Author Topic: Premium for seasoned loans by Grade?  (Read 75 times)

toben88

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Premium for seasoned loans by Grade?
« on: January 08, 2018, 05:51:38 PM »
Hi Anil!

I have really been enjoying the Peer Cube tools. The never late field you created is one of the best unique tools to your platform.

I am interested in trying to handicap loans on the secondary market by both Grade and months left on the loan, assuming all other factors are equal.

How much more should I pay for a D1 loan with 6 months left vs a E1 loan with 18 months left. Or are they equal?

I know there is a statistical solution in here somewhere but I do not know how to set it up. I am looking at all C-E loans with 2-24 months left and wondering how to handicap them for optimal profits.

Thanks in advance!


AnilG

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Re: Premium for seasoned loans by Grade?
« Reply #1 on: January 12, 2018, 05:17:38 AM »
Thanks for the kind words about PeerCube service.

When buying notes based on Grade and Number of payments left, you need to worry about two risks as buyer:

1. Default Risk
2. Prepayment Risk

I think Rob L posted a forum thread that shows the default rates for different grades with months of balance/payment (MOB). IIRC, Lending Club also provides few spreadsheets with default and prepayment risks with Grades and MOB. You could potentially use this data to figure out a premium/discount model that you may find suitable for your buying objectives. Typically, when loans are at very early or very late stage, prepayment risk is very high while default risk is slightly lower than averages. PeerCube doesn't have such statistical model currently available.

Hi Anil!

I have really been enjoying the Peer Cube tools. The never late field you created is one of the best unique tools to your platform.

I am interested in trying to handicap loans on the secondary market by both Grade and months left on the loan, assuming all other factors are equal.

How much more should I pay for a D1 loan with 6 months left vs a E1 loan with 18 months left. Or are they equal?

I know there is a statistical solution in here somewhere but I do not know how to set it up. I am looking at all C-E loans with 2-24 months left and wondering how to handicap them for optimal profits.

Thanks in advance!
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Anil Gupta
PeerCube Thoughts blog https://www.peercube.com/blog
PeerCube https://www.peercube.com