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Post by rahafoorum on Mar 14, 2016 18:48:30 GMT
No, I mean the loans that are priced for the possibility that there might or might not be debt collection then bought just after successful debt collection at a discount to the combined capital and accrued interest and penalties that is far greater than the discount specified at the time the offer to sell was made. That combination of big change in discount and change in loan state from unknown pay state to making some sort of repayment provides the opportunity for sharks to exploit those trying to sell at earlier stages. What I meant here, is that while the actual claim is reduced by the amount that DCAs take as fees, this is not reduced in the UI so the buyer will buy a bunch of air off you that don't exist. For example, let's say you have a loan with €100 in default. You'll recover €50, meaning that DCA will take on average 16% (according to Pärtel) €8 and you will receive €42. In the UI, it will show that outstanding principal is €58, while in reality it is actually only €50 now since borrower has repaid €50. Discount/mark-up is calculated based on €58. In other words a discount of let's say 30% would mean that you'll sell your actual €50 claim for €40.6. In other words, the actual discount is only 18.8% (-€9.4 from the actual €50 claim), not the shown 30% (-€17.4 from €58 claim). In short, depending on the specific case, it may very easily be the buyer who is actually losing in this case. Especially when you consider that very often the debtors stop paying after all principal has been repaid or the payments become very small and very occasional, since there's no urgency anymore (no interest is calculated on interest) or the DCAs/Bondora has agreed upon reducing the interest claim altogether.
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james
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Post by james on Mar 14, 2016 19:00:49 GMT
I think there are only two viable strategies: either sell all defaulted loans that show no cashflow as quickly as possible for moderate discounts There are no assured moderate discounts for defaulted loans. See A Bondora secondary market rip-off for what happened to a loan offered at 9% capital discount that a buyer bought for around a 90% discount on capital and overdue interest/penalties four minutes after a large capital payment was made. Many other loans at similar discounts just did not sell, so I reached the conclusion that it was not worth trying to sell at low discounts: it is more likely to feed sharks after a payment than get sales before a payment. I think there should be no argument that you should keep your current loans as long as possible and not sell them at par, only at premium. They bring you positive income and as long as each individual loan stays current and pays with good discipline, it does not matter if the loan was originated in Estonia or Elbonia. Depends on whether you think that the platform will survive when it has little growth and there are already signs of cost cutting like greatly cutting back internal debt collection and having some employees leave. If you worry about this you might want to try to arrange for loans to be repaid before your guess at how long the platform will be able to continue to operate. After the low growth of this platform over recent years I think it is sensible to be considering the risk that the VC will not continue to fund the platform. On the more positive side Bondora does seem to have noticed that lack of investors is an issue affecting growth. Some of that has shown up in work on the software and it has also perhaps shown up int eh way that Bondora has been increasing the number of countries allowed for investors, increasing the potential number of investors. At present I have sold most of my lower rate loans and am running down others, so that my average interest rate now has some allowance for both the risk and the alternative options that I have available. Over about one year of gradual selling I reduced the size of my loan book by about 50%. This approach does mean that I do not think that there is high urgency to sell.
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james
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Post by james on Mar 14, 2016 19:20:29 GMT
What I meant here, is that while the actual claim is reduced by the amount that DCAs take as fees, this is not reduced in the UI so the buyer will buy a bunch of air off you that don't exist. ... For example, let's say you have a loan with €100 in default. You'll recover €50, meaning that DCA will take on average 16% (according to Pärtel) €8 and you will receive €42.... In the UI, it will show that outstanding principal is €58, while in reality it is actually only €50 now since borrower has repaid €50. Discount/mark-up is calculated based on €58. In other words a discount of let's say 30% would mean that you'll sell your actual €50 claim for €40.6. ... In other words, the actual discount is only 18.8% (-€9.4 from the actual €50 claim), not the shown 30% (-€17.4 from €58 claim). Yes, that case is also possible but for defaulted loans there are often interest arrears and/or penalties that will pay the DCA. For recently defaulted loans that deserve only a low discount the chance of high recovery levels including future and past interest is also quite high, compared to older ones. Especially when you consider that very often the debtors stop paying after all principal has been repaid or the payments become very small and very occasional, since there's no urgency anymore (no interest is calculated on interest) or the DCAs/Bondora has agreed upon reducing the interest claim altogether. I agree that this is possible but it does not yet match my own limited experience with debt collection. So far I normally am receiving accrued interest if I receive something. For me the hard cases are the ones that stopped paying and much later after a court decision have still paid nothing more. But I have not done a proper analysis of the whole loan book, and will not do that because it is only Estonian loans that are of personal interest to me and those are the better performing group. Hard cases are those like these: id BOA24972 loan number 125098 622 days since last payment, 447 days since court decision received. fearfree16 148212 fearfree16 17105 Both 608 days since last payment and 419 days since court decision received. d******1973 55933 (censored user ID, a common first name) 464 days since last payment, 447 days since court decision received. No information to lenders about why the loans are in this state for so long. By comparison, the UK platform Zopa tends to provide at least occasional updates and say things like whether the consumer debtor cannot pay, cannot be traced or whatever the cause is. There is that Facebook comment that some changes to debt collection reporting may be coming, so perhaps there will be improvements here. Because I am a British investor UK law allows me to deduct high probability loss loans that have reached that state from 6 April 2015. But the platform has to identify those loans before I can do that. No sign from those loans that Bondora is doing this or even has a way to indicate in its debt collection states that it now things that the loan is not likely to have successful debt collection even though it will continue to try and there may be some. For all four of those loans I have already reached the conclusion that there is probably so little chance of debt collection that I should be allowed to deduct the capital as lost.
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james
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Post by james on Mar 14, 2016 19:34:55 GMT
I am officially completely sold out of bondora. It took me 5-6 months. I had a pretty simplistic approach which didn't involve me assessing premiums.
Do you think Bondora are started turning it around? I think I timed my exit perfectly. Good approach to easy pricing. If you want to do more work you can look at the resale market data and look up the borrower name from the all loan data to find the mark up or down of recent sales for loans. This is part of how I set my own prices, partly so that I did not sell at a price that was too low. I think that Bondora is trying to do some turning around. I do not know whether Bondora will succeed. For me the key things relate to ethics and treating customers fairly so I look to see whether Bondora will act on the secondary market charges or secondary market sale after loan state change issues as significant potential signs. An older issue was all the loans to young professionals - those under 25 - who turned out not to be young professionals but instead usually people without full secondary education and with low level jobs. I don't think it is a good move to be involved with a platform where you can't trust descriptions of loans and loan pricing policy to be accurate, or where you can't trust that statements about charges will be accurate.
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