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Author Topic: Strategy of buying grace period notes

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Strategy of buying grace period notes
OP: August 04, 2017, 11:00:00 PM
Anyone done this? Apparently most of the in grace period notes will not default. So I have been looking at them on Folio and buying them.

1. Usually I buy a note with 10 payments or less left.  I am guessing they won't want to incur a hit to their credit for 10 payments.
2. The cost of the note is so little that if it defaults.. it doesn't hurt too bad.  Usually under $5.00.
3. Sometimes you can see right in the history that there is a problem with the mechanism of payment not necessarily that they don't have the money.  Payment bounced back / non sufficient funds.
4. You can actually find some grace period notes with high credit scores and high income. I can't say for sure if they won't default but, it seems unlikely.
5.Usually this discount is like 30% or more. This makes for quite the profit if the person does not default.

Thoughts?
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Strategy of buying grace period notes
#4: August 04, 2017, 11:00:00 PM
Be careful interpreting the 25% number provided by LC for IGP. It represents the loss estimates in next 9 months only. The number doesn't include defaults that may happen after 9 months. The actual default rate for IGP most probably is much higher than 25%.

My analysis couple of years ago and shared in my blog post "Lending Club Secondary Market: Profitability of Trade and Recovery Rate with Loan Status at Listing" https://www.peercube.com/blog/post/lending-club-secondary-market-profitability-of-trade-and-recovery-rate-with-loan-status-at-listing indicated ~42% default for IGP notes

from: lascott on August 05, 2017, 10:40:41 AM
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Strategy of buying grace period notes
#7: August 05, 2017, 11:00:00 PM
The other thing to keep in mind is if the note starts going 16 days. LC very well might not only take your interest but principle too due to fees. I am sitting on a note that I have tried selling that is 30 days late for the past 3 months and has three months left on it. $0.15 fee kills the $0.05 I get in interest.
I would be really interested in reading how those guys who buy the loans at 90% discount fair that the notes in absolutely going to default. I get it that they are grabbing some collection fees and the occasional note that starts paying. I guess it must work for them otherwise there would not be a market right?
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