OT: Thinking about lending money on prosper.com

[bigboydan]

Anyone have any experience doing this before. If so how did it go for you?

[DrunkenLullaby]

Never used Prosper, but in general during periods of inflation (like we are in and going to be for some time) it's better to be a borrower than a lender - something to keep in mind.

[haste]

I been lending there since last March, I suggest u check http://lendingstats.com before you invest and look at other lender's portfolios. Might save u some money.

[durito]

Read the forums there Dan, lots of people there complaining about losing money. I don't know if it's because they lent to sketchy people or not though it does sort of seem so. I haven't really looked into it very much.

In theory it seems like a great idea and I've been meaning to look into it a little more seriously.

[Justin7]

Nearly all lenders are losing money right now due to the subprime issues. It is scary what this mess is doing to the stock market.

[bigboydan]

I think I'll wait a bit longer until the dollar rebounds then.

Overall though, I'd still like to hear some other peoples past experiences in regards defaults and stuff like that go.

[spliff]

fund a Roth IRA.

[jjgold]

Can I get like 5g's from this site? What do you do?

[bigboydan]

Checkout their site coach:

https://www.prosper.com

This might save you time & money from having to deal with your sharks and bankers.

[JoshW]

Tough market to be in now. You don't want to join all the banks that are not able to collect from borrowers.

[operaman]

The model is flawed at Prosper. The information and credit rating system makes it easy for scamers. Prosper also gives too rosy of a picture on default forcasts leading casual lenders to lend poorly. Too many willing idiots giving money and driving down rates for skilled investors to be able to make good loans. There is a UK based site (the name eludes me at this time.) that is doing it right from the perspective of the investor.

[bigboydan]

Hey operaman, Did you ever think of what the name of that UK site was? If so whats the name of it.

[biggamer3]

Dan check out the RX thread on Prosper it has hundreds of Posts and might help you out

dont want to link it here though but a search there will find it easily

[pico]

great idea. i think i'll give it a try

[pico]

Loan Performance & Collections
Prosper's performance statistics report that as of April 21, 2007, 636 of 6570 active loans over three months in age, or 9.68%, are "1+ months late".[5] Over 400 (over 6%) of these are "three plus" months late, and Prosper's best collection agency has historically cured only a small fraction of those.[6]


As a group, E and HR borrowers have resulted in negative return on investment for loan buyers.[7] Lenders and group leaders who contact late borrowers requesting payment will be banned from the site, as most lack the necessary knowledge of collections law to make appropriate collections contact.[8]


As of November 8, 2007, the median estimated Return On Investment ("ROI") for relatively experienced lenders (all Prosper lenders with >20 loans and an average loan age >6 months) is 4.89% .[9] -- considerably less than what is available from fully liquid FDIC-insured accounts (such as at E-Loan) after taking into account Prosper's servicing fee charged to lenders (1% annual fee on A-HR loans).[10] Of the 5,846 relatively experienced lenders, 1,333 (22.8%) have an estimated ROI <0% (i.e., they can expect to net no interest and actually lose some of their principal), while fewer than half as many (630, or 10.8%) have an expected ROI >10%.[11]

i guess we can't go to those delinquents house and demand payment o.j. style

[Bluehorseshoe]

I have a loan up there for two weeks and nothing is happening. Seems like a waste of time.

[mobilegambler]

Don't do it.

I have been a lender on prosper.com for about a year. The loan performance data is misleading because most of its loans haven't aged sufficiently to go delinquent. The reality is that many, many borrowers will not pay off their loans. My experience there hasn't really enhanced my faith in humanity. Some of my loans stopped paying within 6 months of a 3 year term. That is basically fraud in my view. And the collections efforts are essentially worthless.

[bigboydan]

Some of my loans stopped paying within 6 months of a 3 year term. That is basically fraud in my view. And the collections efforts are essentially worthless.

What were their feedback ratings at the time you made the loans?

[mobilegambler]

What were their feedback ratings at the time you made the loans?

Fair enough - I invested in some C & D credits, but all were homeowners, and, frankly, seemed honest and very genuine about how the loan could help them out.

The funds are automatically deducted from borrowers' checking accounts, so, for a loan to go delinquent, a borrower would actually have to abandon his/her checking account and open a new one somewhere else. Which would be dishonest in my opinion.

So, as I alluded earlier, not exactly the kind of thing to restore one's faith in others' honesty. Fool me once, shame on you...I'm done with prosper.com.

[ira01]

The funds are automatically deducted from borrowers' checking accounts, so, for a loan to go delinquent, a borrower would actually have to abandon his/her checking account and open a new one somewhere else. Which would be dishonest in my opinion.

Actually, this isn't true. Prosper is legally obligated to cease the monthly deductions upon request from the borrower at any time during the loan term. So all a borrower has to do is tell Prosper to stop taking the monthly payments, and that is it.

[ira01]

I have been a lender on Prosper since March 2007, with about $2,400 invested. Although my projected ROI is currently about 8.75%, I stopped lending in October for a variety of reasons all linked to Prosper's management. Basically, the best way to summarize Prosper is that it is a wonderful concept, executed horribly due to the incompetence and arrogance of management.

There are too many serious problems with Prosper to list here, but brief review of www.prospers.org, which is the largest Prosper forums, will provide anyone interested with a long list. Here are a few:

1) The default rate on Prosper is MUCH higher than advertised. Chris Larsen, Prosper's CEO has been quoted in recent news articles saying the default rate is 2.7%. While perhaps technically accurate using Prosper's narrow definition of "default," this is utter balderdash from any real perspective. Prosper only counts a loan as defaulted when it sells it to a junk debt buyer for pennies on the dollar. However, Prosper currently has such sales only quarterly, so it is not uncommon for there to be many loans that are 5, 6, 7, or more months late. Historically, loans almost never come back from being even 3 months late, so all of these loans are defaults in everything but name. Moreover, Prosper calculates its official default rate as the number of defaults divided by the number of loans, but because many loans are too new to have defaulted even if the borrower never made even the first payment (which happens far more often than you might think), this also tends to understate the default rate. So far as can be seen, the real default rate appears likely to be close to 20%.

2) One of the contributing factors to issue #1, is that Prosper's collections are anemic. When a loan turns 1 month late it is turned over to Prosper's collection agency, but historically, only around 15% of loans in collections are brought current. There have been many anecdotal stories by late or defaulted borrowers on Prosper's old forums that they either were never contacted by the collection agency, or the contact consisted of an email or 2 and maybe a phone call or two. Prosper's own newly-hired VP of Collections admitted that the call logs from the collection agency showed that they were repeatedly trying to contact borrowers at the same time of day, such as between 3-5 pm, so if the borrower worked during the day, no contact was made.

3) Very little information about the borrowers is verified by Prosper. Prosper selects a subset of fully-funded listings to verify employment and income, but many listings become loans without such verification. Prosper has already had to repurchase about $400,000 of loans under its ID-theft guarantee, meaning that Prosper let many fraudulent loans through its systems. Indeed, there is one case (identified by a diligent forum member) where one person obtained a dozen loans from Prosper under different identities. After the forum member outed this on the old forum, Prosper repurchased the loans and sued the borrower in Los Angeles Superior Court to get its own money back. However, there is substantial doubt among the lending community that Prosper tries very hard to identify ID-theft loans, because when it does, it has to repurchase them from lenders. There was one case where a different forum member conducted some excellent detective work (the borrower included enough information in the listing to enable their identity to be discovered), including determining that the "borrower" of a Prosper loan was the victim of ID-theft from other creditors, and he actually spoke with the NYPD detective investigating the case. The forum member gave all this information to Prosper, including the name of the detective, and for months Prosper apparently did nothing (the NYPD detective later told the forum member that he had NOT been contacted by Prosper). Only after a major firestorm erupted on the forum about this, did Prosper repurchase the loan from lenders (after it was about 10 months old, as I recall).

3) Although Prosper has funded a number of fraudulent loans, it has also cancelled a number of legitimate loans, apparently through incompetence. One such loan involved the brother of a well-respected Prosper lender and very active forum participant. After claiming that faxed documents were illegible and then that Prosper couldn't open a .pdf file, it cancelled the fully-funded listing with no opportunity for the borrower to resubmit the documents. There have been many other Keystone Kops situations involving Prosper's verification, including one case where Prosper's telephone system apparently couldn't connect to an 888 number (the employer of a borrower), so the loan was cancelled, even though the Prosper employee was able to reach the company on his personal cell phone.

4) Related to issue #3, Prosper's customer service is terrible. Often, they let the phone just ring and ring without answering it. When you send an email, the response is often irrelevant boilerplate. Lenders used to provide a lot of Prosper's customer service for free on their old forums.

5) Prosper's advertising is highly misleading in many ways, if not downright fraudulent. They overstate interest rates in ads directed to lenders, and understate them in ads directed to borrowers. Prosper was caught once apparently having photoshopped a screen shot of an actual listing in an advertisement about the rate (changing the actual rate to something more beneficial). Also, Prosper has repeatedly sent out mass email ads featuring borrower and lender testimonials that were quickly proven to be false. After the first time, Prosper admitted that it hadn't verified the facts claimed by the person, and said it would do so in the future. But whoops, they promptly did it again (in a different testimonial) in the next ad.

6) Prosper used to have a vibrant community on its official forums, with about 400,000 posts. These forums were an amazing learning experience for lenders, so that new lenders could avoid the mistakes of their predecessors. Prosper banned me from the forums and from lending (although I had already publicly announced that I had stopped lending due to Prosper's mismanagement) because I sent a bunch of PM's to new lenders alerting them to the existence of Prosper's own official forums. Then, the day before Thanksgiving, Prosper deleted its entire forum with no notice, in an effort to hide the truth from new lenders. It then replaced the old forums with a super-moderated version that is completely useless (every post must be approved before being posted, which often takes days even when the moderator lets it through, which is rare except for cheerleading posts).

7) When another forum member made an archive of the old forums available on www.prosperreport.com, Prosper had its lawyers send a threatening letter seeking to take the domain away on baseless trademark, unfair competition and cybersquatting grounds. Undoubtedly, Prosper figured this person would cave in and take down the site. Instead, he retained a lawyer from Public Citizen, who responded to Prosper's letter by explaining how Prosper's claims are entirely without merit. Both letters are posted on the site. Prosper has yet to respond.

( 8) Prosper has also misappropriated thousands of dollars of lenders' money by charging its servicing fee on loans that were more than a month late, contrary to Prosper's own legal agreements. This too was discovered by yet another forum member. Prosper admitted that its action was "in error," but only recently returned this money to lenders despite having promised to do so months ago.

(9) Another significant issue is whether Prosper will even survive as a company for the three-year term of its loans. As can be seen on www.Lendingstats.com, loan originations have been essentially flat for the last six months, and Prosper’s CEO has admitted that loan originations need to increase 400%-500% in order for Prosper to turn a profit. Given that, clearly the outlook is troubling. Although the Prosper Lending Agreement specifies that if Prosper goes out of business the loan servicing will be taken over by another servicing company, there is no guarantee that any such company can and will be found, or that the transition will go smoothly, or that the new company won’t require higher fees in order to do the servicing.

The above issues are really just the tip of the iceberg. If anyone is considering lending on Prosper, do your due diligence. Read www.prospers.org, and check out the actual performance of lenders on www.lendingstats.com. For example, you will see that looking at ALL moderately seasoned lenders on Prosper (those with >20 loans and >6 month average loan age), the median projected ROI is around a mere 4.5%. That is close to what E-Loan is offering on its FDIC-insured, 100% liquid savings accounts. And the tax treatment of Prosper loans is also worse (for one thing, you have to pay income tax on the servicing fee that you pay Prosper due to the way it is collected).

Caveat lender!

[Justin7]

Damn, Ira01! You've given me enough good info to scare me the hell away from there.

Welcome to SBR!

[threnody]

From a borrower, who pays their loan, point of view:
I joined Prosper to be a lender but decided to borrow money to pay off my car loan (18%) and credit cards (20%). My credit rating was a C, a past BK, and 0 current delinquencies.

I asked for $6,250. at a starting rate of 19%. My listing was bid down and the final rate was 14.30%. It is now harder to get loans funded.

I am also a small lender as well. I have 3 loans/$50. each. The entertainment value is priceless. For instance, almost everyone at prosper who had the addy prospers.org in their profile was sent a warning letter. This is part of their msg:

"Content published purely for advertising or promotional purposes will be promptly removed, and your account will be suspended. Repeated occurrences may result in termination of your registration with Prosper. This content has been removed."

So, the entertainment value is to see what else prosper can come up with that drives lenders away. The info and entertainment value at prospers.org is priceless also.

[Wrigley]

Id be very careful especially these days

[bigboydan]

I'm glad I decided to back off way back when I originally started this thread, because after reading Ira01's post. It does scare me a bit.

[pico]

it is working out for me so far

[bigboydan]

it is working out for me so far

Is it still working out Ok for you these days Pico?

[bigboydan]

SEC Outlines Its Reasoning For Shutting Down P2P Lender Prosper

by Erick Schonfeld on November 26, 2008

Last month, peer-to-peer lender Prosper stopped all new lending on its site because of scrutiny by the SEC. Prosper agreed to register under the Securities Act, a process which can take months.

Yesterday, the SEC issued its formal cease-and-desist letter (embedded below or download PDF), outlining its reasoning for characterizing Prosper as a seller of investment, something prosper had vigorously resisted in the past by arguing that it was merely a marketplace matching lenders and borrowers. But the SEC is having none of that.

And it is not just Prosper, but all P2P lenders, that are on notice. Loanio, a new entrant into the P2P lending arena that just launched last month, has suspended new loans until it registers with the SEC as well (see notice below). And last April, competitor Lending Club was the first P2P lender to temporarily cease operations (the SEC approved its registration, and its members are now lending again in about half the states, including California which gave it the go-ahead last week).

The SEC letter makes clear why it considers Prosper a seller of securities and why it should be regulated by the SEC:


Thus, the Prosper notes are securities under Reves because: (i) Prosper lenders are motivated by an expected return on their funds; (ii) the Prosper loans are offered to the general public; (iii) a reasonable investor would likely expect that the Prosper loans are investments; and (iv) there is no alternate regulatory scheme that reduces the risks to investors presented by the platform.

Even though Prosper is not lending the money itself, the loans would not exist without Prosper. The letter gets into some more detail:

The notes offered by Prosper are investments. Lenders expect a profit on their investments in the form of interest, which is at a rate generally higher than that available from depository accounts at financial institutions. Prosper’s website has included statements that the Prosper notes provide returns superior to those offered by alternative investments such as equity stocks, CDs and money markets.

Lenders rely on the efforts of Prosper because Prosper’s efforts are instrumental to realizing a return on the lenders’ investments. . . . Prosper established and maintains the website platform, without which none of the loan transactions could be effected. Prosper provides mechanisms for attracting lenders and borrowers, facilitating the exchange of information between borrowers and lenders, coordinating bids, and effecting the loans. It provides borrower information to potential lenders via the loan listings, including credit ratings.

. . . Furthermore, under the terms of the notes, Prosper has the sole right to act as loan servicer of the notes. In this capacity, Prosper collects repayments of loans and interest, contacts delinquent borrowers for repayment, and reports loan payments and delinquencies to credit reporting agencies. Prosper also exclusively manages the process of referring delinquent loans to collection agencies for payment, and selling defaulted loans to debt purchasers. Since the lender does not know the borrower’s identity, the lender would be unable in any event to pursue his or her rights as a noteholder in the event of default.

. . . Rather, the Prosper lenders rely on Prosper’s continued operation of the platform in order to transact and to recoup any gain on their investments.

Obviously, any startup hoping to get into P2P lending should read this letter. But this reasoning probably also applies to other investment sites, such as social stock-picking sites, hoping to turn the information on their sites into investment products.

[Boner_18]

Oh Reves v. Earnst and Young. What a fabulously misguided securities case. Really, what is "family resemblance?"

Until last week I was working for a state securities regulator and one of my assignments was to read the SEC prospectuses for Lending Club and Prosper (and newcomer Loanio).

Although I agree with the SEC's decision here, the Reves ruling is terrible complication of prior Supreme Court decisions on the issue of notes qualified as securities under the Securities Act of 1933.

Just struck a chord w/ my area of study...

[mtneer1212]

BBD,

I am a borrower on Prosper. I have two loans on there, and took the loans because I had a low credit score. My credit score was destroyed in the 90s because I defaulted on some credit cards and was very irresponsible in my youth. I took two loans of about 4K each, and have made 44 of 44 payments on time in an attempt to rebuild my credit. Collectors have bought my CC defaults as junk debt (now 10 years old), and keep trying to dent my credit report, which is illegal, but they do it anyway. Anyway, there are people on there like me, who have utilized Prosper successfully. Now they are done. The ironic thing is that it was the AA-C credit people who had the highest loan amounts and biggest impact when they defaulted.

The good thing about being a lender on there is getting a payment every month, sort of like getting an extra paycheck. But if you have extra cash lying around, your best bet right now would be getting into some mutual funds at this market lowpoint, or draft a private loan to me.