Archive for September, 2008

As you may have read, Citigroup recently agreed to purchase Wachovia’s banking operations for about $2.1 billion in a deal brokered by federal regulators. Wachovia’s troubles are similar to those of Washington Mutual, whose assets were seized by the Federal Deposit Insurance Corporation last week and sold to JPMorgan Chase. Wachovia sold thousands of adjustable rate mortgages that offered low introductory and deferred interest payments. The delinquencies and defaults on these types of mortgages have been increasing, resulting in huge losses for banks.

Wachovia is the latest casualty in the banking industry. The Citigroup acquisition will now reduce the number of major national banks, leaving only Citicorp, Bank of America, JPMorgan Chase, and Wells Fargo.

Financial institutions have tightened credit guidelines and restricted credit to the regular guy so severely that it’s all but impossible to get a personal loan in many states. What are regular people like you and me to do? It’s frightening. Most of us are fortunate enough to still have a job and a home, and are able to go to a restaurant or sporting event once in a while. But you may know of someone who has recently fallen on harder times, even though they have a good credit history. Where can they go for relief?

They can come to Prosper. Why not tell someone you know about Prosper – help your neighbor out. Perhaps they have not heard of person-to person lending. What’s more, if someone you refer gets a loan successfully through Prosper and makes their first payment, you can even get a $50 reward.

And why not tell your friends about helping others out through Prosper – suggest they become a lender.  It can be a rewarding experience.

Saving as much you can is important, but it is equally important to reach out to help others in need.

Welcome to this latest edition of Prosper’s Weekly Roundup. The title for this week’s roundup comes from a Forbes headline. There’s a lot going on in the news! Be sure to check out the Stocks and Banking Industry section for more information.

Peer-to-Peer Lending:
• TNL.net presents fast pace look into the History of Currency. P2P Lending is thought to be the ‘uncurrency’ for the lack of a better word.
• Sredel.com muses on P2P Lending - Counter to the Sub-Prime Loan Crisis?
• Peer to Peer Lending and P2P Loans writes Peer to Peer Campaign Finance.

Home and Auto:
• Real Estate Lens discusses VA Loans in VA Home Improvement Loan.
• Business Week Debates the Mortgage Bailout.
• Market Watch presents Best used-car bang for your buck!

Stocks and the Banking Industry:
• Wealth Weekly writes Financial Markets- Just What Went Down Last Week.
• Forbes on Bottom-Feeding Billionaires.
• Seeking Alpha discusses EarthLink options in Making the Best of a Difficult Situation.
• Fix My Personal Finances blogs Chicken Little and the Money Market.
• Yahoo Finance on Largest U.S. bank failure ever.
• Smart Money writes about the bailout in One Baby Step at a Time.
• New York Times with Bailout Talks to Resume After Impasse.

Student Loans:
• Freedom Rocks talks about Federal Student Loans.
• FiLife says Have a Student Loan Question? We Have Answers!
• There are Many Different Kinds Of Student Loans! School Work ugh! goes into a few of them.
• Student Loan Online presents Student Loans Terminology.

Business:
• Blogging Stocks interviews Thomas O’Keefe owner of Bizak in so what are startups worth now?

Taxes and Politics:
• The Wall Street Journal gives a break down on how our taxes will fare under Obama, McCain.
• The Tax Lady Blog provides the Latest from the Candidates on 10 Important Economic Issues.

Prosper Gets Mentioned:
• Regina Lewis talks about P2P lending in Got Cash?
• Banktastics posts a video with a brief write up of market and p2p lending at The Burst - Discrimination & Wall Street (Ep. 34).
• Komo News in Two Quick Ways to Get Hard Cash.
• Small Biz Bee writes So You Need Some Money?

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.

Last night we released another update to the Prosper site. The most significant change is the way that severely delinquent loans (charge-offs) are now reflected in lender’s accounts. You may also notice a few other small changes that we hope you will appreciate, as I will detail below.

Loans designated as “Charged-offs” after 4 months late

As described in a blog post last week, we have changed the way we report severely delinquent loans from “Defaulted” and “4+ months late” to “Charge-offs”.

As of today, borrowers whose loans are 91 or more days past due (DPD) will receive a “Notice of Acceleration”. The Notice of Acceleration is a warning that their loan will be accelerated in 30 days, meaning the loan will be due and payable in full. If the borrower doesn’t make a payment by the 30 day deadline, his or her loan will then be charged-off at 121 days past due.

This change may not be effective immediately for all severely delinquent loans. In order to roll out this change, for the next 30 days, loans that are 4+ months late that have not already been sold to a debt buyer will continue to be displayed as “4+ months late”. After approximately 30 days, severely delinquent loans will show as a “Charge-off” instead of “4+ months late”. The “4+ months late” status will then be used only in rare circumstances.

When a loan is charged-off, the following things happen:
• To the borrower, the balance is accelerated, meaning it is payable (and collectible) in full.
• To the lender, the outstanding balance of the loan (principal + accrued interest + accrued fees) is frozen into a “Charge-off balance”.
• The loan is taken out of pre-charge-off collections, and transferred to a post-charge-off collection agency.

Once in charge-off:
• The loan cannot return to “Current”. It will remain a “Charge-off”, even if the borrower pays the full balance of the loan.
• Payments made by the borrower are considered “recoveries”, and are applied to pay down the loan’s balance.

Learn more about charge-offs.

AA loan closing fees changed to 2%

The borrower loan closing fee for AA borrowers has changed from 1% to 2%. Listings created on or after September 24, 2008 will be subject to this new closing fee. Learn more about fees and charges.

Minimum loan closing fee changed to $75
The minimum loan closing fee for all borrowers has changed from $25 to $75. Listings created on or after September 24, 2008 will be subject to this new minimum closing fee. Learn more about fees and charges.

We hope you find these changes helpful, and look forward to your feedback. If you have any requests for the next release, please leave a comment.

Prosper updates the portfolio plan templates regularly in order to reflect changing risk and interest rate conditions in the marketplace.  It is important that you update your portfolio plans, as these updates include changes to bidding rates based on the most recent loss rate projections.

If plans are not updated regularly, there is a good chance your bid rates will not reflect the current market conditions.  For example, if loss rates have deteriorated, you could be bidding too low, in which case your expected returns may not be high enough for the level of risk you are taking. Conversely, if losses have improved, your bid rates may be too high and you may be getting outbid.

If you used a Prosper template to set up your plans, you must approve updates to each of the plans. If you set up a plan from scratch, you should review the plan and make sure it is still giving you the listings and returns you would like.

Review and update your portfolio plans

Our global financial system is in the grips of a full blown crash – clearly now the worst since the Great Depression. Just when we think things are stabilizing, a new shock dwarfs all that came before. It’s safe now to say that the old normal will likely never return. This wasn’t caused by just greed; this was a fundamentally flawed system that turned out to be incredibly fragile.

Where will it end and what will emerge when the crisis finally lifts? I believe we will have a much simpler system that will necessarily be a much smaller part of what society thinks about. Banking will take back its role from Wall Street allowing it to focus on its core mission once again. Borrowers and lenders will become much closer. Lending will be thought of as lending not investing. And the middlemen who made credit decisions but took no credit risk will be gone. Without competition from Wall Street, banks will get much stronger.

So what role will Prosper and P2P lending play? Plenty. With Wall Street’s moral hazard lending out of the equation, both banks and ordinary people will reap more rewarding opportunities to lend.

Banks will become much more cautious – as the lessons of the 2008 crash will cause them and their regulators to put a premium on classic conservative underwriting. There will be more pressure on banks to do well, less on “doing good”. Bank lending will be restrictive and uninteresting. Deposit rates will also drop as banks find less competition from aggressive newcomers.

People will use P2P lending to bridge many of the gaps in the new lending and deposit landscape and to provide competitive pressure to newly powerful banks. People’s sense of “doing well by doing good” will become more important than ever to ensure that tomorrow’s entrepreneurs, students, and homeowners aren’t paying the price for today’s market calamity.