CARLSBAD, Calif. – Prices of bad-debt portfolios have increased in recent weeks, with prices of fresh debt improving at a faster rate than older receivables, according to industry observers.
Fresh charge-offs are selling in the upper end of the 3-cents-to-8-cents-on-the-dollar range. Older accounts, worked by more than one agency, are getting anywhere from fractions of a cent to 4 cents on the dollar, reported American Banker, an affiliate of Credit Union Journal.
Aaron Hadam, EVP with debt broker National Loan Exchange Inc., said the upward shift for fresh charge-offs has not necessarily persuaded issuers to sell more. What's more, the traditional year end inventory sell-off failed to materialize in December. "Everyone expected a large boom and that didn't happen," Robert Morris, the founder of debt buyer Oliphant Financial Corp. in Sarasota, Fla., told American Banker.
Some insiders said the higher prices might not be sustainable because there is no evidence of a corresponding rise in liquidity. Buyers trying to obtain market share are driving prices higher, but liquidation rates on those accounts are not any higher than a year ago, said Stacey Schacter, the chief executive and president of Vion Receivable Investments in Atlanta.
And liquidity is unlikely to improve anytime soon, he told American Banker. Unemployment rates are high and employers are not doling out raises, so consumers still have less ability to pay their debts. Several states also are making it harder for debt buyers to sue, which further reduces liquidity.
Joel LeBlanc, a senior receivables management consultant at debt buyer Square Two Financial (formerly Collect America) in Lenexa, Kan., said there appears to be a disconnect between what buyers are offering for delinquent accounts and what creditors believe the portfolios are worth.
With liquidation rates low, buyers are trying to drive down prices even as banks continue to expect more, Morris said. If they do not receive the right price, issuers typically react by placing accounts with agencies instead of selling. With fewer portfolios on the market, prices are naturally driven higher, thus making it harder for buyers to find value.
