The Lending Club FolioFN Secondary Market
Summer looks at an analysis of data and trends for buying and selling on the secondary market.
The secondary market is a hot topic among investors. Should you sell? And if so, what notes should you list? To help you answer these questions, we offer an observation about markups and discounts on the secondary market.
Using the secondary selling tool from the NSR Platform, you can see very few notes with 10 or fewer remaining payments are listed for sale. Looking at the amortization schedule of a 60 month $25 note at 12.29% APR offers some insight on this trend. On month 50 – so 10 remaining payments to go – the yield to maturity is approx 6.82%. Based on historical data, a note in this payment period is listed for an average discount of ~2% on the secondary market. Given a similar default and prepayment rate at the beginning and end of a loan term, the note would need to sell for at least this 2% discount to make it worthwhile – over holding the note to maturity. The reason for this is that we must factor in a 1% fee to sell on the secondary market, the larger impact of the Lending Club service fee in later payment periods, and the smaller amount of interest remaining. In other words, you should carefully consider the discount/markup you list loans close to maturity at. Too low of a discount and you would be better off holding the note to maturity.
For more information on the secondary market, check out our July Newsletter by following this link:http://us8.campaign-archive2.com/?u=5508a65609ac3d4da249fd10f&id=2ee415e204&e=
Of course, every situation is different, so call us if you have any questions.