5 ms·

Are these actually bad deals? If the payments stop at death of the seller, the buyer is taking on legitimate risk. Plus all "present value" calculations are of

Are these actually bad deals? If the payments stop at death of the seller, the buyer is taking on legitimate risk. Plus all "present value" calculations are of course uncertain. Ignoring the race drama the author apparently needed to drive clicks, a different interpretation is that these companies are providing value to these people in converting slow streams of cash payments into lump sums of cash.

emodendroket 11y ago
> Are these actually bad deals? Yes.
- reader5000 11y ago
  So how much would you pay for 350 monthly payments of $1000 on the contingency the payments stop at death of the seller?
  - emodendroket 11y ago
    That isn't really an answerable question without filling in a lot of demographic information. In addition, I'm guessing these companies typically have more than one "client" and get to amortize their risk across all of them and I can't help but imagine this is an extremely profitable enterprise (certainly from the article that seems to be true of Access).
    - lips 11y ago
      Risk? The fact that these are legal settlements is exactly why this leaps directly into a distinct category from stuff like pay-day loans.
    - emodendroket 11y ago
      Regarding risk, I'd say they're being more than compensated for their risk: > Taken together, the sample shows Access Funding petitioned to buy roughly $6.9 million worth of future payments — which had a present value of $5.3 million — for around $1.7 million. This is particularly true when you consider that the only real risk is the annuitant dying before you recoup the money you paid them and that most of the one-time payouts seem to be in the range of $16,000, while many of the monthly payouts seem to be around $1000/mo. Given those numbers, in two years (padding a bit for extra costs to close the deal) you've recouped your initial cost and the rest is just gravy until the annuitant dies. Payday loans (which are also extremely exploitative, frankly) at least have the more likely risk of the borrower being unable to pay you back to justify the raw deal.
    - jeo1234 11y ago
      It's is actually pretty easy. You just you use a life table. The entire actuarial field is built on this understanding this stuff. https://en.wikipedia.org/wiki/Actuarial_present_value https://en.wikipedia.org/wiki/Actuarial_present_value
      - emodendroket 11y ago
        Well, yes, and I'd guess the exposure on these is probably better than on traditional life insurance. The article does make reference to present values of the things several times and the prices these guys are paying are much less. Nonetheless, the question, as posed, doesn't give enough information to really answer it.
  - dangerlibrary 11y ago
    As little as I could. And that's the problem. When the seller has the mental capacity of a 10 year old with no guardian, it is almost literally stealing from children.
    - Lawtonfogle 11y ago
      Yet she has rights that a child does not. Perhaps we should base childhood, both the protections and restrictions on rights, on mental ability instead of age.
  - bquinlan 11y ago
    I don't have time to do more detailed analysis but, from the article, "In 2052, ...Rose would be approaching her 60s." So lets assume that Rose would be exactly 60 in 2052. So she was born in 1992. According to projections (http://www.census.gov/compendia/statab/2011/tables/11s0103.pdf http://www.census.gov/compendia/statab/2011/tables/11s0103.p...), a black woman who was 15 in 2007 would be expected to live to 63. So there is a significant risk that Rose would not live to the end of her payout period. But if the expected payout is >>18% of the present value of her payments (which it almost certainly is) then she got a bad deal. Someone with time could use the annual mortality probabilities (http://www.ssa.gov/oact/STATS/table4c6.html http://www.ssa.gov/oact/STATS/table4c6.html) to calculate the expected payout. I'm bad at analysis so I'd probably use a Monte Carlo simulation.
    - BurningFrog 11y ago
      > a black woman who was 15 in 2007 would be expected to live to 63 People with lead poisoning probably live substantially shorter on average.
    - IkmoIkmo 11y ago
      It says she's 20 and it's a 35 year period, or 55 years. That means she's born around 1995 and the life expectancy for a black female was 74 years, almost 20 years longer than the end of her payouts. I don't think the risk of death is anywhere near significant enough for her to sign away half a million dollars in payments for $60k. She barely got more than 10 cents on the dollar in nominal amounts, and still less than 20c on the dollar in present dollar terms. I'd gladly pay double what she got and I'd still make a ton of money all things considered. The number you were quoting (63) by the way is 'years of life remaining', not life expectancy as in 'age of death'. For example for a 100 year old the number is 2 years, which doesn't mean she'll live to 2 years old, obviously :)
  - Rapzid 11y ago
    The value to the buyer isn't the issue.
  - SilasX 11y ago
    I assume that's a solved problem in the sense that you can find the cost of a (dissipating) term life insurance policy on that person.
  - IkmoIkmo 11y ago
    I'd easily pay double. An exact amount would require a proper analysis I can't be bothered with right now, but I'm sure investors would line up to pay more than double. Look just to give you a quick sense... The payments started at $1k but they go up. The average payment over 35 years is actually closer to $17k per year, and if you quadruple that (and the $60k or so she got in return) you get to amounts that make sense to many of us. You get to a salary of $70k per year, a salary that is totally 100% guaranteed for 35 years (until death, and she's 20 years old so run the actuarial tables), and requires 0 hours of work. Imagine you have that, $70k per year, guaranteed, can't be fired, and you put in 0 hours of work. It's independent of whether the market does well or not. And someone offers you $250k for you to forgo that for the rest of your life (well 35 years). It's a total joke. You'd want at least upwards of $1m - $2m for it to come close to financially interesting. She got pennies on the dollar.
dangerlibrary 11y ago
Whether or not they are good deals is a secondary question to whether or not the people signing the contracts have any idea what is going on. The article makes it pretty clear: the legal protections are too weak, and severely impaired people are signing documents they don't understand. It's easy to construct scenarios where the closing prices are fair - even generous. It's also totally irrelevant.
- reader5000 11y ago
  Fair enough. I am not familiar enough with lead poisoning to understand the degree of mental impairment, but you are getting to a gray area where you're saying people with lead poisoning shouldn't be allowed to handle their own finances nor enter contracts etc.
  - dangerlibrary 11y ago
    It is both the degree of mental impairment, and the legal protections put in place. These people ostensibly have an "independent advisor" who makes sure they understand the settlement. That should be enough, even for an impaired person who can't read but is capable of basic decision making. But there are judges who accept a sixty second phone call as sufficient. Even if the seller is an illiterate person being asked if they understand the ramifications of a 12 page legal document. And even if the "independent advisor" has done dozens of deals with the buyer before, and has no other clients. This is a local article. Many of the problems it points out are specific to the weak legal protections in Maryland. It calls out specific people and companies, and specific conflict of interest issues. Talking about structured settlement pricing or mental impairment in the abstract really isn't relevant. Also, maybe read the whole article before commenting.
    - reader5000 11y ago
      Well I hope you never get lead poisoning and want to liquidate your settlement and a judge doesn't let you because she thinks you're too dumb to understand the deal. Also, this isnt a Maryland internet forum so the article's only relevance is in the abstract. Maybe check what forum you're on before commenting.
bcoates 11y ago
A lot of the value of the settlement can't be transferred to the new owner, so it's unlikely that the deals would happen if someone wasn't getting screwed. In particular, structured settlements are usually protected from bankruptcy, and usually are enough to keep the beneficiary off public assistance (so it transfers the cost from the taxpayer to whoever caused the harm). Allowing the payments to be sold off into a non-protected lump-sum at the discounted present value defeats the entire purpose of the lawsuit that generated the settlement.
IkmoIkmo 11y ago
Yes, it's a very bad deal. She's 20 years old, figuring the chances of death and the valuation, she's lost the vast majority of the actual value, and the guys who bought the settlement from her can make upwards of $1m of profit over the next 35 years, above and beyond what they paid for it. It's not 'value'. If you have $3k annual income for the next 50 years and I offer you $100k for it, it's not value, it's total bs. It becomes value ones the valuations are close. Plenty of investors will give you value, and if put on an open market, you'd get that value. But this happened due to predatory business, calling people who are mentally challenged and offering an awful rate. I'd have given her double and I'd still make a profit of more than half a million dollars, investors would line up to give her even more than that. If she'd been given a market rate, then yes it'd be good value to an ordinary person who has this preference. Although the whole point is that she wasn't because she's a vulnerable person with no financial sense who's better off receiving $1k for the next 35 years, than receiving pennies on the dollar in a lumpsum $60k which lasts her for 5 years if she'd be frugal, and likely won't last because shitty friends/family will exploit a mentally damaged person who's known to have just received $60k. Even for an ordinary person, this just makes no sense. After all, you can apply this type of discounting to any payment stream. Take your salary for example. I mean let's scale the numbers to a salary that makes sense to some of you. The average payment the woman in the article was getting in those 35 years is about $1.4k or say $17k per year, and she's forgoing them for $63k. Now let's quadruple those numbers to get to a salary some of you might get, about $70k per year, forgone for a one-time $250k. Imagine that $70k is your salary. Now who here is willing to sell/forgo their GUARANTEED, 0 hours of work, $70k annual salary for the next 35 years, for $250k? Absolutely nobody, not a single soul. There's no way you can call that 'value', until someone offers you a few million dollars at least. And if you had such a salary, guaranteed, without any hours of work, because someone poisoned you with lead and you're brain damaged... it's NOT okay for someone to convince you to forgo it for $250k over steak. That's predatory, unethical, harmful business. Especially when that person is DEPENDENT on that money. Yeah stealing $50 billion from Buffet is one thing, or even $1m from you or me. We can actually work and still live and thrive and enjoy life even if all our wealth is stolen. But she's brain damaged, can't work and can't live alone. She's the type of person that without $1k a month will end up homeless or on welfare or a combination of both, 20 years down the line.

emodendroket 11y ago

> Are these actually bad deals? Yes.

reader5000 11y ago
So how much would you pay for 350 monthly payments of $1000 on the contingency the payments stop at death of the seller?
- emodendroket 11y ago
  That isn't really an answerable question without filling in a lot of demographic information. In addition, I'm guessing these companies typically have more than one "client" and get to amortize their risk across all of them and I can't help but imagine this is an extremely profitable enterprise (certainly from the article that seems to be true of Access).
  - lips 11y ago
    Risk? The fact that these are legal settlements is exactly why this leaps directly into a distinct category from stuff like pay-day loans.
  - emodendroket 11y ago
    Regarding risk, I'd say they're being more than compensated for their risk: > Taken together, the sample shows Access Funding petitioned to buy roughly $6.9 million worth of future payments — which had a present value of $5.3 million — for around $1.7 million. This is particularly true when you consider that the only real risk is the annuitant dying before you recoup the money you paid them and that most of the one-time payouts seem to be in the range of $16,000, while many of the monthly payouts seem to be around $1000/mo. Given those numbers, in two years (padding a bit for extra costs to close the deal) you've recouped your initial cost and the rest is just gravy until the annuitant dies. Payday loans (which are also extremely exploitative, frankly) at least have the more likely risk of the borrower being unable to pay you back to justify the raw deal.
  - jeo1234 11y ago
    It's is actually pretty easy. You just you use a life table. The entire actuarial field is built on this understanding this stuff. https://en.wikipedia.org/wiki/Actuarial_present_value https://en.wikipedia.org/wiki/Actuarial_present_value
    - emodendroket 11y ago
      Well, yes, and I'd guess the exposure on these is probably better than on traditional life insurance. The article does make reference to present values of the things several times and the prices these guys are paying are much less. Nonetheless, the question, as posed, doesn't give enough information to really answer it.
- dangerlibrary 11y ago
  As little as I could. And that's the problem. When the seller has the mental capacity of a 10 year old with no guardian, it is almost literally stealing from children.
  - Lawtonfogle 11y ago
    Yet she has rights that a child does not. Perhaps we should base childhood, both the protections and restrictions on rights, on mental ability instead of age.
- bquinlan 11y ago
  I don't have time to do more detailed analysis but, from the article, "In 2052, ...Rose would be approaching her 60s." So lets assume that Rose would be exactly 60 in 2052. So she was born in 1992. According to projections (http://www.census.gov/compendia/statab/2011/tables/11s0103.pdf http://www.census.gov/compendia/statab/2011/tables/11s0103.p...), a black woman who was 15 in 2007 would be expected to live to 63. So there is a significant risk that Rose would not live to the end of her payout period. But if the expected payout is >>18% of the present value of her payments (which it almost certainly is) then she got a bad deal. Someone with time could use the annual mortality probabilities (http://www.ssa.gov/oact/STATS/table4c6.html http://www.ssa.gov/oact/STATS/table4c6.html) to calculate the expected payout. I'm bad at analysis so I'd probably use a Monte Carlo simulation.
  - BurningFrog 11y ago
    > a black woman who was 15 in 2007 would be expected to live to 63 People with lead poisoning probably live substantially shorter on average.
  - IkmoIkmo 11y ago
    It says she's 20 and it's a 35 year period, or 55 years. That means she's born around 1995 and the life expectancy for a black female was 74 years, almost 20 years longer than the end of her payouts. I don't think the risk of death is anywhere near significant enough for her to sign away half a million dollars in payments for $60k. She barely got more than 10 cents on the dollar in nominal amounts, and still less than 20c on the dollar in present dollar terms. I'd gladly pay double what she got and I'd still make a ton of money all things considered. The number you were quoting (63) by the way is 'years of life remaining', not life expectancy as in 'age of death'. For example for a 100 year old the number is 2 years, which doesn't mean she'll live to 2 years old, obviously :)
- Rapzid 11y ago
  The value to the buyer isn't the issue.
- SilasX 11y ago
  I assume that's a solved problem in the sense that you can find the cost of a (dissipating) term life insurance policy on that person.
- IkmoIkmo 11y ago
  I'd easily pay double. An exact amount would require a proper analysis I can't be bothered with right now, but I'm sure investors would line up to pay more than double. Look just to give you a quick sense... The payments started at $1k but they go up. The average payment over 35 years is actually closer to $17k per year, and if you quadruple that (and the $60k or so she got in return) you get to amounts that make sense to many of us. You get to a salary of $70k per year, a salary that is totally 100% guaranteed for 35 years (until death, and she's 20 years old so run the actuarial tables), and requires 0 hours of work. Imagine you have that, $70k per year, guaranteed, can't be fired, and you put in 0 hours of work. It's independent of whether the market does well or not. And someone offers you $250k for you to forgo that for the rest of your life (well 35 years). It's a total joke. You'd want at least upwards of $1m - $2m for it to come close to financially interesting. She got pennies on the dollar.

dangerlibrary 11y ago

Whether or not they are good deals is a secondary question to whether or not the people signing the contracts have any idea what is going on. The article makes it pretty clear: the legal protections are too weak, and severely impaired people are signing documents they don't understand. It's easy to construct scenarios where the closing prices are fair - even generous. It's also totally irrelevant.

reader5000 11y ago
Fair enough. I am not familiar enough with lead poisoning to understand the degree of mental impairment, but you are getting to a gray area where you're saying people with lead poisoning shouldn't be allowed to handle their own finances nor enter contracts etc.
- dangerlibrary 11y ago
  It is both the degree of mental impairment, and the legal protections put in place. These people ostensibly have an "independent advisor" who makes sure they understand the settlement. That should be enough, even for an impaired person who can't read but is capable of basic decision making. But there are judges who accept a sixty second phone call as sufficient. Even if the seller is an illiterate person being asked if they understand the ramifications of a 12 page legal document. And even if the "independent advisor" has done dozens of deals with the buyer before, and has no other clients. This is a local article. Many of the problems it points out are specific to the weak legal protections in Maryland. It calls out specific people and companies, and specific conflict of interest issues. Talking about structured settlement pricing or mental impairment in the abstract really isn't relevant. Also, maybe read the whole article before commenting.
  - reader5000 11y ago
    Well I hope you never get lead poisoning and want to liquidate your settlement and a judge doesn't let you because she thinks you're too dumb to understand the deal. Also, this isnt a Maryland internet forum so the article's only relevance is in the abstract. Maybe check what forum you're on before commenting.

bcoates 11y ago

A lot of the value of the settlement can't be transferred to the new owner, so it's unlikely that the deals would happen if someone wasn't getting screwed. In particular, structured settlements are usually protected from bankruptcy, and usually are enough to keep the beneficiary off public assistance (so it transfers the cost from the taxpayer to whoever caused the harm). Allowing the payments to be sold off into a non-protected lump-sum at the discounted present value defeats the entire purpose of the lawsuit that generated the settlement.

IkmoIkmo 11y ago

Yes, it's a very bad deal. She's 20 years old, figuring the chances of death and the valuation, she's lost the vast majority of the actual value, and the guys who bought the settlement from her can make upwards of $1m of profit over the next 35 years, above and beyond what they paid for it. It's not 'value'. If you have $3k annual income for the next 50 years and I offer you $100k for it, it's not value, it's total bs. It becomes value ones the valuations are close. Plenty of investors will give you value, and if put on an open market, you'd get that value. But this happened due to predatory business, calling people who are mentally challenged and offering an awful rate. I'd have given her double and I'd still make a profit of more than half a million dollars, investors would line up to give her even more than that. If she'd been given a market rate, then yes it'd be good value to an ordinary person who has this preference. Although the whole point is that she wasn't because she's a vulnerable person with no financial sense who's better off receiving $1k for the next 35 years, than receiving pennies on the dollar in a lumpsum $60k which lasts her for 5 years if she'd be frugal, and likely won't last because shitty friends/family will exploit a mentally damaged person who's known to have just received $60k. Even for an ordinary person, this just makes no sense. After all, you can apply this type of discounting to any payment stream. Take your salary for example. I mean let's scale the numbers to a salary that makes sense to some of you. The average payment the woman in the article was getting in those 35 years is about $1.4k or say $17k per year, and she's forgoing them for $63k. Now let's quadruple those numbers to get to a salary some of you might get, about $70k per year, forgone for a one-time $250k. Imagine that $70k is your salary. Now who here is willing to sell/forgo their GUARANTEED, 0 hours of work, $70k annual salary for the next 35 years, for $250k? Absolutely nobody, not a single soul. There's no way you can call that 'value', until someone offers you a few million dollars at least. And if you had such a salary, guaranteed, without any hours of work, because someone poisoned you with lead and you're brain damaged... it's NOT okay for someone to convince you to forgo it for $250k over steak. That's predatory, unethical, harmful business. Especially when that person is DEPENDENT on that money. Yeah stealing $50 billion from Buffet is one thing, or even $1m from you or me. We can actually work and still live and thrive and enjoy life even if all our wealth is stolen. But she's brain damaged, can't work and can't live alone. She's the type of person that without $1k a month will end up homeless or on welfare or a combination of both, 20 years down the line.