Archive for September, 2008

Welcome to a new edition of the Prosper roundup. There are many stories this week to relate. The first section of this roundup is on the stock exchange and the banking industry. If you have had your head in the sand use these links as a way to dive headfirst into what’s going on in the economy. Also, before you get to the weekend reading links we would like to remind our Pennsylvania readers about this important notice.

Stocks and the Banking Industry:

• Forbes looks at the late-session turn around stocks surge on report of entity for bad debt.
• Wall Street Journal takes a look at the market in stocks soar; banks lead the way.
• Learn how U.S. stocks rally on hopes for a fix from Fed by Market Watch.
• New York Times posts this article on money market funds enter a world of risk. The first part of the article is in relation to the Primary Fund with the disappearance of the Lehman Brothers and Merrill Lynch.
• Business Week also writes on the fluctuating market in stocks soar on regulatory hopes.

Personal Loans:

• The Atlantic.com takes a look at pay day loans in just say no to usury laws.
• Internet-3 asks can you get a collateral loan with bad credit?

Home and Auto Loans:

• Used Auto Financing blogs how to get pre-qualified for an online auto financing loan.
• Market Watch takes a look into how to get a U.S. mortgage without a U.S. credit record.

Small Business Entrepreneur:

• Business About Business writes three ways on how to finance new business equipment.
• Looking for business loan alternatives? Check out this article from the Loan Reference.
• Improving You World offers a few ways on how to get funding for a home business. How did you fund your business?
• Gaebler.com writes tribute for America’s Small Business Development Centers in entrepreneurs: starting and growing a business.
• What are the 6 traits of top leaders? Women Entrepreneur answers in this article.

Prosper Gets Mentioned:

• RateLadder expresses opinion on the PA Lender announcement: Pennsylvania Citizens Are Children in Need of Supervision.
• Mortgage News Daily looks at peer-to-peer lending as a prototype for the future of mortgage lending.
• Personal loans by KGBT4 News looks at peer-to-peer lending as a way to save money on interest.
• WJACTV News looks at online lenders as a way to get cash fast.
• First Coast News looks at Prosper in peer to peer lending.
• Web lenders see opportunity in banks’ woes by Barron’s Electronic Investor is about other ways to get loans.

Photo Credits: 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.

We have completed the programming and testing on the routine to apply collection account refunds to lenders impacted by the change of accounts from PennCro to AmSher. We are planning to do the initial run of the program on September 22, 2008.  The refunds will include interest on the overage. The logic was developed in such a way that subsequent runs can be run periodically.

As we were going through this process, we identified some issues regarding how Prosper updates collection statuses and calculates the commission due and owing to the collection agency. A manual audit of the data was performed to clean up known errors to ensure the refund routine runs correctly. 

Unfortunately,  the collection status issues have resulted in incorrect data being displayed in the “Collections Statistics” data displayed on the Prosper site. We are working on correcting the problem, but until we are certain that the display of collections statistics is accurate, we have chosen to temporarily stop displaying this data.

In conjunction with this, we have also identified a small population of accounts on which a collection agency commission was inappropriately charged. We are working through this issue and will refund any incorrectly billed agency fees (with interest) at the completion of the process. 

We appreciate your patience as we correct these issues.

Ever since we changed the marketplace performance page from listing old loans as “Defaulted” to calling them “Charge-offs”, and then promising more changes inside lender accounts, we’ve had a lot of questions. Let me try to explain why we’re making this change, how it will look if you’re a lender, and what you can expect going forward.

Performance page changes
In mid-August, we changed the way we displayed seriously delinquent loans on the marketplace performance page, renaming “Defaults” as “Charge-offs”, and moving the “4+ months late” loans into the “Charge-offs” category. Our goal was further transparency in reporting our marketplace’s default rate, and I believe we achieved such transparency.

In our next site update, we’ll be adding even more data to the performance page, separately listing principal payments made before a loan is in Charge-off (4 months late) as “Pre-charge-off payments”, and displaying the total amount collected after a loan is in Charge-off as “Recoveries”.

What does charge-off mean?
In general, a debt or account is considered “charged off” when it is unlikely that further payments will be received. Debts are usually charged off after they remain unpaid for a period of time (e.g., 90 to 180 days). Prosper uses the 120 days as the charge off threshold because loans that become over 120 days past due are eligible for sale to a debt buyer, and we have found that there is a steep drop-off in likelihood of further payments after 120 days of delinquency.

You can think of the new “Charge-off” status as a combination of “4+ months late” and “Defaulted”. A loan is designated as charged-off when it reaches 121 days past due.

The implications of a loan being designated as charged-off are the following:
• The loan’s entire balance (principal, interest and accrued fees) is immediately due and payable in full as of the charge-off date.
• As soon as a loan is charged-off, it remains in collections until final disposition of the loan. Possible dispositions include payment in full, sale to debt buyer, or if the loan is discharged in bankruptcy.
• Although the status of all loans 121+ days past due will be “Charge-off”, you will be able to distinguish the various collection, bankruptcy, and sale “sub-statuses” of charge-offs as they will be visible on the loan detail page.
• Once in charge-off, loans cannot be brought out of charge-off. Payments made by the borrower post-charge-off are considered “recoveries”, and are applied to pay down the loan’s balance, but the loan stays charged-off.

When a loan goes to charge-off, the loan’s balance (principal + accrued interest + accrued fees) will be frozen into a “Charge-off balance” for lenders.

As mentioned above, post-charge-off payments (i.e., recoveries) pay down the lenders’ charge-off balance. From the borrower’s side, however, interest continues to accrue, so there is a possibility (however small) that if a borrower pays off a charged-off loan in full, a lender could receive more than the charge-off balance indicated.

Lender account changes
Inside your lender account you’ll find that loans previously marked as “4+ months late” bucket will now be included in a bucket called “Charge-offs”. You’ll also now be able to see the total number of loans paid in full. A rough approximation of what my lender account will look like once these changes have taken effect is shown at right.

Charge-offs will also be included in the “Net defaults” (now called “Net charge-offs”) total of the lender performance table. If any recoveries are collected, your net charge-off total will go down accordingly.

How are recoveries handled?
A recovery is just a different name for a payment made on a charged-off loan. Post-charge-off recoveries received on accounts that are with a collection agency are subject to collection fees.

In addition to the “Payment history” table, each charged-off loan will have a separate table for the “Recovery history” of the loan. This table will detail the date, amount, and any related fees for any amounts collected after the loan has been charged off.

I look forward to your feedback and further questions.

We have made the decision to discontinue accepting new lender registrations, and new bids from existing lenders, from residents of the Commonwealth of Pennsylvania. Our decision to make this change was based on our ongoing discussions with regulators in Pennsylvania, which led us to believe the change was necessary to comply with their current interpretation of their state regulations.

We have notified existing lenders residing in Pennsylvania of this change via email. Existing lenders residing in Pennsylvania will continue with their existing lender agreements, have their existing loans serviced, and be able to transfer funds out of their Prosper account. However, they will not be able to place new bids on listings or transfer money into their Prosper accounts.

This change does not affect borrowers residing in Pennsylvania, who remain free to create loan listings on Prosper.

We apologize for any inconvenience this change may have caused. We will continue to keep lenders who are directly impacted as well as the broader Prosper community posted on any future developments related to this matter. We hope to make Prosper available to lenders in Pennsylvania again soon.

Prosper roundup gets switched around! Easy to read categories are going to be our new way of organizing the roundup.

Categories may change from week to week, but overall the feel of the roundup will be the same.

Business Loans:
• SFGate posts an article this last Sunday on how right now it’s a hard time to get new credit. Article discusses housing loans in depth and briefly touches business and personal.
• Commercial Loans Source lists types of commercial loans and provides a succinct overview for beginners.

Mortgage Loans:
• Business Week says subprime mortgages–good luck getting one!
• The Consumerist blogs 12 confessions of a home mortgage collector is an article containing insider knowledge of the system and could help you out.

Student Loans:
• TheState.com writes this article, student loan availability squeezed, which explains how the nationwide credit crunch is affecting higher education.
• Continuing this point of view is Guampdn.com in student loan options shrinking and offers some excellent advice for those worried about paying this semester’s tuition.
• Check out 25 tips, ideas, resources for paying back student loans at Broke College Grad is a consolidated collection of blog articles for paying student loans in a variety of ways.

Small Business Entrepreneur:
• Tips for small business startup by Wealth, Success, and Women is a nice little starter post. What tips would you add?
• These 7 lies that prevent Your Great Idea from becoming a Real Business by Internet Redux might sound like commonsense, but in reality more people than you know believe in them and never try.

P2P Lending:
• Money Crashers writes a scathing review in Richard Branson Makes It Easier To Borrow Money From Your Family. What are your thoughts on loaning money to friends and family?

Prosper Gets Mentioned:
• The Wall Street Journal Small Business Site lists Prosper in Four Sources of Alternative Funds
• At the Active Rain real estate blog Prosper Marketplace is written as an example of alternative funding a down payment for a mortgage extension.
• At Site Point in 5 ways to fund your web startup for online business funding.
• NBC Action News aired a segment on Peer-to-Peer Lending
• KGBT4 features Prosper in their Show Me the Money Segment: Personal Loans
• Barron’s article feature Web Lenders See Opportunity in Bank’s Woes
• More Prime Borrowers at Prosper Site in American banker (subscription required)

Photo Credits: 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.