The pricing on fresh, charged-off portfolios has been steadily rising for the about the last year and a half. This was to be expected as the economy began to slowly improve.
In 2009 charge-off rates as a percentage were the highest they have ever been due to the recession and high unemployment rates. Therefore, inventory was the largest it had ever been so based on the law of supply and demand prices were the lowest they had ever been.
Now this is beginning to change as banks have starting restricting to whom they will lend money. As a result, charge-off volume as a percentage has slowed down resulting in lower inventory (supply) available for purchase making the market more efficient and thus leading to increasing pricing.
So, with pricing moving from the lows of 4.5 cents in 2009 to approaching 7.5 cents today is not surprising at all, it’s expected. Normal pricing over the last 10 years has been about 10 cents on the dollar.
Remember, any portfolio we purchase is reviewed and evaluated for its estimated collectability. The bid submitted will not be greater than 1/3 of the total estimated cash recovery. This allows a margin large enough to cover the acquisition cost, financing cost, collection cost, reserve contingency and a large profit.