Archive for August, 2008

Keep your eye on the horizon looks like another storm or two is brewing. Be prepared and stay safe as hurricanes are blowing. Well they’re not listed at hurricanes right now, they’re still tropical storms, but damage can still be severe. Check weather updates at www.weather.com.

It’s August and that means going to school. Brip Blap writes three college student finance tips for choosing a college and a major.

Ever feel like Digerati Life and think I want to work smarter, not harder?

Make money on eBay – can you actually do it? Lazy Man and Money looks at one possible scenario.

The Sun’s Financial Diary writes FDIC Problem Banks List Grew to 117 Last Quarter.

CNN Money following on the heels of SFD discusses what the ‘problem bank’ list doesn’t say.

When it comes to taxes Generation X Finance asks who pays more, the rich or the poor?

Money Smart Life has some great tips on how to save money on your honeymoon and still have a blast.

Photo Credit:  1

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RateLadder is a Prosper lender and has been since July, 2006. He has a passion for p2p lending. He owns RateLadder — My Prosper.com Journey and other P2P Lending Adventures, P2P No Bank the P2P Blog Aggregate, and ProProsper — Professional Tools for Prosper Lenders featuring SQL access to Prosper data.

My job at Prosper is to show lenders how to use Prosper and its various bidding tools. I speak with dozens of new lenders at Prosper every day. I often share the learnings of successful lenders, as well as the teachings of the marketplace results.

One of the most critical messages I try to share with lenders is to slow down and bid methodically rather than try and pump out 25 manual bids in a single day. Diversification is usually the next topic that I discuss with lenders. Not simply bidding in small increments, which is important, but also diversifying across credit grades and especially loan amounts.

Some users naturally don’t have the time to spend bidding slowly across many listings, in which case I show them how they can create a Portfolio Plan or employ a combination of manual bidding and portfolio plans simultaneously.

While I understand that the idea of Prosper is really exciting, and combined with the prospect of great returns it can be tempting for lenders to deploy their cash as quickly as they can bid it out. However, bidding and being a successful lender on Prosper is more often a marathon and not a sprint. Furthermore, as a new asset class it deserves some time to be researched and understood. Undoubtedly, we’ve all bid on some listings early on that we look back on and say “if I knew then what I know now, I would have never bid on that listing”.

Get comfortable reading the Credit Profile of every borrower you’re considering bidding on. If you’re wondering why a borrower has 8 inquiries in the last six months use the Q&A feature to ask the borrower. In fact, I personally ask ALL borrowers at least one question before I’ll place a bid on their listing. This is an excellent way to get clarification, additional information not in the listing and to gauge the responsiveness of the borrower.

We have a wealth of information available in the Help section under the Lending topic.

And you can always call or email us questions. We’re here to help you.

Kiplinger’s recently published an article about Prosper entitled “Risks and Rewards of Online Lending.” The article addresses the expectations Lenders should have with regard to interest rates.

“Lend to a borrower with bad credit and you can expect a higher interest rate. A borrower with a better credit history will get you a lower rate”

Generally speaking, the lower the borrower’s credit grade, the higher the risk and the more volatility you should expect.

In order to earn a risk-adjusted return, you should account for risk when setting your bid amount. For example, credit grade D borrowers generally have higher expected losses than credit grade AA borrowers. This means you should expect a higher level of return on a D listing than on an AA listing to compensate for the higher level of risk you are taking.

A number of members were interviewed for the article, one being Alex Clemens, President of Barbary Coast Consulting.

In the case of Alex Clemens, a lender on Prosper, his average interest rate on his loans is around 13% and he estimates he is getting an annual return of around 8%.

We talked with Alex today about his estimated return and I quote:

“When the reporter and I chatted, she asked me what my expected return was. This spurred a conversation about the potential for What Happens When Borrowers Do Funny Things, and after talking for a while, I told her two things – my average interest rate on my loans was somewhere around thirteen percent, and my expectation was that after late loans and defaults were factored in and all was said and done, I was hoping to gain an annual return of about eight percent on my Prosper loans.”

I clearly confused the reporter by talking about the two different rates. But now, with the article in print, I figure that there’s a real risk that some people might (a) call me out as a self-important fraud for claiming a much higher return than is realistic, or (b) encourage me to start an investment firm and give me their life savings to achieve a thirteen percent return. And while (b) would be kind of fun in the short term, I’d kind of like to avoid both outcomes, as I have a day job.

In order to assist Prosper lenders understand how loans with certain characteristics can be expected to contribute to their portfolio return, Prosper has an estimated return tool. The estimated return tool allows lenders to see a projection of credit losses and returns based on the actual performance of the loans to date. The tool is designed to help lenders understand the risk and return characteristics of loans that are similar to listings for which they are considering placing a bid.

There are four components in the average annual return – average balance, net interest yield, net charge-offs, and servicing fees.

As Alex points out:

“Everyone’s Prosper experience is slightly different from everyone else’s. We all understand the risks and rewards of participating in this small-d democratic form of participatory, community-based lending. Some do it more for the social aspect, and some more for the financial upside.”

Let’s start with some housekeeping issues. First of all, the refunds of AmSher collection fees should be processed in the next few days. We have calculated the refund amounts on all payments through the end of July. Once the program is written and tested is should be an easy matter to run it for each month’s affected payments.

Secondly, many of you will have noticed that some of the issues with the “Collections Statistics” page have been corrected (most noticeably the fact that the last 3 months and lifetime were displaying the same numbers). There is still a problem with how the agency interface updates the statistics table. The good news is that the logic that handles the actual placement and recall is functioning correctly, the problem is strictly in how the status is being updated on the web site. We are currently doing an “account by account” reconciliation and should have all statistics corrected by month end. In conjunction with this effort we are working on a major rewrite of the agency interface. Once completed, this new interface will not only provide additional visibility such “collections exceptions” as having received notice to “cease and desist” or of attorney representation, but should also allow daily files to be sent back and forth with the agencies—currently updates are done on a twice a week basis.

On the legal test, we have filed for “Default Judgment” on the first 20 cases. An additional batch of defaults will be going out next week. The law firm is continuing to work on obtaining “service of process” on the remaining cases. In terms of fallout, we have had 7 accounts file for bankruptcy, two of the accounts have moved out of state, one is deceased and two suits have been contested.

Finally in looking at AmSher’s performance, I remain very pleased with their efforts. One of the key metrics that I look at is what portion of accounts placed with them do they obtain a “right party connect” (meaning that they actually spoke to the debtor) within the first six weeks of placement. AmSher is successfully contacting more than 40% of the debtors. This is extremely good. July was the first month in which dollars collected per account decreased. During my July trip, I reviewed the results across all of AmSher’s portfolios, the decline is happening across the board. This is clearly the sign of a deteriorating economy.

When AmSher gets a debtor on the phone, they first attempt to secure payment for the total delinquent amount due. If the debtor cannot make that large of a payment, they then attempt to secure a payment equal to the monthly amount—to prevent the account from aging another month. During my July visit, I instructed AmSher to fall back to attempting to secure a payment equal to half of the monthly amount—this will at least retard the rate of roll.

On my next trip, we will evaluate the effectiveness of this approach.

Gymnastics gold, silver, and the fabulous one two of Nastia Luikin and Shawn Johnson inspire this week’s roundup.

To start off CNN Money writes 17 ways to raise fast cash; of course there is a catch. This is a list of the 17 worst ways to raise the money even though each item does include a pro except number 17. Borrowing from mom and dad is the only one without a hard con.

Eat out like you used to and still save money at restaurants. Lazy Man and Money shows you how with these ten tips.

Rich Credit Debt Loan writes this week on what you need to know before buying a foreclosed property.

Would you prefer a four day work week? Cash Money Life explores the pros and cons of this new schedule. What say you?

Generation X Finance posts two-thirds of corporations don’t pay taxes - nothing more than political hogwash . The post goes into depth explaining business operations and taxes associated with companies.

Digerati Life looks into the best company to work for: money and perks like no other. Can you guess the name of this company? Hint: You access this company everyday.

Brip Blap blogs on the truth about passive income—it’s more humorous than anything else.

My Dollar Plan goes over 7 Sneaky Ways Your Health Insurance Can Save You Money.

Photo Credits: 1

RateLadder is a Prosper lender and has been since July, 2006. He has a passion for p2p lending. He owns RateLadder — My Prosper.com Journey and other P2P Lending Adventures, P2P No Bank the P2P Blog Aggregate, and ProProsper — Professional Tools for Prosper Lenders featuring SQL access to Prosper data.