My thoughts right now are that as soon as a note goes into Grace Period, it's time to start discounting it. I was just giving a mild discount (Principal + Interest rounded down to the nearest dollar). This led to three more notes going late. I am now going to 80% below P + I for any notes that goes into Grace Period. This is based on the recovery rate from the chart below.
I still discount 16 - 30 day late notes 75% and 31 - 120 day late notes 50%. Grace Period, Late 16 - 30 and Late 31 - 120 I drop in price $0.10/day ($0.60/week). It may be that I've been once bitten, twice shy, but I'll find a happy medium as I experiment with discounting.
I'm hoping that it is the end-of-year season that is causing the larger number of Grace Period and Late notes, or at least due to fluctuations in the economy.
What I'd really like to see is someone blogging about their experience in taking discounted E, F and G Grace Period or Late notes and making some nice returns from those. If everyone followed the advice I post, no one would be there to pick up the notes I don't want anymore.