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Debt is priced based on the debtor's expected ability to repay. If you have the means to purchase your own debt, it's probably selling at very close to its face

Debt is priced based on the debtor's expected ability to repay. If you have the means to purchase your own debt, it's probably selling at very close to its face value.

dragonwriter 13y ago
> If you have the means to purchase your own debt, it's probably selling at very close to its face value. If you have the means to purchase your own debt at its face value, its probably selling at very close to its face value. But the market value of your debt should be approximately (the amount the pricing algorithms expect you to be able to pay) minus (the amount the pricing algorithms expect to be expended in extracting payment from you). So, IOW, for the average debtor (assuming that the algorithms involved are correct on average), the market price of their debt should be significantly less than they are able to pay.
- polskibus 13y ago
  Let us speculate a bit further and perhaps coalesce multiple debtors, repackage their debt, create a debt-repurchase-vehicle that would purchase a tranche at a significantly lower cost than face value? Someone should really start securitizing that market from the other side!
- twoodfin 13y ago
  You forgot the value of interest, which invalidates your calculation. If the market price of consumer debt was, on average, lower than its face value, nobody would make loans to consumers.
  - aetherson 13y ago
    Well, there was recently a negative real shock to debt value. So the time sequence here is: time 0 = Creditor A thinks that lending $10,000 to debtor B will create an asset worth $20,000 time 1 = Horrible things happen. time 2 = Creditor A thinks that the asset thought to be worth $20,000 at time 0 is now worth only $100. It is possible -- though perhaps not likely -- for it to be the case that the average value of all loans made at time 0 to be worth less than their face value at time 0, now that we are at time 2. That doesn't mean that consumer lending at time 2 would become impossible -- it means that lenders would set rates and choose debtors such that they think that new loans have values exceeding their costs.
- nostrademons 13y ago
  If you purchase your own debt, then the lender has just extracted payment from you for $0.
toomuchtodo 13y ago
I purchased a townhouse for ~$280K at the height of the housing boom. As the recession progressed, my builder went bust, and a new builder came in selling new townhomes for ~$150K. I stopped paying my mortgage and walked away from the property. 2 years later, I called Bank Of America and negotiated to pay $2K to settle the debt. They accepted and my credit report is as if I never owned the home and walked away. You can indeed buy your own debt at a steep discount. Its up to you to convince the debtor at how hard it will be to collect. Disclaimer: I live in a judicial foreclosure state; it costs a substantial amount to perform foreclosures in my state, and also costs the bank to maintain the property between foreclosure and sale. Also, all of my assets were in retirement accounts, effectively judgement-proof.
- Frozenlock 13y ago
  Did you walk away because you were unable to pay, or because the market value of your house dropped too much?
  - toomuchtodo 13y ago
    Partly both. I needed to move for work, I couldn't sell because the value plummeted and I didn't have the cash on hand to get the loan down to the new value. When I attempted to rent it out, my association informed me that they had a limit on the number of rentals, and they were at capacity for rentals because small investors had already bought up units during the buildout to rent out to people. Had I rented it out without their consent, they were going to fine me $100/day. I was essentially fucked. I threw my hands up and said I quit. Worked out for the best.
- r00fus 13y ago
  It was news to me that retirement accounts are protected against judgment. Looks like it's not a complete shelter, but good enough for purposes of current foreclosure [1]. Of course, living in a non-recourse state is probably the best move, as you can't be held liable (your real estate secures your mortgage). [1] http://finance.zacks.com/retirement-account-judgment-proof-5132.html http://finance.zacks.com/retirement-account-judgment-proof-5...
thatthatis 13y ago
Call your credit card company and offer 50% as paid in full, they'll probably accept 70%. It'll absolutely kill your credit score, but its an option.
- davidu 13y ago
  There are folks who negotiate the terms of the credit reporting. Paid-in-full is paid-in-full if you make it so, regardless of the terms of your repayment.

Debt is priced based on the debtor's expected ability to repay. If you have the means to purchase your own debt, it's probably selling at very close to its face value.

dragonwriter 13y ago

> If you have the means to purchase your own debt, it's probably selling at very close to its face value. If you have the means to purchase your own debt at its face value, its probably selling at very close to its face value. But the market value of your debt should be approximately (the amount the pricing algorithms expect you to be able to pay) minus (the amount the pricing algorithms expect to be expended in extracting payment from you). So, IOW, for the average debtor (assuming that the algorithms involved are correct on average), the market price of their debt should be significantly less than they are able to pay.

polskibus 13y ago
Let us speculate a bit further and perhaps coalesce multiple debtors, repackage their debt, create a debt-repurchase-vehicle that would purchase a tranche at a significantly lower cost than face value? Someone should really start securitizing that market from the other side!
twoodfin 13y ago
You forgot the value of interest, which invalidates your calculation. If the market price of consumer debt was, on average, lower than its face value, nobody would make loans to consumers.
- aetherson 13y ago
  Well, there was recently a negative real shock to debt value. So the time sequence here is: time 0 = Creditor A thinks that lending $10,000 to debtor B will create an asset worth $20,000 time 1 = Horrible things happen. time 2 = Creditor A thinks that the asset thought to be worth $20,000 at time 0 is now worth only $100. It is possible -- though perhaps not likely -- for it to be the case that the average value of all loans made at time 0 to be worth less than their face value at time 0, now that we are at time 2. That doesn't mean that consumer lending at time 2 would become impossible -- it means that lenders would set rates and choose debtors such that they think that new loans have values exceeding their costs.
nostrademons 13y ago
If you purchase your own debt, then the lender has just extracted payment from you for $0.

toomuchtodo 13y ago

I purchased a townhouse for ~$280K at the height of the housing boom. As the recession progressed, my builder went bust, and a new builder came in selling new townhomes for ~$150K. I stopped paying my mortgage and walked away from the property. 2 years later, I called Bank Of America and negotiated to pay $2K to settle the debt. They accepted and my credit report is as if I never owned the home and walked away. You can indeed buy your own debt at a steep discount. Its up to you to convince the debtor at how hard it will be to collect. Disclaimer: I live in a judicial foreclosure state; it costs a substantial amount to perform foreclosures in my state, and also costs the bank to maintain the property between foreclosure and sale. Also, all of my assets were in retirement accounts, effectively judgement-proof.

Frozenlock 13y ago
Did you walk away because you were unable to pay, or because the market value of your house dropped too much?
- toomuchtodo 13y ago
  Partly both. I needed to move for work, I couldn't sell because the value plummeted and I didn't have the cash on hand to get the loan down to the new value. When I attempted to rent it out, my association informed me that they had a limit on the number of rentals, and they were at capacity for rentals because small investors had already bought up units during the buildout to rent out to people. Had I rented it out without their consent, they were going to fine me $100/day. I was essentially fucked. I threw my hands up and said I quit. Worked out for the best.
r00fus 13y ago
It was news to me that retirement accounts are protected against judgment. Looks like it's not a complete shelter, but good enough for purposes of current foreclosure [1]. Of course, living in a non-recourse state is probably the best move, as you can't be held liable (your real estate secures your mortgage). [1] http://finance.zacks.com/retirement-account-judgment-proof-5132.html http://finance.zacks.com/retirement-account-judgment-proof-5...

thatthatis 13y ago

Call your credit card company and offer 50% as paid in full, they'll probably accept 70%. It'll absolutely kill your credit score, but its an option.

davidu 13y ago
There are folks who negotiate the terms of the credit reporting. Paid-in-full is paid-in-full if you make it so, regardless of the terms of your repayment.