June 12th and settled June 13th so very recent.

The premium on Current, Never Late, FICO Up and 700+, 60 month, 15+% YTM, 20-25 remaining payments notes are high. Only 16 notes available with less than 5.00% premium. These notes are most probably purchased by people who are trying to build portfolio of shorter duration (in this case ~24 month) and looking for high yield notes of long clean payment history.

I understand completely what your exercise was and appreciate the analogy. 
The question I have for you is do you feel this note was sold erroneously?  I do not buy at a markup on FOLIO, well mainly because it is a buyers market.  Why would someone pay a prem and a lower YTM?  Just for the nice size of the YTM on a stable note?  It is not even a small prem, it is HUGE.  Have another similar notes sold for the same amount, or even close to that markup?  Was this recent?
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Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
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fliphusker

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Thanks for that insight, it is much appreciated.  As I do not look at notes that have a premium attached, I honestly do not see that part of the market.  The fear with buying those notes with that much of a premium level is early repayment. 
Why do you think FOLIO does not list sales of notes?  Not individual notes, but in general.  How many people would pay for such a service?  Right now, correct me if I am wrong, but there is no such tracking/listing.  Just like this, I had no clue that there was such solid market for such a note.  Finding good articles about insights into FOLIO, really are not available, that I have found. 
The note was listed June 10th, sold June 12th and settled June 13th so very recent.

The premium on Current, Never Late, FICO Up and 700+, 60 month, 15+% YTM, 20-25 remaining payments notes are high. Only 16 notes available with less than 5.00% premium. These notes are most probably purchased by people who are trying to build portfolio of shorter duration (in this case ~24 month) and looking for high yield notes of long clean payment history.

I understand completely what your exercise was and appreciate the analogy. 
The question I have for you is do you feel this note was sold erroneously?  I do not buy at a markup on FOLIO, well mainly because it is a buyers market.  Why would someone pay a prem and a lower YTM?  Just for the nice size of the YTM on a stable note?  It is not even a small prem, it is HUGE.  Have another similar notes sold for the same amount, or even close to that markup?  Was this recent?

Rob L

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The plot thickens... The seller of this note in the example loan has reduced his/her markup to 0.99% (YTM 20.41%).
https://www.lendingclub.com/foliofn/browseNotesLoanPerf.action?showfoliofn=true&loan_id=6744587&order_id=66076167&note_id=28749212
I swear I almost want to buy it!

It's a $100 note and the ask price is $60.52. Depending on your portfolio size notes this large this could be a diversification problem. Maybe there is a lack of demand for notes this large. It's easy to filter on original investment and I'm sure 25's and possibly 50' are preferred. I dunno... Tomorrow the loan will go "in payment" and all sell orders will be cancelled. I'm looking forward to "tuning in later" to see if the seller had some reason to believe this loan would incur a problem on the upcoming payment and drop the offer price today. If it goes "in grace" then I have very serious questions to ask myself as to how the seller knew this and why didn't I. Being a noob it would tell me I still have a long ways to go. Very likely it's a motivated seller and the next payment will be right on time; just like the last 33. Lots of motivated sellers these days.



Rob L

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And as advertised the note went pending payment today. Gotta remember to check back on this one.

AnilG

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Borrower payment went through and lenders received their share of the payment. The loan is current.

And as advertised the note went pending payment today. Gotta remember to check back on this one.
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Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com

Rob L

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Borrower payment went through and lenders received their share of the payment. The loan is current.

And as advertised the note went pending payment today. Gotta remember to check back on this one.

Thanks for the update! That's good news. No reason to think I'm missing important information out there.
Wonder if/when the owner will re-list that note. Another reason to stay tuned ...

Fred

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The plot thickens... The seller of this note in the example loan has reduced his/her markup to 0.99% (YTM 20.41%).
https://www.lendingclub.com/foliofn/browseNotesLoanPerf.action?showfoliofn=true&loan_id=6744587&order_id=66076167&note_id=28749212
I swear I almost want to buy it!

I never bought any Folio notes at a premium -- there are plenty more fish in the sea.

fliphusker

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Loan id: 72662397
Bought my first 'G' note last week.  Not much of a discount, but I looked at the details, and just can not figure out why such a huge rate.  Guess those nice lil details we never get to see.