July 2016 Wrap

After announcing that I had no interest in making purchases on the secondary market, less than one week later, I had made two purchases. Prices on the secondary market are really quite diverse. There are some extraordinarily large premiums associated with some loans and some have very low premiums. I looked at the list of offered securities twice in the month and found none that were offered below par.

While I did purchase two very small loans, each had a premium of less than 2%. While that wasn’t a threshold, I now have an understanding of the secondary market. Purchases settle the next business day, which is as expected. These two fractional loans had a low premium even though the credit rating of the underlying payer had improved. I spent some time trying to figure out prices, but seemingly they were random. Maybe someday I will attempt to sell a loan and see if the system reminds me to update my price. My point being that perhaps these prices were stale.

Of course, people may have placed high prices on their loans just in case someone else was willing to pay it. Like a couple of homes in our neighborhood, it seems the seller is willing to sell but only at a specific price. Zillow calls that the Make Me Move price. I could put an amount on our home, but my wife and I are not at that point. Still, what would be the harm in placing a price that is double the current estimated value?

The new issue that I posted about two weeks ago was funded and issued. That means my portfolio consists of fractional ownership in three loans. My target is to have a portfolio of loans maturing monthly spread across 36 months. By purchasing a new issue plus another on the secondary market with 24 months to maturity, I can reduce the time to create the duration based portfolio from three years to two years. I could reduce it to one year by purchasing loans on the secondary market with one year left to maturity, but the market had extremely small principle amounts for sale. Constructing a list of fractional loans to reach my monthly principle objective seemed too time consuming. For now, I will accept the hole in the duration portfolio. Perhaps looking at the secondary market in August will provide a clue on how to work through the construction of that point in the duration curve.

To close the month, one of the loans purchased on the secondary market had a payment due. It successfully was paid on time. Lending Club takes a fee from the borrower upon loan origination and from the lender at each monthly payment. The loan origination fee seemed high to me and the monthly processing fee seemed low. Of course, the monthly fee happens every month, which is one of the annoying features of our banking system. It was too much for me to hope that Lending Club would be that different.


Author: dmcnic

Educated as an economist, I now work as an Analytical Professional for a manufacturing firm. I have have a second job as a part-time lecturer at the University of Washington in Bothell. While all baseball interests me, the Mariners are my home town team. Married with one dog.

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