Update: Distressed P2P Investing Experiment

Update: Distressed P2P Investing Experiment

Sometime back, I embarked on an experiment that involved investing in Lending Club notes on the secondary market. My goal was to buy “distressed” P2P loans at a discount that was higher than the default rate.

The hope was that I could squeeze a slightly better return than I’ve seen with my more traditional P2P experiment buying primary loans when they’re originated.

When I first started out with this I bought a bunch of notes indiscriminately, focusing more on the size of the discount than the underlying debt.

That initial batch of loans has had a pretty bad failure rate and is dragging down the overall results of this experiment.

I’ve since gotten a lot more discriminating, but the problem is that being discriminating is a huge time suck.

I’d like to think that my system is a good one, but without a larger sample size, I can’t really say for sure. And I don’t really have the patience to sift through the garbage pile of loans on the secondary market to find the very few that meet my criteria.

So I’ve kind of lost my motivation to put any additional capital or effort towards this.

Anyway, this is what’s going on with my junk P2P investing experiment.

Distressed notes purchased

46 (no change from last month)

Total amount invested

$395.42 (no change from last month)

Outstanding principal remaining

$246.13

Adjusted value of principal remaining

$159.83

Payments received

$66.99

—-Principal received

$48.85

—-Interest received

$18.00

—-Late fees received

$0.13

Actual losses (charged off)

$235.27 (32 notes…$708.39 in original principal – no change from last month)

Principal in default

$32.70 (2 notes…$21.69 invested)

Principal 31-120 days late

$72.44 (4 notes…$46.30 invested)

Principal 16-30 days late

$0.00 (0 notes…$0.00 invested)

Principal in grace period

$0.00 (0 notes…$0.00 invested)

Principal issued and current

$141.00 (7 notes…$86.36 invested)

Of the 4 notes that are still technically alive but seriously late, 1 of them is almost guaranteed to end up charged off.

Here’s the latest from note #147588532 (Loan ID: 96326810):

From what I’ve seen with other notes, a 3rd party calling on behalf of the borrower either means the borrower is entering bankruptcy or dead. Neither is promising for those of us holding unsecured debt.

Nothing has been added to the collection log since that last note on 12/14/17, so… IDK, pro-tip (apparently): having someone else call your creditors and tell them that you are unable to pay at this time is a great way to stop those nagging collections calls!

Oh, and do you remember notes #130699384 and #130696717 (both from Loan ID: 83344786) from last month? As a refresher, they were 31-120 days late, and the borrower had responded to the collections calls by providing Bankruptcy counsel information.

Welp, the update is that the loan is now in default, and the borrower is in Chapter 7 bankruptcy, which isn’t exactly a surprise.

None of the chapters are particularly good for unsecured creditors like myself, but Chapter 7 is especially bad. I am not as upbeat about this loan’s prospects as the algorithm is:

Oh well. So it goes I guess. As long as I hold “distressed” P2P debt, I’ll keep on keeping on with this and keep you all up to date.

Although, if it’s okay with you guys, I’m going to cut down the frequency with which I post these updates. If I decide to go note shopping and buy a whole bunch of “new to me” loans from the secondary market, I will let you know.

Otherwise I will let this experiment play out one quarter at a time. Monthly updates strike me as a bit too repetitive and tedious.

If you have an issue with that you’re welcome to yell at me in the comments. Even if you don’t have any issue, I’d love to know what you’re thinking right now.

Shout! Shout anonymously on the internet!

 

2 thoughts on “Update: Distressed P2P Investing Experiment

  1. This is fun to read- there’s something very juicy about distressed debt. I used to work as a debt collector (yeah, seriously! They gave me the boot after a few months because I was “too nice”), so it’s kind of fun to look at this from an investor side. Still don’t think I’d do it myself, though, but it’s fun to live it vicariously through you.

    1. Ugh I can’t imagine that job. I could see how it’s probably not a good fit for someone who’s nice though, so maybe it’s just as well.

      I’m glad someone is having fun following this saga. I can’t recommend it as an investment practice. There are sooooo many notes for sale at a discount on the secondary market, and the vast majority of them seem absolutely terrible to me.

      Thanks for stopping by and commenting.

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