Author Topic: How leery should I be of grace period notes?  (Read 6783 times)

trueblue

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How leery should I be of grace period notes?
« on: January 14, 2013, 10:18:49 PM »
I'm new to Lending Club. Although I'm interested in the more advanced and hands-on strategies that are discussed here, I started with a simple PRIME account to let me get my feet wet without this becoming a part-time job.

After about six weeks I'm invested in a little over 900 notes. Of those, seven which have payments due are "In Grace Period "-- some have obvious collection efforts, but some just don't show the payment at all and show no effort on LC's part to collect. What does that mean? For example, one note had its first payment due on 12/3, and the payment history just shows 2/3 as the next payment, with no collection activity underneath and nothing for the 1/3 payment.

How aggressive should I be trying to offload these notes on FolioFN? Is one with no activity (not even a "payment failed") more or less likely to be cured than one that shows attempts to contact the borrower? Does it become too late to offload a note if the borrower misses their first payment and the note becomes 16 or 30 days late?

yojoakak

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Re: How leery should I be of grace period notes?
« Reply #1 on: January 15, 2013, 07:09:39 AM »
How aggressive should I be trying to offload these notes on FolioFN? Is one with no activity (not even a "payment failed") more or less likely to be cured than one that shows attempts to contact the borrower? Does it become too late to offload a note if the borrower misses their first payment and the note becomes 16 or 30 days late?

If seeing default notes on your account is going to make you feel bad, then sell them.

Otherwise hold on to them, since it's unlikely you'll be able to sell them for as much as they're actually "worth".

http://en.wikipedia.org/wiki/Prospect_theory
« Last Edit: January 15, 2013, 07:11:58 AM by yojoakak »

william

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Re: How leery should I be of grace period notes?
« Reply #2 on: January 15, 2013, 08:46:52 AM »
"In Grace Period "-- some have obvious collection efforts, but some just don't show the payment at all and show no effort on LC's part to collect. What does that mean?
I have been wondering this myself but I still try to offload the notes.

Otherwise hold on to them, since it's unlikely you'll be able to sell them for as much as they're actually "worth".
http://en.wikipedia.org/wiki/Prospect_theory
I don't think that theory applies to this case because nobody actually knows the probabilities of outcomes on a distressed note.

SeanMcD

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Re: How leery should I be of grace period notes?
« Reply #3 on: January 15, 2013, 02:13:06 PM »
Is one with no activity (not even a "payment failed") more or less likely to be cured than one that shows attempts to contact the borrower?

I haven't noticed any correlation here.  I've had several loans in Grace Period return to current without a comment ever appearing in the collection log, and several with exhaustive comments including "Contacted Borrower" end up going late.

lender_john

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Re: How leery should I be of grace period notes?
« Reply #4 on: January 15, 2013, 02:20:36 PM »

A note will generally sell for the right price. Given enough of a discount very late notes will sell and help mitigate your loss.

However if you are likely to continue to acquire notes at the same rate I wouldn't bother selling 'grace' or 'late' notes unless you are willing to devote a substantial amount of time to it.

berniemadeoff

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Re: How leery should I be of grace period notes?
« Reply #5 on: January 15, 2013, 03:00:11 PM »
This reference to Prospect Theory is a terrible reminder that I'm behind in my CFA studies.

rawraw

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Re: How leery should I be of grace period notes?
« Reply #6 on: January 15, 2013, 05:37:50 PM »
This reference to Prospect Theory is a terrible reminder that I'm behind in my CFA studies.
ha ha ha

I can totally relate

mo

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Re: How leery should I be of grace period notes?
« Reply #7 on: January 16, 2013, 09:11:17 AM »
Lending club lists there over all default rate as less than 3%.  7 of 900 loans possibly going bad is only 0.7% so you are well within expectations at this point and some of those 7 are likely to recover.  I think what you are seeing is normal.

Zach

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Re: How leery should I be of grace period notes?
« Reply #8 on: January 16, 2013, 02:47:23 PM »
Lending club lists there over all default rate as less than 3%.  7 of 900 loans possibly going bad is only 0.7% so you are well within expectations at this point and some of those 7 are likely to recover.  I think what you are seeing is normal.

That number is super inflated from the higher-quality credit grades A and B. The majority of originations are B grade loans with relatively lower default rates. If you have a more risk driven portfolio, that default rate is multiplied a few times. Also to be considered is the default curve that most loans will follow - most defaults will occur from months 10 on, and your IRR will pick up after month 22ish.

AmCap

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Re: How leery should I be of grace period notes?
« Reply #9 on: January 16, 2013, 07:37:44 PM »
Sell them at extreme discount to vultures like me and NewJerseyGuy!

:)

DanB

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Re: How leery should I be of grace period notes?
« Reply #10 on: January 16, 2013, 10:04:35 PM »
Mo..........That 3% number is per annum, not after 6 weeks! (1-2 payment cycles) I'm just sayin'

DanB

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Re: How leery should I be of grace period notes?
« Reply #11 on: January 16, 2013, 10:15:26 PM »
Vultureguy........... But I thought vultures only go for stuff that are already dead or on the verge of death.  :)

New Jersey Guy

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Re: How leery should I be of grace period notes?
« Reply #12 on: January 17, 2013, 10:50:11 AM »
"...verge of death."

Verge of death is good as long as it's cheap and still has a heartbeat!   

I know some of you investors up in the penthouse suites have been complaining about the lack of (D-E-F-G) notes-in-funding.  I can tell you the view from the backyard outhouse isn't much better.  My sales (turnover) this month have been Blah.  Interest Radar has been showing me more panic on the side of conservative investors.  Lots of good notes with promise being dumped cheaper than usual. 

Supply is up.....demand is down.  I'm figuring that it's because of the After-Christmas money crunch.  I remember reading once that Jan. and Feb. are the two worst months for lenders as far as people missing payments.  I know in November, my wife and I got letters from a couple of creditors asking us if we wanted to "skip" December payment (for a fee).  We didn't, but I wonder how many people did.

Vultureguy.....how's you're turnover been this month?
Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014

Randawl

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Re: How leery should I be of grace period notes?
« Reply #13 on: January 17, 2013, 12:08:48 PM »
Quote
I know some of you investors up in the penthouse suites have been complaining about the lack of (D-E-F-G) notes-in-funding.  I can tell you the view from the backyard outhouse isn't much better.

Hahaha, love the way you put that! 

The turnover on my front is on pace to be about 20% lower than usual for the month.  We'll see if it picks up at all in the next two weeks.

New Jersey Guy

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Re: How leery should I be of grace period notes?
« Reply #14 on: January 17, 2013, 01:58:52 PM »
"The turnover on my front is on pace to be about 20% lower than usual for the month."

Yea, same here.  I charged into January on the back of a good December, but since the 9th, sales have really stalled.  I'm not doing anything different, I just can't get any fish to bite the hook.  I don't know!  Maybe I need some fresher worms.

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