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FMV of distressed notes

Started by Peter, December 17, 2012, 11:00:00 PM

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I'm curious about what you all think on this question: what is the fair market value of a note which has fallen 30, 60, 90, or 120 days (default) late?  By fair market value, I mean the percentage of principal and accrued interest for which a willing buyer and seller would exchange the note. I assume we all agree that a charged off note is worthless...or do we agree on that?

Please let us know what your thought process on this is!  And excuse spelling errors if any - I am on my phone at the moment.


I base my prices off this chart and it has worked out pretty well for me." alt="" class="bbc_img" />
So for example if a note is in grace period, I mark it down 16% not including folios fee and also not including accrued interest.
For everyday it's still on the market I mark it down 0.5% more. I try to get rid of a note when it's in grace period.
You also have to keep in mind the competition, so what I do is sort by loan id to find out what others are pricing the note at.


I think the fair market value of any late note is a function of several variables, including:

- % of notes that return to current for the number of days late.  LC publishes their statistics for this as william as shown.
- The credit score trend.  Any note where the FICO score has dropped significantly in the past 30-60 days is worth a lot less.
- The age of the note.  Newer notes carry more risk for default than older notes that are almost paid-off.
- The demand for notes on Foliofn.  Since there are some states that don't allow investing on the primary platform, the only way investors in these states can purchase loans is on the secondary market.  This generates demand.  More demand = higher FMV for the seller and a lower ROI for the investor.

I think of there being two different kinds of Foliofn investors.  Those who can only purchase from Foliofn and those who can buy new notes but who chose to look for bargains on the secondary market.

Personally I would never consider buying a note that is late, but I know there are those who crunch the numbers and invest  in risky notes where the discount is disproportionately high compared to the risk.


William -  how much of your distressed notes are you generally able to sell?


If anyone has collected information about *which* notes have gone into grace period, late 16-30, and late 30-120, I would be very pleased to do an analysis of them to find out any predictive factors that I can. It's too bad LC doesn't provide this variable in their extracts.


Brycemason - that information isn't in Lendingclubs publically available dataset?


I've sold all my distressed notes, not 1 default in about 2.5 years. The reason is I sell them all during grace period and even before they reach grace period. I've done the math and with my strategy I'm making better returns (unless I discount the not more than 26%)."> from: brycemason on December 18, 2012, 04:28:38 PM


I would prefer not to say." alt=";D" title="Grin" class="smiley" /> But I will tell you it does require extra work and sometimes I screw myself out of 1%.

Proof:" alt="" class="bbc_img" />" class="bbc_link" target="_blank">


Why can't someone make a bot that will gather all the info that can't be downloaded from LC??


I suppose someone could, but I don't have the time for it. If anyone can harvest the extra variables, I'd gladly chip in the research time to study them.


I think what a lot of people do is see if a payment takes more than 4 days to process and assume that the note is going to fall behind.  I suspect it is very time consuming once you get over a few hundred notes...


I don't even pretend to understand what this bot business is all about haha.  This is where the computer people take over!


Do any of the rest of you gals and guys want to weigh in on the op?  I'm curious to know how people are thinking about notes that have gone late.

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