lendingclub secondary market analysis

Lendingclub issues consumer notes in its primary platform.  Typical retail investors will keep them in their book till maturity/prepay/charge off.  Lendingclub, together with folio also run a secondary market that user can buy and sell notes.
This secondary market has interesting features that are very different from stock market:

1. Folio loans have low trading volume.  Every time there are tens of thousands of loans listed for sell yet only a few hundreds traded a day.
2. There is no bidding process.  Seller set prices and buyers take or leave.
3. Trade can be cancelled if the underlying loan has a ongoing payment.
4. High trading cost. Seller has to pay 1% transaction fee

 Notes are priced as a "Markup/Discount" price relative to outstanding principal + accrued interest.  Notes' origination information and historical payment information are available.  Those notes are categorized by its current status, FICO trend, historical status and each category have different pricing.
 I've grouped available for sale loans in a given time into groups based on current and historical status: Current and never late before, Current but was late, Late (15-30), Late (31-120) etc.  The distribution of asking Markup/Discount is displayed below:

It is interesting to see that even for late notes, most sellers still demand a premium; which is over priced. Some loans do sale at discount, but the question is: what discount price is good to buy? Ultimately, a loan pricer is required to evaluate all the loans available for sale.

The pricer should takes into account loan's origination information as well as historical payment information. However, not all information are available.  The secondary market trading API has a limited set of columns shown as below:

LoanId,NoteId,OrderId,OutstandingPrincipal,AccruedInterest,Status,AskPrice,Markup/Discount,YTM,DaysSinceLastPayment,CreditScoreTrend,FICO End Range,Date/Time Listed,NeverLate,Loan Class,Loan Maturity,Original Note Amount,Interest Rate,Remaining Payments,Principal + Interest,Application Type
97555090,148984517,138631874,0.0,0.0,Current,3.24,100.0,--,20.0,DOWN,700-704,10/25/2019,False,B5,36,25.0,11.49,1,0.0,INDIVIDUAL

Of all the columns, FICO, remaining term, rating, Never Late and Status, and Loan Class are useful in pricing.

The FICO change from origination to current is an important leading indicator of ROI.  Depending on loan status, every 100 FICO drop can lead to large drop in ROI according to historical analysis.

The remaining term is also important because hazard rates are not constant through time.  Hazard rate typically increase with loan age from the beginning, then flat or drop slightly in later ages.

Loans that experienced delinquency before vs. loans has never been late before also have significant ROI difference.

According to my pricer, most of loans list for sale are overpriced.  Late loans are usually not discounted enough to cover the potential losses; only a very few ones are priced attractively.

Given the inefficient market, a good pricer is essential in picking right loans.