Saturday, May 3, 2008

A good idea over at Fynanz?

I got a little excitement when reviewing the status of one of my bids over at Fynanz. I was looking at the screen with bids and noted that while the rates for most bidders were hidden, the rate for the Fynanz bids were shown. This is the gem of a great idea.

Since Fynanz has the concept of a co-signer, there is the possibility of a slightly nefarious trick that some Group Leaders practiced over at Prosper. The practice is called pump-and-dump, and refers to someone with a vested interest in seeing the loan fund, bidding enough money to fully fund the loan (or sometimes just enough to get it started), but at a very high rate. Other lenders than see a fully funded loan and feel more comfortable bidding on such a loan. Soon the original bidder is bid off and other lenders are left holding the loan.

What Fynanz can do is to reveal the rate that cosigners (and of course Fynanz) bid at, so that lenders can form an opinion on whether the lender sees merit in the loan and has a commitment to staying on the loan even if the rate drops.

I must add that I'm quite enamored of Fynanz. I think the ability to lend to students (and the additional loan scrutiny that Fynanz applies to such loans) are going to make for great loans. I'm eagerly awaiting the onset of a summer rush when students are applying for loans for the Fall semester. Perhaps even a mini-rush to apply for loans to fund Summer classes? That should happen soonish if it is to happen at all.

However, my biggest hurdle to lending at Fynanz is the incredibly long loan terms. Fynanz loans have 5-, 10-, and 20-year terms. I can see my way open to make 5-year loans (which also implies that students have to be near final graduation), but I cannot quite see myself locking funds up in an illiquid 10- or 20-year instrument.

If ever there was a P2P institution that needed a secondary trading market, it is Fynanz. Unfortunately, from what I see from Prosper and LendingClub, a secondary market would entail SEC involvement and that is probably unaffordable for s small operation such as Fynanz.

I sincerely hope they find a way to crack this nut.

No comments: