Let’s start with some housekeeping issues. First of all, the refunds of AmSher collection fees should be processed in the next few days. We have calculated the refund amounts on all payments through the end of July. Once the program is written and tested is should be an easy matter to run it for each month’s affected payments.
Secondly, many of you will have noticed that some of the issues with the “Collections Statistics” page have been corrected (most noticeably the fact that the last 3 months and lifetime were displaying the same numbers). There is still a problem with how the agency interface updates the statistics table. The good news is that the logic that handles the actual placement and recall is functioning correctly, the problem is strictly in how the status is being updated on the web site. We are currently doing an “account by account” reconciliation and should have all statistics corrected by month end. In conjunction with this effort we are working on a major rewrite of the agency interface. Once completed, this new interface will not only provide additional visibility such “collections exceptions” as having received notice to “cease and desist” or of attorney representation, but should also allow daily files to be sent back and forth with the agencies—currently updates are done on a twice a week basis.
On the legal test, we have filed for “Default Judgment” on the first 20 cases. An additional batch of defaults will be going out next week. The law firm is continuing to work on obtaining “service of process” on the remaining cases. In terms of fallout, we have had 7 accounts file for bankruptcy, two of the accounts have moved out of state, one is deceased and two suits have been contested.
Finally in looking at AmSher’s performance, I remain very pleased with their efforts. One of the key metrics that I look at is what portion of accounts placed with them do they obtain a “right party connect” (meaning that they actually spoke to the debtor) within the first six weeks of placement. AmSher is successfully contacting more than 40% of the debtors. This is extremely good. July was the first month in which dollars collected per account decreased. During my July trip, I reviewed the results across all of AmSher’s portfolios, the decline is happening across the board. This is clearly the sign of a deteriorating economy.
When AmSher gets a debtor on the phone, they first attempt to secure payment for the total delinquent amount due. If the debtor cannot make that large of a payment, they then attempt to secure a payment equal to the monthly amount—to prevent the account from aging another month. During my July visit, I instructed AmSher to fall back to attempting to secure a payment equal to half of the monthly amount—this will at least retard the rate of roll.
On my next trip, we will evaluate the effectiveness of this approach.
I know that many people have been anxiously waiting for an update on the debt sale. We’ve been working very hard toward finding a more favorable bid, as well as considering alternatives, but we’ve met with some severe obstacles.
Once bids with unacceptable contract conditions were eliminated the highest bid we received was only 1.5 cents on the dollar. To put this in context, “Out of Statute” paper - consumer debt that is time-barred by the statute of limitations, where the debt holder has not received a payment in 3 to 15 years - gets prices in the range of 0.5 to 0.75 cents.
The problem is that there is so much credit card paper available in the market, that no one is interested in a “novel” asset such as Prosper loans. More than one bidder had told me that in this market, they’re only spending their money on consumer debt paper they’ve had experience with.
We believe the prudent course of business is to not sell at this time. Instead, we are going to consider the loans as charged off, and keep them and continue to try to collect them as charged off debts. You will continue to own the loans as we apply post charge off collection techniques to these accounts. We recognize that this is different than our normal process, but firmly believe that it will result in a higher return for our lenders.
One of the key arguments for selling bad debt quickly and without applying “post charge off” collection techniques, is that it reduces the value of accounts that don’t respond. However, given the very low price we’re currently faced with, that’s not really a concern.
Several people have expressed concern regarding how 121+ dpd loans are reported. We are working to create a new loan status of “charged off”. Loans in this status will not have their balance “zeroed” out (so that they can still accrue interest), but they will not be eligible to revert to a “current” or “delinquent” status even if a payment is received.
I wanted to give everybody a quick update on collections. I know that many of you are anxious for an update on the debt sale. Regretfully, I have nothing to tell you yet. I expect to have another update on this subject early next week (Monday or Tuesday).
In the meantime, I want to give you an update on the accounts in the legal test. We have obtained service on 12 of the suits – and have sent “proof of service” back to the courts. Another 41 have been formally entered on the dockets of the court in and are currently out for service. I would believe that some number of these have been served, but we only have a “batch” interface with the process servers, so I don’t have real time date on this. Finally there are 7 suits on which we are waiting for the “file stamped” copy back from the court to send out to service.
At this point, we keep pushing for service. Once we have received proof of service, the minimum time to move for default judgment is 30 days. As a rule, the law firm will wait until 45 days after the service date to file a request for default judgment. Thus far, none of the defendants have “answered” the suit.
On other topics, I will be making my monthly trip to AmSher on 5/15 & 5/16. I will dedicate another posting to the current state of collections and AmSher after I return.
I’ve just returned from my monthly visit to AmSher. I’m very impressed with how quickly they have come up to speed on working Prosper accounts. With three business days left in the month, we have already achieved our second best month ever in terms of total dollars collected, dollars collected per collection account and percent cured. For example, through 3/26, we had collected $50.58 per collection account. Those who were at Prosper Days may remember that the record was set in January at $52.27. My expectation is that we should have a record setting month in at least two of the three metrics.
I’m even more encouraged in that I am confident that next month will be better than this month. We’re still working through some system interface issues, but have most of the kinks worked out. We did find that implementing two commission structures for AmSher would require significant system work on our end. As such, we will be handling the difference in commissions by doing periodic refunds to lenders. The first refund should be posted by the end of April.
On the legal test, the vast majority of the cases have been sent to the courts. Since this is a new asset class, the law firm did not have the pleadings set up in their automation system and are having to create each complaint manually. Of the 66 accounts, there are five cases still in the production stage. Additionally, there are four disputes that arose in the last three weeks which we have to answer before filing suit. In next month’s update, I’ll have new figures on the number on whom we’ve obtained service — and hoping the first flood of post filing payments.
We will be doing another debt sale in the future. We are waiting to see if AmSher can shake some money out of the older accounts. While not a large number, AmSher has secured payments from 12 accounts that were at 121+ days in approximately six weeks. This compares with an average of 2.2 payments per month previously. A second reason for waiting is the current large amount of “inventory” in the debt market. Basically the market is swamped by the large issuers scrambling to make quarter end numbers.
One of the many activities aimed at improving collections undertaken in the last couple of months was the testing and implementation of an “Early Delinquency” letter series. Although borrowers were already receiving reminder emails and phone calls during the early delinquency period (1 -30 days past due), we thought it worth seeing if an actual letter might drive additional payments. We conducted an initial test in mid-October where half of the early delinquency population was sent a letter and half was not. Measured by the number of manual payments initiated, the results were good. In the three weeks after the letter was mailed 57% more recipients initiated a manual payment (41% vs 26%).
Given this success, a two letter series was produced and a process created to automatically generate and send the letters. The first letter goes out at 15 days past due and reminds the borrower of the “community aspect” of their prosper loan – the money comes not from a bank, but was made possible by a group of individuals. The second letter is generated at 30 days past due and details the various consequences of becoming “delinquent” including collection activities, credit reporting and the possibility of a lawsuit.
Additionally, we have contracted with Accurint (a division of Lexis-Nexis) to provide skip tracing information and are developing an internal process around that data.
