[wlbsr]

looking at IRR as a comparison to folio ytm.  I am using the following as the stream of cash flows for the IRR...

[-ask+accrued int]  as the first amount and then each of the remaining payments less the 1% fee.

i am getting a fairly consistent .3 to.55 higher than the folio calculated ytm which i am thinking may have something to do with the fact that I am taking into account accrued interest in the first amount.... not sure if folio is?

my question is that every now and then i will come across a note where my calculated IRR is 1.5 to 2.0 hight than the folio ytm.  when i look at these notes, i cant find anything out of the ordinary from the others that mostly seem in line with my calculations.  any ideas?  here is an example.

my IRR uses [-66+.37] as the first cash flow and then 23 payments of [3.16-.03] as the remaining

       LoanId      Par   AskPrice   AccInt Class Mat   N   Rate   Bench      IRR   YTM    Spread   Date           Pmt
581   38528044   100   66.00   0.37       6   36   23   8.67      8.39    9.42   7.72     1.03   2016-01-27   3.16

https://www.lendingclub.com/foliofn/loanPerf.action?loan_id=38528044&order_id=52420245&note_id=67624504

what am i missing since my IRR is 9.42 while folio ytm is 7.72?

[Fred93]

from: wlbsr on February 04, 2016, 01:43:33 AM

[TravelingPennies]

Thanks - I think I inadvertently opened up two questions / issues.   

1- as far as accrued interest, my logic was that since the payment is not prorated between buyer and seller for a purchase in the middle of a payment cycle and since the buyer gets the whole payment then the portion of the interest that accrued before the purchase seems like it would be an additional cash flow to the buyer.  I was thinking in bonds prices are quoted without respect to accrued interest since its a moving target as interest accrues daily and the accrued interest was automatically added to the trade price at settlement.   In bonds it called clean and dirty prices although i am not sure which is which.   is LC/folio adding accrued interest at settlement to compensate seller or does seller need to include in their price?  If accrues interest is not automatically compensated at settlement then it would seem that the accrued interest benefits the buyer and would be reflected in the ytm.

2 - the accrued interest is only responsible for 40 or 50 bps in my IRR calculation so my original question / observation above was that in the note above the LC ytm and my IRR calculation are off much more than the variance cause by accrued interest.  I only see this on say 3 or 4 per 1000 notes but curious if anyone can see any reason for this on the above note.  thx.  Bill

[TravelingPennies]

FRED:  should have thought about it for 5 more minutes before replying.  On second though I understand that cash flows are negative for purchase prices and then each of the remaining payments which are positive.  accrued interest has nothing to do with a cash flow although it is being implicitly included in my return assuming LC is not adjusting back to the buyer at settlement. 

Is LC adjusting at settlement?  or is that on the sellers dime.

question 2 still stands.

[RaymondG]

I get 8.4% YTM. Please see the snapshots. Beginning investment is AskPrice; Starting date is 2/3/2016 when YTM was calculated (I assume YTM on folio is calculated on fly). The principla balance $65.98 on 1/12/16 is used as starting principal to calculated Interest and Principal portion of the future payments. Note, the last payment is smaller than $3.16.

[TravelingPennies]

thanks RaymondG - my code is assuming equal cash flow intervals which asnwers why some were in line with LC and others were not depending on the current date vs. the loan payment cycle dates.  to what would you attribute the difference in XIRR at 8.4 and LC ytm at 7.72?

[TravelingPennies]

from: wlbsr on February 05, 2016, 05:22:27 AM

[TravelingPennies]

from: wlbsr on February 04, 2016, 11:05:56 AM

[Fred]

Anyone figured this out yet?  Or, got explanations from Folio?

[dompazz]

from: Fred on February 08, 2016, 10:12:02 PM

[TravelingPennies]

partial answer opens up new questions

OK... a little more info.  I find that some of the notes where my calculated IRR is higher than folio ytm is due to the payment being made is different from the original amortization.  see this note or underlying loan:

https://www.lendingclub.com/foliofn/browseNotesLoanPerf.action?showfoliofn=true&loan_id=28272258&order_id=38251968&note_id=58074749

the original amortized payment was 7.06 which is what I use to calculate my IRR (Yield).  in Sept of 2015 the borrower started paying 10.14 per month which is the figure (along with a shorter number of payments) that folio uses to calculate its ytm. 

I am not sure how or why the terms of the loan were changed in Sep. of 2015.  My gut tells me to avoid loans where the payment amount has increased.  In this case never late = True, there was one IGP payment which was after the payment amount was increased, and the fico score seems to have been constant to a slight increase during the life of the loan.   I talked to LC and did not get an answer although they did promise to get back to me.

[TravelingPennies]

LC also told me that folio controlled the information available on the note trading platform, gave me their number, and said that they could possibly give me some insight into what info was displayed and not displayed on their platform.  When I called folio they said that LC used a shell of their platform of which they had very little knowledge or control and referred me back to LC for specifics.


I had also planned to ask folio if they had any idea why my api requests had been pulling the exact same number of notes since Jan 27 but didn't get that far.

[TravelingPennies]

from: wlbsr on February 09, 2016, 04:47:06 PM

[Rob L]

I'm very late to this party so my questions are of the noob category.
Accrued interest all goes to the buyer so it is up to the seller to incorporate that into their ask price.
When computing ytm there is no reason given the ask price, number of remaining payments, and existing payment amount to consider accrued interest at all. Correct?
Remember noob. You have to crawl before you walk ...

[TravelingPennies]

from: Rob L on February 28, 2016, 06:52:05 PM