Creating a Diverse Purchasing Model

Finding the Right Purchase in a Changing Market.

Meanings

• Fresh or Prime means it has not been worked since charge off.

• First means it has been to one agency.• Seconds means it has been to two

agencies.• Tertiary means it has been to three

agencies.• Quads means four agencies.

Meanings

• Out of stat means out of statute for legal remedies.

• Statute may be based on the last pay date or the charge off date or some date in between.

• Asset backed means the debtor has an asset or job that could be attached if a legal remedy is employed.

Meanings

• Performing paper means accounts that are on a payment plan. Usually for four months prior to purchase.

• Auto deficiency means the amount remaining after a car has been sold when the loan company liquidates the car for non payment.

Purchasing Modelsby the Type of Debt

• Credit Card• Telecom• Health Care• Auto Deficiency• Consumer Loans• Utilities• Mortgages

• Checks• Book Club, Health

club or specialty type debt.

• Student Loans• Other?????????• Pay Day Loans

Health Care

• Hospital • Specialist• Dental• Ambulance

Credit Cards

• Prime.• Sub Prime.• Retail or branded cards.

Telecom

• Cell phones• Land lines• Business phones

Models by Type of Debt

• Few people purchase everything.• Some people buy various loans and credit

cards but not healthcare or auto deficiency.

• Some people buy only one type of debt.• Some people focus on one type of debt

but buy other types in smaller amounts.

Models by Purchase Source

• Purchase from the issuer.• Purchase from a broker.• Purchase from a reseller/one off.

Worked/unworked.• Purchase from a reseller/two off. Worked

unworked.• Front end/Back end at whatever level.• Purchase from wherever.

Diversity Within the Type of Debt

• People may purchase,• Fresh paper.• One agency.• Two agency.• Three agency.• Quads and older.• Out of stat.• Low balance.

• Performing debt.• Bankruptcies.• Accounts with

documentation to support a legal model.

• They may purchase by balance size or state.

• Asset backed, house, job.

Track your results

• How much are you paying?• What is your expected return?• What length of time is your return?• What are typical returns in the industry?• Do you have intelligence in the industry?• Are you prepared for economic or other

factors that may effect you?

Do Not Abandon Your Original Model

• If your original model is suffering maybe diversification would not be good.

• Understand the metrics of your portfolios and returns.

• Use best methods and practices to liquidate.

Have a Plan

• Choose a percentage to commit to diversification. I would suggest no more than 20% to start.

• Decide whether to blend the diverse selection into your current process or develop another process.

• Track the results carefully and do not diversify further until all aspects are understood.

Plans

• Buying and outsourcing for collections and legal.

• Buying, working or litigating in house, outsourcing.

• Purchase and litigate only.• Warehousing the paper, judgments etc.• Selling the paper after a certain amount of

time.

Diversify Your Strategy

• Send more to litigation or send less.• Develop a different or more aggressive

judgment recovery.• Add an outsourcing strategy or remove

one.• Shorten you outsourcing cycle. Lengthen

it.• Plan to buy by state, region or national if it

diversifies your model.

Understanding the Portfolio

Pre Purchase Due Diligence and Analytics

Due Diligence

• Who am I buying from?

• What am I buying?

• Why am I buying?

Who Am I Buying From?

• Where did I find this seller?

• How long have they been in the industry?

• Where did they get the debt they are selling?

Where Did I Find This Seller

• Are they known in the industry?• World Wide Debt Exchange, West Asset,

Hudson and Keyse, Unifund, Global Acceptance, Collins, Sagres, Encore, etc.

• If they are not well known as sellers then dig deeper. Check for lawsuits, ask questions on boards such as Insidearm.com.

• Perform due diligence on the company.• Ask for references. Ask your industry

contacts.

Where Did I Find This Seller

• Even if you have dealt with the seller continue to do due diligence. Examples, Alexander and Cypher.

Do they belong to any associations and do they go to conferences?

How did I find them or did they find me?

What Am I Buying?

Credit Cards, Loans, Telecom, Utilities, Medical, Checks, Pay day loans, mixed, etc.

• Fresh, firsts, seconds, tert, quads, out of stat, wharhoused, performing, mixed etc.

• One off, two off, three off, fractured, mixed, etc.

• Who is in the chain of title?• What level of work has been done?

Settlement offers, litigation, agencies.

What Am I Buying?

• How were the accounts selected for sale?• Are docs available?• Was there scoring?

What can the seller tell us about the history and trail of these accounts?

Why Am I Buying?

• Buying to work inhouse.• Buying to work and outsource.• Buying to work, outsource and resell.• Work to collect.• Work to collect and litigate.• Purchase as an investment to resell or

outsource.• Any reason that can be thought of.

Analytics

• Minimum Information needed.• Format.• Developing a review process.• Understanding the data.• Developing a price.• Projecting liquidation.• Death by analysis.

Format

• Excel 2007 or before.• Comma separated values, CSV.• Microsoft Access.• In a document form.• A pdf or doc breakdown and stratification.• Other software specific spreadsheets.

Minimum Information Needed

• The more information the better.• Type of account, City, state, zip, • Address may not be provided but usually

is.• Dates, Open, last pay, charge-off.• Balance due. Is post charge off interest

added?• Name usually is not provided but first

name may be.

Minimum Information Needed

Partial SSN, first three or five numbers.

Other info that may not be provided but can be useful.

Account number, interest rate, product title, poe info, phones, co-debtors, business names, etc.

Developing a Review Process

• What is most important to you about the data?

• Balance, states or region, age, type, etc• Sort the spreadsheet looking for the

average and medians of what you want.• Look for anomalies.

Understand the Data

• Is there something you are seeing that does not make sense. Example: Super high balances and very low balances, dates that don’t make sense usually indicating missing information 11-22-63 for example. Lots of 555 or 666 or 777 in the area codes, missing dates, lots of names that can’t be pronounced or ssn’s that are of a different type then you would expect.

Understand the Data

• Are dates screwed up or is there a lot of pays after charge off or recent last pays but older chargeoffs?

• Is there any data that just does not add up for you? Like, all po boxes or all major cities or no major cities.

Understanding the DataHow I Review

• I review the portfolio to see if it meets my requirements for balance range, state or regional distribution, age of the debt and anything else that catches my eye.

• I apply a scoring methodology to the file.• Then I sort it by state and high to low

balance looking for trends versus the data or versus the scoring.

Understanding the DataHow I Review

• I sort by open date and look at the balance ranges by older to newer and then do the same with last pay date and charge off date.

• All along I am comparing streams of data against the main data I am reviewing.

• I apply my scoring to all of the segments and look for trends. Mainly I am looking for manipulation and factors to determine pricing.

Developing a Price

• If the review passes my inspection then I apply the attributes of the portfolio to my pricing template.

• My pricing template considers age from charge off at a high and low end. We may consider balance sizes and state attributes.

• We consider the placement level.• Outside of the template we look at our

history

With similar paper. We establish a price range.

Projecting Liquidation

• Liquidation by month, especially in the first four months are subject to wide swings.

• An exact projection is not possible in most cases.

• A loose projection in the first six months is possible and then a more accurate projection for 12 months, 18 months, 24 months, 30 months, 36 months, 48 months and 60 months.

• As liquidation is achieved a sale price for the remainder can be forcast.

Death by Analysis

• Sometimes flaws may be found in a portfolio but the pricing makes the purchase worth it.

• It is silly to think that similar paper will always be priced the same.

• Blending purchases together reduces the risk of one portfolio sinking your ship. Although, each portfolio should be tracked seperately.

• If you are a debt buyer, buy debt.

Using the Analytics

Key Initiatives to Faster Returns and a Liquid Model in Today’s Economy

Initiatives

• Collection• Legal• Asset Management