JG Wentworth - is the business model really a gold mine?

[Ocardowin]

So after having the JG Wentworth song stuck in my head all day, I actually started thinking about what they do.

And it is, to someone who is very unsophisticated in finance, quite brilliant.

The way I'm assuming it works is:

- Someone has a structured settlement for, say, $1,000,000 over 20 years (yearly payments of $50,000).

- The present value of that structured settlement at a 6% interest rate is approximately $575,000 (round up to $600,000 for the sake of easiness).

- JG wentworth says "we'll give you a lump sum of $300,000 in exchange for your claim and structured settlement."

They then turn around and settle the claim with the payor for 80% of the value of the present value of the SS ($480,000).

Voila: $180,000 profit in what probably is a very short time of work. This $180,000 can easily turn into quite a bit more. Take that money and buy someones 20 year structured settlement worth $400,000 (20 yearly payments of $20,000) for $100,000 (just under 50% of PV of $229,000), settle it for $183,000 (80% of PV)...so on and so forth.

My question: is it really that easy? I feel like there has to be some elephant in the room. Otherwise, this seems like a gold mine.

As I mentioned before, I'm very dumb when it comes to the mechanics and logics and laws of finance, so I'm hoping someone can explain it to me. What am I missing?

Thanks guys

[Seeker]

So after having the JG Wentworth song stuck in my head all day, I actually started thinking about what they do.

And it is, to someone who is very unsophisticated in finance, quite brilliant.

The way I'm assuming it works is:

- Someone has a structured settlement for, say, $1,000,000 over 20 years (yearly payments of $50,000).

- The present value of that structured settlement at a 6% interest rate is approximately $575,000 (round up to $600,000 for the sake of easiness).

- JG wentworth says "we'll give you a lump sum of $300,000 in exchange for your claim and structured settlement."

They then turn around and settle the claim with the payor for 80% of the value of the present value of the SS ($480,000).

Voila: $180,000 profit in what probably is a very short time of work. This $180,000 can easily turn into quite a bit more. Take that money and buy someones 20 year structured settlement worth $400,000 (20 yearly payments of $20,000) for $100,000 (just under 50% of PV of $229,000), settle it for $183,000 (80% of PV)...so on and so forth.

My question: is it really that easy? I feel like there has to be some elephant in the room. Otherwise, this seems like a gold mine.

As I mentioned before, I'm very dumb when it comes to the mechanics and logics and laws of finance, so I'm hoping someone can explain it to me. What am I missing?

Thanks guys

Probably not quite that easy. I for one, would be quite pleased to get 50k every year for the next 20 years. I know people do go for the lump sum, but (I should look up stats) i think more people wouldn't give up 14 years worth of payments for what represents a 6 year lump. At least the people who are wise about it.

[rescuecapital]

not as easy as you think

When someone sells their structured settlement to a factoring company they need to get court approval and the transaction must be in the seller's best interest.

The pricing called discounting is based upon the future value of money. IE how much are those payments worth in the future. Also there are fees from the annuity companies that need to be paid.

Some companies that advertise extensively on TV have a larger overhead and tend to charge higher rates. While other companies tend to be more competitive with their pricing. It is a highly competitive market and not every transaction gets approved. Not to mention many people call who do not have any illiquid asset to sell like an annuity, structured settlement or lottery payments etc. The people who tend to sell their payments do so to avoid foreclosure, pay off debt etc. They wouldn't be able to get a loan and depending upon the interest rate, the discount rate could be less. Also they don't have to sell all of their payments. They can sell just a portion.