Money Walks

Couldn't Help Myself

2008-08-29T18:50:00.002-05:00

Old-timer Prosper.com members may remember John Witchel (former CTO) blogging briefly (or is that briefly blogging?) at prospers.org. The melt-down started when he used an analogy of couches ina bus station. Things never were the same after that.

Today I saw this image and I immediately thought of John's analogy.

The Arrow And The Song

2008-08-29T14:15:00.003-05:00

I shot an arrow into the air,
It fell to earth,
I knew not where;
For so swiftly it flew, the sight
Could not follow it in its flight.

I breathed a song into the air,
It fell to earth,
I knew not where;
For, who has sight so keen and strong
That it can follow the flight of song?

Long, long afterward, in an oak
I found the arrow, still unbroken;
And the song, from beginning to end,
I found again in the heart of a friend.

- Henry Wadsworth Longfellow

Philosophic

2008-08-26T18:20:00.002-05:00

"When every page has been read and the book put down, is the story over?"
-Larry Niven

Blog status

2008-05-06T11:25:00.011-05:00

For a period of introspection.

I apologize for the interruption of regular programming and the removal of numerous posts. I have to ask myself if those posts were achieving what I intended them to achieve.

A good idea over at Fynanz?

2008-05-03T16:34:00.004-05:00

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.

Spoof

2008-05-02T11:54:00.003-05:00

In this spoof ad from Lenovo, the Macbook Air gets its comeuppance. I should have posted this a week or so ago when I first came across it, but I forgot. Have fun!

What goes around, comes around

2008-05-02T11:35:00.002-05:00

Remember the old adage? Remember Lifelock? The company whose CEO spread his social security number far and wide on the Internet and in radio and TV adverts to prove how efficient his company's identity theft protection is?

Well, read more about him at TechDirt.

Lendingclub replied!

2008-05-02T10:37:00.002-05:00

Last night (or actuallt very early this morning) I blogged about the bureaucratic delays at getting a question regarding the whereabouts of my promissory notes answered at LendingClub.

"Anonymous" posted the following comment:

I've requested that someone higher up than support contact you ASAP. This will also help me figure out where their loyalties lie with me as well. Let me know if you hear from him/her today (via post of new entry on blog of course).

-F

Dear -F, I'm delighted to tell you that at about 8 AM this morning, "Rob" at LendingClub sent me the following email:

Sorry for the delay on your inquiry.

Please log into your Lending Club account, and from My Account summary page, click on the "all loans" view. There should be 2 links on each line:
Loan title link should take you to the loan's original listing
Loan ID link should open up a promissory note
Let me know if this does not work

Best regards

So there you are. My question is answered, -F clearly has pull in LendingClub, I found my promissory notes (I'm in the process of preserving them to PDF), and best of all, I'm still happy with my LendingClub IRR.

Thank you to all.

One for the conspiracy theorists among us

2008-05-02T03:33:00.002-05:00

‘D.C. Madam’ Is Found Dead, Apparently in a Suicide.
Don't tell me there aren't a few (powerful) men breathing a little easier tonight. Any theories on whether her "little black book" has been found?

Subliminal message from LendingClub

2008-05-02T00:49:00.003-05:00

Readers may recall that on April 23rd I asked LendingClub if they could produce the promissory notes on the loans I bought on their site. Some time went by before they answered that they would open a support case. Well, I sent them a follow-up note and about 24 hours later I got a reply - the same reply as the initial reply indicating that a proper response would be forthcoming in 24 business hours. Not only did the boilerplate response take 24 hours, I noticed something interesting in the contents. See if you can spot the incongruity:

In case you don't get it, let me spell it out. They're sending email with a sender and reply-to address of support@lendingclub.com, but then warns you that incoming email to that address cannot be accepted - you should send your email to - wait for it - support@lendingclub.com. Duh!

Catch-22 at its finest.

And in the interim I'm still waiting to find out where my promissory notes are. It can't be that hard to tell me, so I must assume that either they've cut back on their support staff to the point that support doesn't exist or that they are unable to produce my promissory notes, which is somewhat disturbing.

What happens when you mix Mentos and Coke?

2008-04-29T22:23:00.001-05:00

If you don't know (like, for instance you just arrived on this planet), see this video:

My LendingClub IRR

2008-04-28T07:38:00.003-05:00

After I calculated my Prosper IRR, I was curious about how I'm doing in the other major lending site I'm invested in. I just spent 5 minutes calculating my LendingClub IRR. It's considerably simpler than Prosper, since I've only transferred in $500 and made only a few outbound transfers. Additionally, I've not had to do any adjustments for late loans or defaults.

Amazingly, my LendingClub IRR is a whopping 17.83%.

Roundup of P2P lending worldwide

2008-04-27T18:55:00.002-05:00

Checking my visitor logs today, a lone entry piqued my interest. Great was my surprise when I followed it back to it's origin and found lenen.start.be, Clearly just a launchpad, it has a great number of links to lending sites worldwide - the biggest collection I've ever come across. Good place to bookmark for research into P2P lending.

Trademark Infringement Lawsuit

2008-04-27T15:37:00.002-05:00

I know the good folks at Prospers.org relish a good trademark infringement lawsuit by large companies against individuals. So I guess they'll love to support the artist Nadia Plesner in her copyright/trademark infringement lawsuit against Louis Vuitton and at the same time strike a blow against genocide in Darfur.

At issue is whether the handbag in this sketch infringes on the trademark pattern of a Louis Vuitton "multicolore" handbag as depicted here.

You can read the entire story over at Nadia Plesner's website or over at TechDirt.

While you're over there, read the interesting article about Beer, Blogs, and Bias.

Bill Gates is looking for a job - any openings at Prosper?

2008-04-27T07:43:00.004-05:00

OK, so it's old news that Bill Gates has stepped down at Microsoft. I just found this video mildly appealing.

Let me stuff this post by adding this video of a man on a mission - even if the "mission" is to change his legal name to "Microsoft Zune". The logical next step, since he already sports several Zune tattoos all over his rather ample body.

Powerpoint Best Practices

2008-04-27T07:18:00.002-05:00

I know, I shouldn't have been so hyper-critical of Loanchimp's presentation at the Prosper Days 2008 High ROI panel. Truth be told, if LC didn't make his presentation, the session would have been a waste. And it is only because I hung out at the old Prosper.com forums (now preserved at Prosper Reports) and Prospers.org that I knew most of what he had to say.

Anyhow, here is a great Hubspot article on best presentation (I'd say Powerpoint, but Steve Jobs use Keynote) practices. Note that our beloved chimpster scores high on the best practices list. Few words, compelling images (if you're a chimp, that is). ;)

Angry Renters

2008-04-27T06:49:00.003-05:00

You might recall that some time back I mentioned that Jason Kolb is upset (as am I). It had to do with Congress using taxpayers' money to bail out financial institutions and individuals that were ensnared in the mortgage crisis.

Well, we're not alone. There's Angry Renters.

Quite frankly, everyone who weren't stupid enough to enter into a ridiculous mortgage deal to secure a house (or "investment properties") should be upset and should be talking to their elected representatives.

Shout out to CreditBloggers for the heads-up.

I just calculated my IRR

2008-04-26T22:45:00.002-05:00

I spent most of the day (apart from the time working in the garden (under duress!), cycling with my daughter, and having a leaf burning that turned into a campfire) calculating my cashflow in and out of Prosper and my projected IRR using Excel's XIRR function.

In total, I've transferred $9,385.12 into Prosper. To date I've transferred $4,951.47 back out. According to Prosper, my current account value is $ 5,609.47. The latter amount includes the loan values for late loans (even if they are in bankruptcy status) as well as accumulated interest. If I adjust my account value (optimistically) to account for lates and accrued interest I will most likely never see, then I estimate my account value to be $ 4,905.60.

Just in total then, my Prosper investment since May 2006 can be valued at about 11% more than I've put into it. Calculating the IRR value yields 4.94%. That's disappointing. For those lenders out there that use Lendingstats and Erics for ROI figures, my Lendingstats ROI is 10.11% and my Eric's ROI is 6.05%.

I'd post the spreadsheet I used to calculate my IRR, but it's a multi-sheet Excel spreadsheet and I can't upload that to Google Spreadsheets and I don't want to go to the hassle of putting it somewhere else right now, so you'll just have to trust me that I worked it out correctly. I did look at RateLadder's XIRR spreadsheet that I downloaded ages ago, as well as my previous XIRR worksheet, so I'm pretty much sure I'm more or less right.

Experimenting

2008-04-26T10:14:00.003-05:00

Yes, this is still Money Walks. I'm experimenting with a few different layouts (I want more relative space for blog entries (perhaps a wider layout). Please bear with me while I experiment.

Oh yea, and a special shout out for my old buddies on IRC. I hope they get the joke.

LendingClub responds - sort of

2008-04-25T19:43:00.003-05:00

You may recall that I've asked LendingClub a question about where to find my Promissory notes or other legal documents for the loans I've made on their site.

They promised to respond within 24 business hours.

Well, I've got an answer - sort of. Today they sent me the following follow-up email.

First of all, I guess it gets them off the hook on the 24 business hour response undertaking. Note that this time they didn't say when they'd send me a real response.

Secondly, I guess their first-level support doesn't know where to find the promissory notes either. Could that mean that the promissory notes aren't available to lenders?

The $1,000-Coup D'Etat

2008-04-25T09:09:00.003-05:00

In all honesty, I don't expect this listing to survive scrutiny by Prosper. It is, however truly bizarre (image will open in new window).

If "Social Capital" is the way forward...

2008-04-24T19:48:00.001-05:00

Can co-signed loans be far behind?

LendingCLub - have you seen your promissory notes?

2008-04-24T17:41:00.007-05:00

I've been a lender on LendingClub since August of 2007. Overall I'm pretty happy with the site, although I had a few early quibbles with their accounting and I don't think the site navigates as easily as Prosper.com does. Also I have difficulty finding things on the LendingClub site. One of the things I can't seem to find are my promissory notes - the legal documents that show that I have ownership of, or interest in the loans that I have made through the LendingClub website.

So I sent them the following email (address obtained by clicking on a link on their site):

The email was sent on Wednesday at 1:55 PM. By 1:57PM I had the following reply in my inbox:

It's only now that I read the note again that I realized they promised to respond in 24 business hours, which presumably means up to 3 normal days or 72 regular hours.

So, while I'm waiting, if any of my dear readers know where I can find the promissory notes for my loans, I'd appreciate a heads-up.

LendingClub - their February SEC filing

2008-04-24T11:24:00.002-05:00

Some bloggers (I don't have links to hand right now) speculated that LendingClub might have filed with the SEC to become exempt from loan registration. That is not the case.

Their most recent filing (in February) was a form 506 D to raise more capital. In fact, they raised close to a million dollars.

Here are copies of a few of the pages in that filing (click on the image for full-sized image in a new browser window).

So we're all still in the dark about the real issues over at LendingClub. I'm sympathetic to how hard it must be for management over there to not be able to comment on this issue.

How risky is Fynanz?

2008-04-23T14:10:00.002-05:00

Fynanz is a highly targeted P2P lending site. It only lends to students for student loans.

As a lender that has somewhat soured on the concept of P2P lending in general (see my "Loans that disappoint" post), I've learned that I cannot really trust what people say when they apply for a loan. However, in the case of Fynanz, I know what the loan is purportedly for. As I understand it, the team at Fynanz reviews the loans to make sure that the person is actually a student, does need the money for the purpose(s) indicated and the loan falls under the general classification of an "education loan."

The risk of education loans (even private education loans) defaulting has been studied more extensively than the risk of P2P loans defaulting. When Prosper started out, they (and us) had no idea what default rates would be like - Prosper quoted Experian rates for consumer credit that soon proved grossly over-optimistic.

In the case of education loans, there seems to be a large body of work already in existence.

Mark Kantrowitz created FinaAid as a public-service reference site for student financial aid information. There's an extensive discussion (with references to academic and peer-reviewed papers) about default rates in educational loans. Scroll down the page till you get to the section titled "Default Rates." There's a bunch of information there, as well as links to source material and government-supplied data.

Worth noting is the following summary:

Two-year and proprietary institutions tend to have the highest default rates, more than twice the default rates at four-year, public, and private non-profit institutions. Graduate and professional students have among the lowest default rates, about half the average.
Private student loans tend to have long-term default rates that are about half of the default rates on federal education loans, partly because they exclude most borrowers with credit scores below 650. The federal government lends to a riskier population of borrowers because the government is focused on enhancing access to higher education, while private lenders are focused on profitability.

That seems to spell out a clear strategy for prospective lenders lenders on Fynanz. It also seems to imply that Fynanz (being a supplier of private student loans) could expect default rates as outlined in the first sentence of the second paragraph quoted above.

If that is not enough, then here is a review of student loan default literature by the Texas Guaranteed Student Loan Corporation. Lots of meat.

Seems to me that overall the risk with student loans is better defined than the risk with P2P lending in general.

Wiseclerk's link

2008-04-22T11:52:00.002-05:00

This is the full link that Wiseclerk posted in a comment on a previous post. I've not been to Wiseclerk's blog in a long time and a visit was well overdue. Good stuff there. Also the links to Thicken My Wallet and Four Pillars were useful. I'm always amazed at how large the blogosphere really is.

LendingClub - is this why they went quiet?

2008-04-22T07:16:00.000-05:00

I'm not too sure I got this story straight, my source on this was a tad hesitant and gave me the information via a number of links to other websites, including Wikipedia.

It seems that if one deals in "virtual assets" that represent stuff (such as a loan where one does not actually own the loan), trading in such assets falls directly under the auspices of the SEC. So in the LendingClub model, their "LendingMatch" concept might have fallen foul of regulations.

My source implied that LendingMatch pooled lenders' money without giving them a direct stake in a loan, but I'm not too sure about this. If my memory serves me right, that's how I invested my money on LendingClub. I let LendingMatch find me a number of loans that matched my criteria. As far as I can see, I now have 17 loans from that, not a pooled interest in some loans.

This comes from financial small-talk with smart people in a social environment. They might not have all the facts, and since they're not dispensing legal advice, they make some assumptions. However, if this person is correct, or if the SEC misinterpreted how the LendingMatch works, I can see that Prosper's Portfolio Plans could be right in the same ballpark.

For both the Prosper Portfolio plans and for LendingMatch, the lender gives and estimated (desired) return and the Portfolio Plan (or LendingMatch) selects appropriate loans that fit the criteria.

That brings on the question about what happens 2 or 3 years down the road when the Portfolio Plan or LendingMatch doesn't deliver on the advertised rate? Hmmm....

Fynanz

2008-04-21T15:10:00.003-05:00

My one and only bid on Fynanz seems to be about to turn into a loan. I bid $50 on this listing, just to see how the process works. In the early stages, when I had some issues with my account, the Fynanz Customer service guys seemed right on the ball. They have not only phone suport, but also online chat support, which is my preferred way of getting help from companies I deal with.

As for the loan to Dano34, it's 7-% guaranteed under the Fynanz guarantee - that somehow makes it feel a bit safer than just simply lending to a student.

And by-the-way, Fynanz got a write-up in American Banker (to read the piece, registration is required). There's a lot of interesting allusions in that article. Here are some (in no particular order).

Fynanz has a fair amount of lending cash lined up, but it is tied to specific schools, so until they get applications from those scools, they can't turn that cash into loans. The flip side of this is that some of the more "deserving" schools where they might see more loan demand from, is probably not going to fund as easily.
Fynanz is staking a lot on their underwriting criteria. They investigate loan applications before the listings goes live. If the listing seems problematic, it never sees the light of day on their wesb site. Similarly, if the listing doesn't make sense for the student (such as applying too early), Fynanz might turn the listing down.
The big thing from Fynanz's perspective is that they share in the risk in two ways. Firstly, if a loan is nearly funded, they might kick in the additional funds to fully fund the loan. Additionally, they have a loan guarantee that is intended to play a role in safeguarding the lenders' investment to a certain extent.
As private student loans, these loans have some protection against bankruptcies.
There seems to be some willingness from Fynanz to buy back loans after some period of time (1 year?) if lenders wants out. Clearly they won't be in a position to do this for all loans and they make it clear on their website that any such buy-back will be at a discount to the loan value, but it is a way out for those lenders that might be unable to hang on to loans for their entire duration.

Now that my first loan is in the works, I might stick my toe in a little further and bid on a second loan. I'll take it easy - much slower than I did on Prosper where initially I bid on about two loans a month. Here I might just bid on 10 loans total by the end of the summer, just to see how things will work out.

Somehow I'm hoping Fynanz comes up with a clear-cut solution to what I consider to be my biggest problem in lending on Fynanz - the loan duration. I'm more or less OK with 5-year terms, but I'm not comfortable tying up any substantial amount of money for a 10- or 20-year term. And I'm not sure how well the buy-back offer will work. In a year's time I might try that out, just to get a feel for the process.

Invest two hours of your life

2008-04-19T11:47:00.002-05:00

Take two hours and watch this video. Take the time to surf around and read up on the side references of what this guy is talking about.

If you must know what it is, it's Professor Randy Pausch's "Last Lecture", which has persisted as one of the most-shared titles on Google Video ever since. (Direct quote from Google video blog.)

Read up on Randy Pausch in Wikipedia and if you have kids, download Alice for them.

Bookmarks

2008-04-17T13:41:00.003-05:00

I've been watching with dread as my bookmarks file have started growing again.

In the late '90s (and perhaps into 2003), I had completely unamanageble bookmark files. Whenever I migrated from one computer to another (or from one browser to another), I simply added my existing bookmarks to the bookmarks on the new computer. The result was that I had more than 4,500 bookmarks, and they became totally useless. Most I couldn't remember why I bookmarked them, lots were 404 pages and the rest I could never find.

So when I got my new laptop in 2003, I eschewed bookmarks. I had only a very small number. My financial institutions and a few often-used but difficult-to-remember links. Then in late 2006 and accelerating into early this year my bookmarks file started growing imperceptibly. It ended when I did some spring-cleaning. Not as well as I should, I still have 99 bookmarks and there are still quite a few I should delete.

Why am I blogging about this? Because of this Slashdot comment. It resonated with me.

Practical Joke

2008-04-17T13:21:00.002-05:00

From time to time I read about neighbors pranking one another while remaining good friends.

It always brings back a fond memory from my early childhood. We lived on a fairly short street, there were only 8 or so houses, and we all knew one another. One of the families had a VW Beetle (this was in the early '60s) and the owner was a fuel consumption fanatic. He was always measuring fuel consumption and telling everybody what excellent mileage he was getting.

One of the neighbors started sneaking over once a week to put an extra gallon of gas in the guy's tank. Of course, this completely threw off his fuel consumption stats, giving him phenomenal mileage. He couldn't stop bragging about what great fuel consumption he was getting.

Then one day, he boasted that he found this little hole-in-the wall German auto mechanic shop and that he had scheduled his next service with the "experts." He was expecting a significant improvement in fuel consumption after a tune-up done by these highly skilled experts (that mostly specialized in servicing Porsche, BMW and Audi vehicles).

After the service, the neighbor that was adding gas to his tank stopped adding gas with the result that the poor guy's fuel consumption plummeted (of course, in reality it simply reverted to normal for that type of automobile).

The poor German auto mechanics were driven nearly nuts by the neighbor insisting that they revert whatever changes they wreaked upon his car.

The entire street were enjoying this prank for years afterwards.

A quick look at WebBank

2008-04-15T21:27:00.002-05:00

As reported in my previous blog post, Prosper has somehow teamed up (and I use this characterization loosely) with WebBank to issue loans on Prosper. Primary benefit that I can see is the universal lending rates that can be obtained from a national organization as opposed to the state-by-state patchwork that Prosper engineered by itself.

Someone made an off-hand comment that LendingClub also partners with WebBank, so I thought I'd do a quick Internet search and see what I can unearth about WebBank. Also I was intrigued by the description of WebBank in the Prosper blurb as an "Industrial Bank."

First stop was Wikipedia: "A financial institition that lends money and may be owned by non-financial institutions." It's not a long entry, read it. It's interesting.

That led me onwards to the WebBank website (link above) and their "About Us" page. From there follow the link to "Overview of WebBank Partnerships." This reveals that WebBank is a subsidiary of WebFinancial Corporation (WEFN.PK). From WebFinancial's website, we learn that WebBank offers this service:

FEE FOR SERVICE LENDING. This is a form of unsecured consumer lending that operates under an arrangement between WebBank and a third party. A third party company is engaged to source these loans. The loan is underwritten to WebBank's credit standards and is funded by WebBank. The third party purchases each loan shortly after origination.

That, obviously is the service that Prosper is contracting for.

There's much in the linked material that may be of interest to those that sleuth away in company information and takes delight in looking at majority stockholders, director affiliations, date of filings, financial results and insider trades.

The one interesting tidbit for me is that they're located at 590 Madison Square, once the IBM flagship building in New York City.

Ridiculous legal threats

2008-04-12T22:27:00.002-05:00

Somewhere back in December of 2007, Prosper.com sent a threatening legal letter to Prosper Report, claiming cybersquatting, trademark infringement, and unfair competition. Well, we all thought it was ridiculous, especially since Prosper.com has no qualms of (IMHO) cybersquatting on my neighborhood bank here in Prosper, Texas. You can read the subsequent follow-up letter from a pro-bono attorney from Public Citizen here. Of course, nothing further has been heard from Prosper.

If you thought that was stupid, try this one for size. The owner of the game NationStates got a cease and desist letter from the United Nations! For what? For naming the governing body of his game the "United Nations" and using their logo. My thoughts and comments echo those made by others at the aforementioned blog entry. Surely the UN's lawyers have better things to do that chase after innocuous online games that use the concept of the UN for a convocation of participants? At least one UN lawyer can bask in the warm glow of satisfaction that the good fight against evil has been taken one step further. Good work!

It's a slow time over at Fynanz

2008-04-08T14:08:00.002-05:00

My new-found friends over at Fynanz seems to be off to a spectacularly slow start. They've opened to the public on March 20th (if I read their blog right) and yet there are only one real loan listing on their website.

Hopefully things will eventually pick up when students start looking to finance Summer of Fall university classes. Right now I'd imagine students are focusing on getting through the current term.

I'm still unsure about the length of the loans. I'm on the one live listing they have (as are 8 other bidders) and that's for 10 years. That's an awfully long time.

I may bid my other $50 that I have over there if another loan comes live), but I don't know how much money I'd be really willing to tie up for 10 or 20 years at a time.

If ever there was a marketplace that could do with trading loans, I'd say Finanz was it. I wonder if, in due time, we might see Fynanz loans traded on Prosper Marketplace?

Lendingclub is registering with the SEC

2008-04-08T04:12:00.005-05:00

This just in from an email I received from Lendingclub:

Lending Club has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future. Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. We will continue to service all previously funded loans during this period, and lenders will be able to access their accounts, monitor their portfolios, and withdraw available funds without changes. The borrowing side of our site will remain generally unaffected by this registration process; borrowers can continue to apply for loans and new loans posted after April 7, 2008, will be funded and held only by Lending Club.

Until the registration process is completed, the company will undergo a quiet period and will not be able to respond to press and other inquiries about Lending Club or the registration process during that time.

How far behind is Prosper? Or do they get kudos for having started the SEC filing months ago?

Update: NetBanker also carries this story, and has a comment from Prosper:

Person-to-person lending is an increasingly popular way for individuals to borrow and lend money at attractive interest rates. Understandably it must be done in a secure and trusted way. While we’re not in position to comment on another company’s regulatory stance, Prosper believes that the way we have structured the Prosper marketplace is in compliance with applicable state and federal laws. Currently Prosper has over 650,000 members, and more than $130 million in loans have funded through the Prosper marketplace.

Amazon.com - WTF?

2008-04-07T21:49:00.002-05:00

I used to get books, CDs, DVDs and the odd bit of electronics from Amazon.com. This has worked well for the last 10 years or so.

Then recently, I found the Badonkadonk tank on Amazon.com's website (as I blogged before).

Today, in my list of "what customers like you viewed", I find the following "oddities" (and I use that word advisedly).

The Weener Kleener soap ring. And the Kids' Pimp Suit Costume. I say WTF. This is not the Amazon I know.

I've added some Google Adsense elements

2008-04-07T20:28:00.003-05:00

You may notice that I've added some Google AdSense page elements to my blog layout.

I vaguely recall mentioning previously somewhere that I wouldn't do this, but I'm too curious about how AdSense works to not do it. I'll watch for feedback and if too many readers complain I might remove those page elements.

Deep under the covers

2008-04-07T17:27:00.002-05:00

The concept of Prosper is relatively simple, don't you think?

A borrower posts a listing, lenders bid on the listing and if enough lenders bid on the listing to fully fund the listing, it turns into a loan (subject to Prosper post-funding verification) and a month later the borrower starts repayment of the loan.

If only. The concept is as outlined above, but the mechanics required to legally make this all work is somewhat more convoluted.

In fact, the borrower engages in one or more mini-loans, each one for the bid amount by a single "lender" (that term to be examined in a moment). The loans are originally made by Prosper, who incidentally, from the Borrower Registration Agreement, have the following right:

YOU AUTHORIZE PROSPER TO ACT AS YOUR AUTHORIZED AGENT TO SIGN A PROMISSORY NOTE, IN THE FORM SET FORTH ON THE ATTACHED EXHIBIT A, ON YOUR BEHALF IN FAVOR OF EACH LENDER WHOSE BID IS MATCHED WITH YOUR LISTING.

(Capitalization in original agreement)

Get this straight. The guy who loans you the money is the guy who signs (on your behalf) the promissory notes in favor of lenders.

But who are lenders? Remember that Prosper's Lender Registration Agreement says:

Your role as a Prosper "Lender" is that of a loan purchaser, and your rights and obligations as a purchaser or prospective purchaser of Prosper loans are set forth below. Although you are referred to in this Agreement and on the Prosper website as a "Lender," you are not actually lending your money directly to Prosper borrowers, but are, instead, making loan purchase commitments and purchasing promissory notes representing loans made by Prosper to borrowers. All loans originated through Prosper are made to borrowers by Prosper Marketplace, Inc. from its own funds, and then sold and assigned by Prosper to the winning bidder or bidders on the listing without recourse to Prosper. Prosper is the originating lender for licensing and regulatory reasons and is licensed in all states where licensing is required given Prosper's current lending criteria, which may change from time to time in its discretion. Prosper uses the term "Lender" instead of "loan purchaser" for the sake of brevity and simplicity.

Very confusing. Prosper makes the loan, sells the notes to us, but the borrower signed the notes as if the lender actually lent the money to the borrower?

I mentioned the FDCPA act previously. In there is a section about validating the debt. Legalese, but read it, it's not too dense:

§ 809. Validation of debts

Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing—

the amount of the debt;

the name of the creditor to whom the debt is owed;

a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the
consumer by the debt collector; and

a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

Phew.

But what does this mean? If the loan runs late, and Prosper or the collection agency that Prosper assigns after 30 days contacts the borrower, do they have to send the consumer the written notice as outlined above? There's no provision in the original act for email communications and I didn't see the part in the Legal agreement where the borrower agreed to waive written communication in favor of email communication (if such a waiver is at all legal).

And whose name will be supplied to the consumer (borrower)? Prosper's? They don't own the loan and if I understand the language correctly, the borrower might never have signed a promissory note in favor of Prosper, even though Prosper issued the loan to the borrower. Does that mean that Prosper has to send written notice to the borrower of the names and addresses of all the "lenders" that bid on the loan and holds the promissory notes?

When in court, things are going to get very confusing to explain to the judge that you authorized Prosper to sign promissory notes on your behalf in favor of other people so that Prosper would issue you with a loan and that Prosper is now suing you on behalf of those people.

Oh, I forgot. There's nothing in the language of any agreement that Prosper will sue borrowers for non-payment. Perhaps this is one reason why.

Next episode, there's more about debt validation in the act.

Small things amuse small minds

2008-04-07T16:42:00.004-05:00

It takes little to amuse me. It is also refreshing to find vestiges of the old "intelligent Internet" still hiding in today's Internet dominated by other things.

Coincidence?

2008-04-07T01:27:00.002-05:00

Jeepers, talk about coincidences. What are the odds that two people that blog in the P2P lending sphere will simultaneously blog about something else? Even if it is on April Fools day?

On April Fools day I was messing around on Amazon.com. After a bunch of clicks, I stumbled upon a thread in their discussion forums referring to some of the most expensive items for sale on Amazon.com. (Wish I could find that thread again). One of the things on there was the Badonkadonk tank. After my wife and I read some of the reviews on the tank, I blogged about it.

Today I was checking my blog visitor stats, and noticed that I've been linked from the prosper.com corporate blog. On checking that out, this post mentioned that Lazy Man (who I know is a guest blogger at Prosper, but whose blog I've never read, was budgeting for a tank.

Now understand clearly, If my read of the timestamps are correct, Lazy Man blogged at it around5:00 am, I blogged about it around 9:00pm, so if there is plagiarism involved, it is more likely that I copied Lazy Man's blog. But I didn't. Which is why I find this such an interesting coincidence.

Idle speculation

2008-04-07T00:53:00.003-05:00

Fred93 is one of Prosper's biggest investors. According to Lendingstats, he's the second biggest investor. Since time immemorial, Fred93 has been looking at the late stats from Prosper loans, one of the most rational and insightful long-term analysis of any Prosper metric.

Fred93 also blogged consistently and has made many other attempts to engage Prosper management in conversation. To my knowledge, most of those has been rebuffed. Imagine that, not talking to one's second biggest customer!

Anyhoo, I was idly clicking stuff (after having visited Lendingstats to check my own estimated ROI), when I clicked on Fred93's statistics. I was greatly surprised to see that his bidding activity (measured in successful bids) has greatly declined and that he has, in fact, made no winning bids since March 21st.

Here's the table, courtesy of Lendingstats:

Month	Bids
Mar-08	5
Feb-08	5
Jan-08	24
Dec-07	15
Nov-07	43
Oct-07	61
Sep-07	26
Aug-07	11
Jul-07	23
Jun-07	74
May-07	66
Apr-07	42
Mar-07	81
Feb-07	114
Jan-07	86
Dec-06	57
Nov-06	76
Oct-06	110
Sep-06	108
Aug-06	189
Jul-06	180
Jun-06	126
May-06	170
Apr-06	117
Mar-06	1

Has Fred93 finally thrown in the towel?

$100 Gas Cap

2008-04-06T13:44:00.002-05:00

Sometimes things happen that cost me a lot of money and I wish I were smarter so that I can avoid these costly SNAFUs.

This morning the "Check Engine" light came on on my 10-year old car. I duly drove it to the local Kwik-Kar where I've been having it serviced for most of the last 8 years or so. Once there the discussion turned bizarre.

Me: "I'd like an engine diagnostic check, please."
Receptionist: "Sure, that'll be one hour of labor - $91."
Me: "Wow. Do I get it included in the cost of the repair if you fix what turns out to be wrong?"
Receptionist: "No, repair costs will be extra."

To make a long story short, turns out they will check the dignostic readout from the car for free. So they plug in the device and get something along the lines of "Evaporative fuel check." Turns out that there could be any number of reasons for this particular check and I'd have to spring for the $91 diagnostic check - big surprise.

So they test it and the guy calls me over and tells me that the first step in the diagnostic is to check the seal on the gas cap - they have a fancy attachment to do that. Turns out my cas cap failed the check. So he sends me to O'Reilly's Auto Spares to buy a new gas cap at $9 and change.

I've got a new gas cap and I'm out $100. And Kwik Kar offered that if the "Check Engine" light comes back on in the next few weeks, they'll do the next diagnostic free of charge.

I'm bummed.

I'm painfully reminded of a situation back in my glorious past, when I did a contracting job at a big US company on behalf of my erstwhile employer. The contract was billed to the customer in the region of $450,000. I spent about a week there, got someone else to write about 200 lines of assembler code (They wouldn't let me write it, so I had to debug the code the other guy wrote, which made the actual deliver to the customer slip into another month). I complained that the customer got a raw deal, and was told that the old joke of the mechanic applied.

Old Mechanic Joke: Customer takes his car in for a problem that makes the car hard to drive. The machanic got the car on the hoist, peered around, took a ball-peen hammer, tapped once, firmly and returned the car to the customer in fine working order. The customer was outraged at the $100 repair charge. "Well," said the mechanic "I've charged you a dollar for the actual repair and $99 for me knowing what and where to hit."

I guess what goes around, comes around, even indirectly.

Cease and Desist

2008-04-04T11:34:00.003-05:00

If one is planning to lend money as a business, it well behooves such a prospective lender to become familiar with the FDCPA (Fair Debt Collection Practices Act) (link, link, link, link). This is a gargantuan task, best left to professionals. For a small lender, it is nearly impossible to wrap his or her mind around all the complexities of said act. On top of that, many states have additional laws governing debt collection practices and many other aspects of lending money. We live in a highly regulated society when it comes to consumer debt. Which is why it is essential for lenders and for Prosper that the only party permitted to service and collect the loans on Prosper.com is Prosper and it's assignees in the case of debt referred to debt collection agencies. These people presumably knows the laws and can be trusted to operate fully within the confines of the legal system.

To prevent undue harassment by lenders of borrowers who have defaulted, the act provides a "cease and desist" clause whereby borrowers can inform lenders (or debt collectors and debt servicers) that they wish to have no further communications regarding their debt or attempts to collect the debt.

(c) CEASING COMMUNICATION. If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease
further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt, except—
to advise the consumer that the debt collector’s further efforts are being terminated;

to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or

where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.

If such notice from the consumer is made by mail, notification shall be complete upon receipt.

This is usually taken as a declaration that the borrower has reached the end. The lender (or debt collector) has to either write off the debt or turn to the legal system to obtain a judgment to collect the debt.

Borrowers may do this for a variety of reasons. The most common (and the case the law anticipated, IMHO), is where the borrower has no ability and no reasonable foreseeable means with which to repay the debt. Further communication is meaningless and harassing. It is most likely that the borrower will be in default with a number of debts and heading for bankruptcy proceedings. Attempts to collect is futile and merely adds additional stress to what must already be a very stressful time.

A special case of borrower, may, however, have the means or assets to repay the loan, but choose this method to avoid collections activity. The only recourse left to the lender now is a costly and to some extent uncertain legal proceedings. If the sum is relatively small and the lender has deep pockets, they may simply write off the loan and inform the credit reporting agencies (Experian, Transunion, Equifax, and a host of smaller agencies) with whom they have a reporting contract. This is essentially free money to the borrower - for the blemish on their credit report, they get the money.

The lender may, in some cases sell the loan to a JDB (Junk Debt Buyer), who will restart the process. The borrower can then repeat the C&D waltz and continue to do so until the statute of limitations on the debt runs out. Overall, I would imagine it is a stressful process and not a path chosen by many borrowers. Also it cannot be performed too many times since the blemishes on one's credit report will eventually result in additional credit being made available.

If the sum is not that trivial, or if the lender wishes to send a message to borrowers in general that they will not tolerate such actions, they can sue. Now it gets complicated. The legal process is well-defined, but has a number of steps that must be followed and proofs that must be presented. Complicated matters such as standing to sue and ownership of the debt are all involved. (Perhaps I can get someone like IRA01 from prospers.org to comment more fully on this.) Even after the case is won, some states are "debtor-friendly" and offers limited recourse in what assets can be attached to recover the debt and whether wages can be garnished for recovery.

Clearly, cases like this doesn't happen often, but they do. In a next installment, I will look at what happens when such a case happens to lenders of Prosper.

Jason Kolb is upset

2008-04-02T09:17:00.001-05:00

Jason Kolb is upset. Why should you care? Read his blog and see for yourself. Perhaps you too should be upset in some way or other.

When nothing but a tank will do...

2008-04-01T21:18:00.003-05:00

Ever had that feeling that life was too precious to waste on the highways of America? Well, to your rescue the JL421 Badonkadonk Land Cruiser/Tank. This baby will protect you while at the same time keeping the kids in the back seat entertained with the optional DVD player. The entire 'hood will hear you coming down the road. This is the ultimate stealth vehicle, with the roar of the 6-hp Tecumseh gasoline engine completely drowned out by the 400 watt premium sound with PA system. Of course, the daunting top speed of 40 mph is quite sufficient to wipe out those fitnicks on their bicycles clogging the neighborhood roads.

Don't forget to read some some of the reviews - both those praising and those condemning the 'Donk.

Islandmele's listing is live

2008-04-01T12:16:00.003-05:00

As you know if you read my blog, I have declined to endorse Islandmele's listing. However, an impressive number of friends and associates that have met her in real life did endorse her listing. To the extent that she has 35 endorsers (and I'm surprised she hasn't roped Chris Larsen into an endorsement as well ;)).

Apart from the fact that this loan should fund at a ridiculous rate, there probably never will be another listing like this.

Have a look. This is probably what Prosper envisaged in the early days.

Good luck Islandmele!

P2P lending in Canada

2008-03-31T14:19:00.002-05:00

Read here what happened to IOU Central (a P2P lender) in Canada.

We've been asleep at the wheel

2008-03-31T13:52:00.003-05:00

I miss my prospers.org buddies. It would have been much more pleasant to walk this walk with them. Anyways.

I've been talking to a few people in the P2P industry and that has led me to do a bit of research and things are interesting. I apologize if you can't discern a common thread in my blog posts today and if they don't all seem to make sense, but there is a story there somewhere.

Anyway, let's for a moment divert our attention to other P2P lending sites, and in this instance particularly to Boober, the Netherland's equivalent to Prosper. Firstly, it's interesting to note that both Zopa and Boober targeted Italy as a second country to expand to. Perhaps there's a story behind that? I mean, what are the odds with so many European countries and both P2P competitors deciding that Italy is ripe for P2P lending while Germany, France, Switzerland, Bulgaria, Croatia or perhaps Denmark isn't right?

Hmm..,

Anyway, I missed this and only found it today due to a some research. In August 2007, Boober was nearly shut down by the Dutch authorities. This article and this one are just a few of the many (I hope you can read Dutch! ;) )

Aparently, lenders at Boober got upset because higher than expected numbers of loans were defaulting (and this was in the very early days of Boober) and complained. They also banded together at Booberwatch. Interestingly enough, there is another organization, PIVN, that also seems to organize lenders across multiple P2P lending organizations.

Perhaps it is time for Prosper lenders or even lenders across all the US P2P organizations to come together?

Something about borrowers

2008-03-31T13:11:00.004-05:00

There's something we as lenders should understand about borrowers.

All borrowers fall into one of the following quadrants:

This is important for a number of reasons:

Firstly, and most obviously (duh!), we should only want to lend money to people in the Q1 quadrant and avoid people in the Q4 quadrant like the plague.
The Q3 quadrant is interesting, for while ideally we don't want to lend to these, they are suitable material for subsequent legal proceedings to recover our funds. Other than the Q2 and Q4 quadrants, they do have money or assets that can be attached or seized.
Q2 borrowers are of interest only inasmuch as perhaps it is inadvisable to sell off their delinquent loans to Junk Debt Buyers (JDBs). In due time, these borrowers may in fact recover financially to where they will make good on their obligations. It does not do the original lenders much good if such loans have been sold to the JDB at pennies on the dollar and the JDB profits from the borrower's repayment.

Is there a difference...

2008-03-31T11:47:00.003-05:00

In Prosper's old Lender Agreement, the "things" I as a "lender" bought were called "loans." Now in the new agreements, they are called "notes."

Loans, according to the banking dictionary at Answers.com are:

Money advanced to a borrower, to be repaid at a later date, usually with interest. Legally, a loan is a contract between a buyer (the borrower) and a seller (the lender), enforceable under the Uniform Commercial Code in most states. The terms and conditions for repayment of a loan, including the finance charge or interest rate, are specified in a loan agreement.

A "note," on the other hand, is not defined. In the preamble to the Lender's agreement, Prosper says this:

Note: Your role as a Prosper "Lender" is that of a loan purchaser, and your rights and obligations as a purchaser or prospective purchaser of Prosper loans are set forth below. Although you are referred to in this Agreement and on the Prosper website as a "Lender," you are not actually lending your money directly to Prosper borrowers, but are, instead, making loan purchase commitments and purchasing promissory notes representing loans made by Prosper to borrowers. All loans originated through Prosper are made to borrowers by Prosper Marketplace, Inc. from its own funds, and then sold and assigned by Prosper to the winning bidder or bidders on the listing without recourse to Prosper. Prosper is the originating lender for licensing and regulatory reasons and is licensed in all states where licensing is required given Prosper's current lending criteria, which may change from time to time in its discretion. Prosper uses the term "Lender" instead of "loan purchaser" for the sake of brevity and simplicity.

Bolding is mine.

So what is a "promissory note?" Well, according to the same dictionary at Answers.com, it is a:

Written promise to pay, frequently used in installment loans and commercial loans. A promissory note is the legal evidence of a debt, a promissory note may be transferred to a third party as a Negotiable Instrument.

So, what's missing between the two terms? Maybe it is an oversight in the dictionary (you can't always trust sites on the Internet), but the most significant part that is missing is the enforceability under the Uniform Commercial Code (UCC).

That's pretty significant. The UCC, according to Answers.com is a:

Standardized set of business laws that has been adopted by most states. The Uniform Commercial Code governs a wide range of transactions including borrowing, contracts, and many other everyday business practices. It is useful because it standardizes practices from state to state.

So without the umbrella protection of the UCC, are we at the mercy of the laws and regulations of the individual states?

One clause that disappeared

2008-03-31T11:33:00.002-05:00

Here's one clause that disappeared from Prosper's Lender Agreement in Section 5.

Notwithstanding the foregoing, in the event Prosper reasonably determines that a borrower committed fraud or made a material misrepresentation in connection with a Loan, Prosper may exercise any remedies authorized or permitted under the promissory note and applicable law on your behalf.

There are a whole bunch of new sections that were added, so I've not yet had time to see if this has been replaced by more comprehensive language on the issue. In the light of Prosper's "New Agency Test" where they repurchased some loans from lenders, I'd hazard a guess that there might indeed be some other language in the newer contract, right?

This clause disappeared somewhere between the original I received on May 5th, 2006 and the current agreement on their website.

When legal contracts change

2008-03-31T08:38:00.001-05:00

On my profile page at prosper.com is a section titled "Legal Agreements."

For every loan, there's the Lender Promissory note. For every funds transfer to/from Prosper, there's the "authorization to debit/credit account." There are "Lender registration agreements," "Credit profile agreements" and whatnot. In total, as you can see from the screenshot above, there are a total of 257 agreements currently.

In my Prosper Lenders' Agreement, I agree that the contract is subject to change and that Prosper can notify me of changes via email. What isn't clear is what happens if I don't agree to the changes.

When my credit card company changes their legal agreement, they send me a notice and tell me that I signify acceptance of the new terms by using the card past a specified cut-off date. Prosper makes no mention of my ability to be bound by the new legal contract. One can only presume that they assume that once a lender has entered a contract with them, then regardless of how they change the contract terms, the lender is still bound by those terms.

Between May of 2006, when I started lending on Prosper and November of 2007, I have no records indicating that Prosper informed me of any changes to their legal contracts. Yet I know they did make some changes. There's the clause that got added when xraider contacted one of the collections agencies to inquire about the status of collections of her loan, for instance.

On November 8, 2007; January 7, 2008; and March 10th 2008; I did receive notices from Prosper that they changed the Lenders Agreement. They were even kind enough to provide links to redlined versions of the contracts (the November 8th is a doozy, btw.).

So, Since I've stopped lending on or about November 27th, 2007 (I'm not exactly sure when the date was that my last bid was placed, but that was the date my last loan originated), I'm not too sure what contract is applicable between Prosper and me.

Is it important? Maybe, and maybe not. Stay tuned.

The loans that paid

2008-03-28T13:34:00.002-05:00

I spent most of the morning hacking some stuff on Prosper's website. Hacking in a good sense of the word, as in taking something and altering it to suit my purposes. It was instructive in learning more about style sheets and HTML, but I'm now bored with it.

However, here is what I intended to be a tribute to those 45 borrowers who borrowed money and repaid me. Perhaps sometime I'll finish it. Perhaps not.

Prosper nostalgia

2008-03-28T10:59:00.003-05:00

I miss Prosper - the old Prosper. The Prosper that was a community of lenders and borrowers. I were looking through my Prosper and Lending Club accounts today (perhaps sometime I should post referral links and make some money of the one or two people who read my blog).

Anyway, here's the short summary:

Lending Club, after I deposited $500 into a Lending Club portfolio in August 2007:

On Prosper, the situation is more complicated. I've been a lender since May 17th, 1006. Prosper doesn't show all my loans in summary, only the active loans. I think about 57 of my Prosper loans have already fully repaid, one has been repurchased and two have defaulted, but here's the active loan summary:

I initially made loans by manually selecting listings, often after lengthy discussions on the old forums. That wasn't a profitable way to invest larger sums of money - pleasant yes, profitable no. But after Cellardoor and the other enthusiasts started drifting away, the forums became more and more poisonous - certainly not helped by the increasing frustration of lenders seeing lates pile up.

I switched to Standing Orders (SOs) and for a while there my standing orders performed admirably well, with all my lates falling only in the category of loans that I manually bid on. Lately that has changed, with a substantial portion of my new lates also coming from bids placed by SOs.

There are so many things wrong with the entire concept right now, it's hard to pinpoint what would revive my interest in lending on Prosper again. For now, I think the quieter waters of Zopa (create a CD and walk away for a year) or Lending Club (where I only ever selected a single portfolio) is preferable to the rough-and-tumble that is Prosper.

If Lending Club have warts in the loan verification process, the collections process and the lender/borrower interaction process, I've not seen them. I've seen those on Prosper and I've not seen solid, concrete evidence that Prosper will address these issues in a way that will make me want to lend there again. There truly needs to be a more in-depth discussion of Prosper, but the magnitude of the task is overwhelming and very, very complex.

And dammit, I didn't want this to turn into another bash at Prosper, I just wanted to review my loans there, the good, the bad and the ugly. But really, why should you care? If you had to ask me, I cannot in honesty tell you to put money into Prosper right now, nor can I tell you to seek a loan there. Not while their verification is haphazard, cumbersome and invasive, not while their collections process is apathetic and ineffective and their anti-fraud prosecutions are slow, spotty, minimalist and ineffective.

Can you believe that there is no clause in a Prosper Borrower Agreement to recover legal costs from a borrower if Prosper has to take action against the borrower? So if the borrower has a relatively small loan and sends Prosper a "cease-and-desist" letter, Prosper's only recourse is legal action, but that cost has to be borne by Prosper (or the lenders)and it is not cost-effective for a small loan. So essentially, the borrower will pay with a credit reporting agency blemish for the money they walk away from Prosper with.

About the only thing that is right with Prosper is the lender guidance where they have started taking great pains to warn lenders away from loans that have historically performed poorly.

And how the new portfolio plans are performing? Well, that's the topic of much speculation. I do believe LoanChimp blogged extensively about that on his blog.

Why I will not be endorsing Islandmele's listing

2008-03-27T01:45:00.003-05:00

Islandmele, one of the nicest forum posters on prospers.org and the now-defunct prosper.com forums, as well as the group leader of what can be described as the best group on Prosper.com - Malama Ohana, has asked me to endorse her upcoming listing.

Regretfully, I declined.

My reasons were many and complex, and I was under the gun to compose a response in the 20-minute timeout window that Prosper impose on such activities, so I'm not sure I fully explained my motivation for doing so. Hopefully she'll read this for more insight.

Foremost on my mind is that endorsements are the only possible way that Prosper.com can implement the now-failed group model, by forming ad-hoc groups of people endorsing borrowers. For this to work, we have to stay away from the one thing that broke the group model early on, the notion that a bunch of strangers on the Internet is a "group." As demonstrated by Malama Ohana, a good group is one where the group members know one another and are willing to place substantial bids between themselves. Similarly, "good" endorsers are those who really know the person they endorse, and are willing to bid on the person they endorse. Perhaps even to bid substantially more than a token $50.

We were all too eager early on to bid on loans in "good groups," where we hardly knew the group leader and the group leader hardly knew the borrowers. Often we have observed the disappointment, disbelief, and in cases even anger emanating from the lenders and even the group leader when groups built on this model failed to live up to expectations and when borrowers in these groups defaulted.

Even in the case of Malama Ohana, when one borrower ran into trouble, the results of belonging to a strong group did not result in a different outcome to lenders. The loan is in bankruptcy and thre will be no recourse for lenders. There has been no visible effort by the borrower to exempt the loan from bankruptcy proceedings or any other method by which group affinity proves to make a difference. Granted, there may be nothing left to salvage and one instance of default is too small a number to generalize, but for all intents and purposes, group affinity even in this group makes no difference.

What does this have to do with endorsements? Only that I believe the only credible endorsement of a listing is by a number of close friends and associates of the borrower, all of whom are willing to bid substantial amounts on the listing. Not simply random endorsements of people with whom we have built up a passing acquaintanceship on the Internet, in email and in forum communications. And especially not if those people will not be bidding. As matters stand right now, it would take a miracle and an act of Congress before I place another bid on Prosper. (see my previous blog post.)

Since I would not bid on an endorsement like the one I am able to give, I thus feel unable to endorse the listing and perhaps entice other, newer lenders into a sense of security regarding this loan that many endorsements may give it. No doubt Islandmele will get many endorsements and bids from still-active lenders and those endorsements will carry weight and add value. My endorsement will be a mere empty gesture, signifying nothing.

Note that those who will bid on the strength of endorsements should still exercise due diligence. Any listing that one considers bidding on must first and foremost pass the numbers test (Islandmele's numbers are squeaky clean and very strong). Then the listing description must make sense (I have not yet seen Islandmele's listing description, so I cannot give an opinion). Finally, as with all Prosper bids, one must consider that there are no certainties, only probabilities when lending on Prosper. Borrowers can run into insurmountable obstacles, the economy can collapse, many things can happen that may make it impossible for even the very best borrower to repay the loan or to keep it current to the extent that Propser will not sell it off to a JDB and thus remove all possibility of the borrower making good on the loan eventually. For this reason alone, it behooves us to bear in mind that the rate on a listing should be commensurate with the perceived risk of the listing and with alternative means of secured investments.

Finally, ask yourself if, why I and many other lenders like myself are not lending anymore. It's not because of the defaults, but fundamental problems with Prosper that stopped us lending. The latest of these is the disturbing fact I mentioned in my previous blog post that Prosper apparently is not currently going after non-paying borrowers in "Texas and other states." Well, then perhaps lenders shouldn't be lending in "Texas and other states" if that is the case.

Prosper - unsafe at any speed?

2008-03-27T00:49:00.004-05:00

"Unsafe at Any Speed" - that's how Ralph Nader characterized the auto industry in his 1965 book.

Recent developments brought to light at Prospers.org (registration as a lender required) seems to hint that the same warning should be applied to Prosper.com lenders.

MtnChick, a top-500 lender at Prosper.com, recently communicated with Prosper regarding a late loan that was not in collections.

Here is her original email to Prosper.com support:

Can someone tell me why this account isn't in collections - and hasn't been ever from what I can tell? Thank you:

https://www.prosper.com/secure/account/lender/lender_loan_details.aspx?id=1681

Prosper's reply? Enough to raise the hair on the back of my neck and send a cold shiver down my spine. No lender is safe if this is what Prosper's response is going to be:

Loan 1681 was in collections from 10/5/07 to 11/12/07. On 11/12/07, we received a full Cease & Desist/Validation of Debt/Attorney Representation notice on this account. Once a full C&D is received, the only recourse that we have is a final communication stating that we are going to proceed with legal action. Given that we are not suing in Texas at this point – nor would we sue on a $2500 loan, we have no recourse.

(Highlighting is mine)

Are they serious?

Not only, according to Traveler505 and others who opinioned on the thread at prospers.org, is Prosper wrong that they have no other recourse, but to decline to proceed with legal action on those two grounds means that lenders are completely out of options on small loans to borrowers and even more so if the borrower resides in Texas and presumably other states where Prosper is not suing.

This clearly indicates that lenders have to strongly reconsider whether they can continue to lend money at Prosper. Firstly, it would seem that Prosper will roll over and play dead if they get a Cease-and-Desist letter from a borrower, not even bothering to reaffirm the debt.

Moreover, they won't pursue legal action to recover small loans. So all small loans are now risky since the borrower has an easy method to halt payment, collections and legal proceedings. Prosper simply seems unwilling to go after small borrowers.

Finally, even for larger loans, it seems unsafe to lend, since Prosper will only sue in select states. I don't recall Prosper saying anything about selective enforcement in my many lender agreements, but before I put another penny into Prosper, you can be damn sure I will ask them what states they will take legal action in and what the minimum loan amount is for which they will sue.

I really, really hope that someone at Prosper still reads this blog and will let me know that Customer Service is mistaken and that Prosper will take the requisite legal action to affirm and enforce a loan that they have sold to lenders and are servicing.

Prosper has a strong fiduciary duty towards lenders and this does not seem to be the way to execute that duty.

Great response from Fynanz CEO

2008-03-25T20:50:00.002-05:00

Chirag Chaman, CEO of Fynanz left a comment on my previous blog post where I mentioned some of the Terms and Conditions in the Fynanz Lender Agreement. In fact, he came back and revised it to add some more material to the comment.

So that it gets better distribution, I'm going to repost the comment verbatim.

Thank you for considering to become a Fynanz lender. I am very glad to see that you took the time to read the agreement, instead of simply clicking "I accept". A lot of time, money, effort and legal expertise were invested to create the Fynanz platform and you've highlighted things that we spent a considerable amount of our resources on.

Let me address the more important ones and why we choose to do things as laid out in the agreement. But, let me begin with the common theme; Fynanz could and would not exist without the lenders. You are the source of financing for the students. Thus, providing safety, security and full disclosure to lenders was paramount for us.

+ Pledge Bids: As you rightly pointed out, we want lenders to have more control over their funds and thus provide pledge bids. It's not that P2P lending sites don't want to pay interest, banking regulations make it very onerous to pay interest and have lender funds FDIC insured at the same time.

+ 50% funding level: The OpenLoan is an alternative to what banks offer. Students/parents may opt for one because it is cheaper or because they want to formalize a loan amongst themselves; earn interest and avail of tax benefits. Education costs are only going up and we want families to get as much benefit as they can, even if not for the whole amount. For what remains, the banks are there as an "option", NOT a necessity as they have been in the past.

+ Guarantee & collection costs: Student loans are complex debt instruments. On the surface it's a loan, but when you look deeper the dynamics of how it works, both as a debt instrument and psychologically on the borrower is very different. The big part of collecting a student loan is not when it becomes 60 days late, but in educating the borrower of their options and the benefits of making timely payments. Studies show that defaults can be reduced dramatically by reaching out to borrowers and educating them, instead of calling them with threats of ruining their credit history. Student loan collection practices and deferment options offered to students have become a key part in reducing default rates. Today, the default rates on student loans are at historic lows (as reported by the Department of Education), and a fraction of what they were 10-15 years ago.

We want borrowers to have options and not feel they have been pushed in to a corner. Thus, we pay costs associated with collections, as these cost may not always be variable (%age of amount delinquent) and difficult to allocate to each lender. Moreover, we do not want the incentive for the collection agency to be a percentage of dollars collected. We want them to give each student and their cosigner parent the same level of service, education and options regardless of the outstanding balance.

On our part, that is why we guarantee loans. It aligns our interests with those of the lender. It is not in Fynanz's best interest to be lax in servicing or collection practices. We need to be optimal. The better we do our job, the less burden on the Default Prevention & Guarantee Fund. The better we do, the more beneficial the marketplace is for lenders and borrowers.

This brings me to your point of settlement offers. Even with student loan defaults being single digits, there may come a situation where we have exhausted all options and still the borrower or their parent is unable to pay off the balance. They may have suffered a personal financial loss, or simply can't afford to carry on making payments and "live" at the same time. Under EXTREME circumstances it may be prudent to offer a settlement than force the borrower to future financial problems. As a lender, you will get AT LEAST the guarantee amount owed to you even if the settlement offer is for a lot less.

That said, we want lenders to be assured that Fynanz will work through every available option to cure a loan and settlements will only be offered under extreme circumstances on a case by case basis. After all, this is a business for us -- the "social good" aspect of lending to students is done by the lenders -- not Fynanz. We may be the medium for making it happen, but for us to do our job well and be beneficial to borrowers and lenders, we need to operate as a business.

+ Repurchase: Fynanz over the next year will introduce a feature that will allow lenders to sell the note back should they not want to hold it for the entire terms. We realize that student loans are long term obligations and not all lenders may want to hold the loans to their entirety. Parents may lend to their child to reduce the rate while in school and may want to recoup their capital once the student graduates.

Again, I thank you for taking the time to go through the agreement. Please feel free to contact me or my team at any time.

Regards,
Chirag Chaman
CEO | Fynanz
customer.care@fynanz.com

Interesting Fynanz lender agreement conditions

2008-03-22T10:16:00.007-05:00

I'm signing up for Fynanz and this is part of the lender registration agreement:

Borrowers and co-signers are identified by a Fynanz user name but are not allowed to disclose their identity or contact information to Lenders. You may contact Fynanz to request any such additional information concerning the borrower or cosigner as you reasonably believe would assist you in making your decision to lend. Fynanz will evaluate such requests on a case-by-case basis and will provide any additional requested information in its sole discretion after it has received the borrower’s approval to release information.

Interesting.

A little further down they talk about pledge bids. Seems they have the same difficulties as Prosper (and the other sites) in paying lenders interest on deposited funds, so their way around it is to allow a lender to pledge a bid:

Fynanz, in its sole discretion, may allow you to place a bid even if you do not have sufficient funds to meet the bid in the Fynanz Funding Account (a “Pledge Bid”). You must transfer funds from your deposit account to the Fynanz Funding Account to cover the amount of the Pledge Bid within five days of placing the bid but no later than the close of the auction in which your bid is a winning bid. Fynanz reserves the right to cancel Pledge Bids at any time.

Also interesting.

As I'm reading through, I keep finding interesting nuggets. Fynanz will also create loans if the listings has not been full funded. Seems 50% is the cut-off:

If a listing gets a bid or bids in an amount totaling at least half the amount of the borrower's requested loan, the bids that are winning bids at the time the listing expires are matched with the listing, and Fynanz will arrange for a loan to be made in the amount totaling the winning bids to the borrower who posted the listing, ...

This is different. I can see how even a partial loan can help a student, whereas in other situations it might not be so useful.

Who will bear the cost of collections?

Fynanz pays certain collection costs out of the guarantee fund, depending on the Loan’s stage of collection. Before a Borrower has missed the fifth consecutive loan payment (the “Cure Period”), Fynanz pays collection costs out of the guarantee fund and returns 100% of any proceeds from debt collection to the Lender. Following the Cure Period, Fynanz returns proceeds of collection efforts to Lenders net of (1) collection costs, (2) accrued servicing fees, (3) accrued guaranty fees, and (4) amounts previously paid from the Guarantee Fund in respect of the defaulted loan. Collection efforts may include settlement offers to borrowers to repay delinquent loans for less than the outstanding balance.

Oh dear, they might make settlement offers to defaulting borrowers? Not sure I like this.

I also don't get this:

Voluntary Repurchases. From time to time Fynanz may, in its sole discretion, invite you to offer your Notes evidencing non-delinquent loans to Fynanz for repurchase from you at a slight discount from face value. Any discount rate will be based on the holding period, the interest rate or margin, borrower payment history, the current status of the loan and the proprietary credit grade assigned by Fynanz to the loan. Your offer to Fynanz is entirely voluntary. If you make such an offer, Fynanz may accept by buying back the Notes within a 90 day evaluation in its sole discretion. When deciding to accept your offer, Fynanz will consider whether the borrower has defaulted on the loan, made any late payment under the Note, and whether the loan status or expected status has changed, including entering any deferment or forbearance within the 90 day period.

I really don't know if this is just an "in case" safeguarding clause they stick in there.

Now here it gets interesting. They seem to have the ability for lenders to transfer notes to other lenders:

Transfer Notice. If at any time you propose to transfer (including any sale, assignment, encumbrance, hypothecation, pledge, conveyance in trust, gift, or other transfer or disposition of any kind, collectively, “Transfer”), any Notes, then you shall promptly give Fynanz written notice of your intention to make the Transfer (the “Transfer Notice”). The Transfer Notice shall include (i) a description of the Notes to be transferred (the “Offered Notes”), (ii) the name(s) and address(es) of the prospective transferee(s) and (iii) the consideration and (iv) the material terms and conditions upon which the proposed Transfer is to be made. The Transfer Notice shall certify that you have received a firm offer from the prospective transferee(s) and in good faith believe a binding agreement for the Transfer is obtainable on the terms set forth in the Transfer Notice. The Transfer Notice shall also include a copy of any written proposal, term sheet or letter of intent or other agreement relating to the proposed Transfer. The transferee(s) must have an active Fynanz account(s) and accept the provisions of this Agreement.

and

Fynanz’s Right of First Refusal. Fynanz shall have an option for a period of 10 days from receipt of the Transfer Notice to elect to purchase the Offered Notes at the lesser of (x) the same price and subject to the same material terms and conditions as described in the Transfer Notice or (y) the outstanding principal balance of the Notes as of the date of repurchase, plus any accrued but unpaid interest on the principal balance as of the date of repurchase at the interest rate set forth in the Notes. Fynanz may exercise such purchase option and purchase all or any portion of the Offered Notes by notifying you in writing before expiration of the 10 day period as to which Notes it wishes to purchase. If Fynanz notifies you that it desires to purchase any such Notes, then payment for the Offered Notes shall be by remittance into the Fynanz Funding Account.

Hmmm, this could get really interesting.

Mushrooms

2008-03-21T22:29:00.002-05:00

Like mushrooms after the spring rains - that's what I'm likening Internet lending sites (P2P or "crowdsourcing" lending sites lending money on the Internet).

First in the United Kingdom, there was Zopa. Then came Prosper here in the US, followed by LendingClub, then Zopa US (as well as a horde of cheap knock-offs and imitations that seem patently unsafe) and the perennial in-beta Loanio. Most recent arrival I've spotted is Fynanz - a private student loan site.

I'm still reading the help and introductory files, but the superficial resemblance to Prosper is eerie. However, unlike Prosper, they're not even bothering to say who is behind the business. Does that mean they don't have significant backing? That would mean that their Default Prevention & Guarantee Fund (Guarantee Fund) doesn't have much muscle behind it. In fact, they're opening it up with $250,000 and will maintain it at that level or at 5% of their guaranteed loan amounts.

Funny thing, we know from Prosper's experience that loan defaut rates are much higher than that if you permit lenders to bid on listings. Also, all repayments to lenders come off the top of the guarantee, this means that the late defaulting loans may not compensate lenders at all.

There's also the term - 10 years? With an option by Fynanz to repurchase after each anniversary? I'm not sure I understand this part.

Anyway, I'm still reading.

Bike riding

2008-03-21T18:59:00.003-05:00

Oh, and my daughter can now ride her bike. We had two practice sessions in the parking lot at the middle school (nice big, open and flat area). We also discovered a new bakery and a great bike shop (actually found that last night when we stopped for dinner after the movies). Went there to get a tire pump today so we didn't have to stop at the gas station to pump tires every time. Now if I only pump the bike tires 80 times I will have recovered the money I spent on the pumps.

Talking about the movies. We saw that "National Treasure - Book of Secrets" movie. What spoiled it for me was the totally unrealistic propositions (I'll think of a better word and replace this one. "Concept" or "premise" might do). Imagine. A president that has natural curiosity to the extent that he'd go on a exploration expedition? Bah!

Setana Sports

2008-03-21T18:52:00.003-05:00

Now that I can't rely on prospers.org off-topic as sources for entertainment, I have to take what I can get. So imagine my grateful surprise when one of the frequent posters on the microsoft.public.windowsxp.general newsgroup posted the following:

Fat Kev, speaking of The Special One, do you watch Setanta Sports? If you do have you seen Mario Rosenstock's comic series called "I'm on Setanta Sports" parodying Jose Merinho? If not, check this out. http://www.setanta.com/ioss/

Setana Sports. Watch that funny guy.

What to do with rotten apples

2008-03-21T12:16:00.003-05:00

This is a hypothetical question for Tokyo Joe.

According to a brief parting discussion, the prospers.org forums are like a barrel of apples with a few rotten ones in there. My analogy were of the curate's egg. (Aside: Funny how my mind plays games with me. I could swear there was a book in classical literature where that phrase was used, now I can't find any references to it.)

Anyhow, I have a brief question. If you find rotten apples in a barrel, what do you do? Leave them there? I think that would lead to the entire barrel being spoiled in short order, leaving you with the curate's egg.

Now on to the future. You (and presumably some of the rest) are aware that bama is now posting under both his old handle and also as aaa, one of his many sock-puppets? So what looks like multiple people agreeing on the merits or otherwise of a particular issue is merely bama?

As for me, life is good. Yesterday we went fishing at the Lewisville Fishing Barge, then we hit a movie. Today I'm taking my daughter for a bike riding lesson. All in all, I doubt I've spent 2 hours on my computer in the last 48 hours.

New directions

2008-03-18T23:47:00.002-05:00

Just so you all know. I'm going to keep blogging, but probably not so much about Prosper.com anymore. So if you have a RSS feed or other mechanism that follows my blog, about now is probably the time you might want to turn it off.

I'll (now that I have free time) work on calculating my true Prosper ROI and then probably work on a comparison between my lending experiences at Prosper vs at LendingClub and Zopa, but apart from that, expect that whatever appeared in prospers.org Off-Topic from me will now appear here.

I'll work on revising the heading of my blog, but my first attempt failed.

RIP. Sir Arthur C. Clarke

2008-03-18T23:30:00.002-05:00

So many good books and thoughts came from this man.

In Retrospect

2008-03-16T13:41:00.002-05:00

Thank you all who left interesting comments on the preceding blog post.

In my withdrawal phase, I'm reliving and rethinking many of the issues around Prosper. Interestingly enough, the main thought that bubbled to the top today was the idea that Prosper management are fundamentally, at a very basic level, dishonest.

Now this is a tough accusation to make and not one I'm making lightly. Perhaps there is a better way to say it, but I'm not now, in the final days, going to hunt around for words. If any Prosper person wants to rebut this, I'll give them access to my blog for a rebuttal post.

I also know, from my days as a IT worker, that people like me think very differently than top management thinks. I've spent lots of time with executive-level management in meetings (and a few beer-drinking sessions) to know that they and I look at certain issues differently from a very fundamental perspective. So there may be another likely explanation for the way that I'm putting this together. I'd like to hear it and will make space available for any credible rebuttal.

When I'm saying Prosper is dishonest, I'm not talking about the misleading advertisements they posted. At some level I think most advertising is misleading and it behooves the potential buyer of the service offered to dig deeper before contracting for the service.

Certainly, I am talking about the way they manage their forums and what they allow in them and how they edit, redact and delete messages to make sure that only specific impressions are conveyed.

I thought that management wouldn't allow this if they really knew. I thought that it was a low-level thing. But then I started thinking about what Prosper is telling us about fraud prosecutions and I wonder.

It is well-known at prospers.org, that Prosper prosecuted an identity thief, Victoria Crawford, for taking out numerous loans on Prosper with a fraudulent identity. Also see Prosper Report (it's on the home page). Now in this instance, there are a few facets to the story. Firstly, it was a lender, PoloniusNot, that raised some suspicion in the old prosper forums, now archived at Prosper Report. The actual court case then got dug up by some of our resident lawyers.

Prosper has never said anything official about it, as far as I know. Now they did repurchase those loans from lenders, so they made the lenders whole and then went after Victoria Crawford to get their money back. But why not say anything?

Then comes Prosper Days 2008, after Prosper has hired Doug Fuller to get tough on collections and fraud, and after Doug has indicated that Prosper will take fraudulent (or can-pay, won't-pay borrowers) to court. (Prosper months ago initiated actions to repurchase certain target loans from lenders to make prosecutions simpler. Note - months - lots of time to get their ducks in a row.)

What legal actions does Chris Larsen talk about at Prosper days 2008? Read Traveler505's blog. The case was a case of bank fraud and Prosper had a very peripheral role in it and certainly did not initiate anything. They were merely responding to requests by law enforcement officials.

Why does Chris Larsen misrepresent Prosper's role in this? Why did he not mention the one case that they did initiate? Why no mention of the progress of their own cases for the loans that they repurchased? Sub-judice? I don't know.

Try this on for size. They went after Victoria Crawford because essentially she stole their money, once the fraud was unearthed on the forums, they were obligated by their ID theft warranty to repurchase the loan and so they attempted recovery. As for the rest, they simply don't care. They're dragging their feet and to conceal the lack of progress, they lie.

So, when the most senior Prosper executive talks to their customers at their flagship event, he doesn't respect those customers enough to tell them anything that approximates the truth, but misrepresent facts about Prosper's involvement in legal proceedings. That is fundamentally dishonest at the highest level of the company.

Next blog post topic. Why doesn't Prosper management post on their own blog?

I did it

2008-03-15T12:24:00.004-05:00

This morning I cleaned up my bookmarks file. In the process I deleted my bookmarks to prospers.org.

Will I manage not to type the address in the address bar of my browser? I don't know. We'll have to see how long it lasts. I think the first 12 hours will be the worst, then I should be able to start recovering my life. Do all the things I've not been doing.

Realistically, I've been done with Prosper.com since the incident when they redacted my and other users' posts in their new forums without showing that the posts have been edited. So we'd type in a link to prospers.org, and prosper moderators would change it to link to prosper.com. That's just dishonest. It was the end for me. I stopped my standing orders and I've been on a constant withdrawal regimen since then.

There's many of us over at prospers.org in that same boat. In my February 2008 review of lender sentiment, over 50% of the respondents indicated that they are only withdrawing funds from prosper.com. That leaves us with few real Prosper-related issues.

Traveler505's MNH (My New Hobby) reports are a beacon of light. Fred93's late loan statistics are interesting - they show that there is a distinct possibility that Prosper has started to turn around the horrible loan default rates that plagued Prosper during the first two years of its existence.

What does that leave us with? Squabbles and "popcorn" threads. The most amusing thing to do on prospers.org these days is to fight. Look at that horrible creditboards thread. That's what the membership put their energy into. Puzzles, games, trivia. The most buzzing part of the prospers.org boards is the Off-Topic area.

Then we have a fundamental "free-speech" problem. I'm all for free speech and allowing criticism. But I don't believe that we have to say this in the most derogatory way we can. Some members relish saying things harshly and cruelly. It's offensive and it drives away some of our members that are offended by that form of behavior.

Prospers.org is unique in my experience in that it does not regulate the interaction between it's members. Anything goes. And I'm not sure that is the right thing. There are many staunch supporters of that, and I realize well the difficulties in setting and maintaining standards, but does that mean that we don't have to have standards?

Whenever I observe the behavior over at prospers.org, two books comes to mind. William Golding's Lord of the Flies and a book from my school days - N.P van Wyk Louw's Raka (book not available in translation). It is hard to put into words exactly what I feel - I does seem as if we gravitate towards the lowest common denominator if we have no regulation.

There is no point in fighting for higher standards if what the population want are bread and circuses. I have to be realistic. The dream, the community, that was Prosper is no more and will never be. Many have realized it and moved on. It is time for me to do the same.

Prosper may yet succeed, but it has learned the early lesson: The dream of an Internet-based P2P lending site cannot be a "community." Too many people are too desperate and will say or do anything to obtain some money. Their ability and willingness to repay are frequently much lower than their stated intentions. Lenders are too gullible and greedy. We believe sob stories and lend money to those with a sad story to tell. We lend when the rates are unrealistically high.

What should Prosper do? Borrowers often misrepresent facts in listing descriptions. Other times listing descriptions cause soft-hearted lenders to bid on totally unrealistic loans. At the same time, the ideal of Prosper was to humanize lending and lend when and where banks couldn't and wouldn't. Will Prosper learn the lesson that banks and financial institutions have learned that the numbers portray the most realistic assessment of the viability of a loan? That will leave many would-be, deserving borrowers out in the cold. Fact of the matter is that there has not been enough successful lending on Prosper to make any other case.

The future of Prosper is where Zopa and LendingClub already are. Lower rates to lenders, at best a few points above CD rates. Numbers-based lending, shaving a few points off the rate spread between borrowers and lenders, but not dramatically different from what banks and financial institutions are offering. Chris Larsen should know this. After all, eLoan didn't make mortgages substantially cheaper to the borrowing public.

So, look for Prosper to adapt two things or wither on the vine. Firstly, they have to get a sensible process for borrower verification. They cannot continue with a haphazard, cumbersome process that is much harder and complicated than brick-and-mortar institutions use. Good customers will not put up with that. In my opinion, a borrower that puts up with some of the hoops Prosper makes them jump through is scarily desperate for money.

Secondly, Prosper has to improve it's anti-fraud and collections activity. It's not too late to aggressively pursue legal action against those that has already defrauded Prosper and its lenders. Creating a reputation of being tough on fraud is something Prosper desperately needs. This requires more than the pathetic example of fraud prosecution Prosper announced at Prosper Days 2008.

Collections on the other hand, is probably a lost cause. Many, many of the existing loans were made to borrowers that simply will never be able to repay those loans. Far better, in my opinion, is that Prosper puts more effort into making sure that future loans go to more capable borrowers. Not to say that there shouldn't be stronger collections activity, but you pick more strawberries in a garden than in the desert, if you get my drift.

So, arrivederci, Prosper and prospers.org. Wish me the strength to continue in my journey.

I'm not the only one that can't get a Zopa loan

2008-01-16T13:22:00.001-06:00

Newsflash.

Over on prospers.org we have an active IRC (Internet Relay Chat) community. One of the mainstays (and a big source of headaches for forum moderators on both the old .com and prospers.org forums) is bamalucky. A happy-go lucky Prosper lender with about $21k in Prosper loans. Now I know (inasmuch as one can know these things about Internet denizens) that he has a string of cashflow positive ventures, owns and rents several houses and has his fingers in several other pies.

He just tried for a Zopa loan and got turned down. I urged him to blog the details and if he does I'll cross link it here.

Bamalucky blogged about it here in his blog on Prospers.org.

Seems Zopa will have to get their act in order or they'll be turning away a certain class of borrowers.

Good customer service at Zopa

2008-01-15T10:07:00.000-06:00

One of my main complaints aboutProsper.com is their crappy customer service. I think you have to work at it to get a bunch of useless replies such as the canned replies that Prosper sends its lenders. You never get the idea that anyone is actually reading your email, rather that they spend the time selecting the inappropriate answer to respond with - that is if they could be bothered to respond.

Zopa is a whole different kettle of fish. Granted, they didn't answer their phones for a few hours on Monday morning, but that's the case with Prosper too. When I got the Zopa guy on the phone, he was great, effective and to the point. He looked into why my loan application was disapproved and asked if he could get back to me - yea right, customer service does that?

Not even an hour later I had a personal email from Zopa CS, laying out the fact that they (or rather I) discovered a bug in their software. In filling out the form I made a mistake on my income, and instead of sending the "Oops" page, they sent the "Sorry, bad news" page.

He told me what to fix and to reapply. I won't - I don't really want a loan, but I'm impresses with their Customer Service. I hope they can keep it up at that highly personal level.

Borrowing at Zopa

2008-01-14T11:42:00.000-06:00

I'm bored, checking out the Zopa site and the "borrow" tag catches my eye. I click on it and read these enticing words:

I wonder how much I'll qualify for? After all, I have pretty decent credit, or so the guy who sold me our new car in July told me. He showed me a credit report that had my FICO score at over 800 (the precise number escapes me now). It can't hurt to just click the buttons and see what comes up, can it? No sirree.

A few clicks and questions later, I press the "Apply now" button and am stunned to get the following:

A few seconds later I get the email with the promised "more details on why my loan request has been denied:

Hmmm... particularly enlightening is the reason the loan was denied: Other.

So, perhaps I have a crappy credit score or negative credit details on file with the credit bureau? Let's go and get the details:

Hmmm .. credit score of 797 isn't too crappy, sure, it's down from what I thought it was, must be because I got the credit inquiry on the car and then another credit inquiry when we changed TV providers.

Let's see how things stack up in the other departments, surely somewhere there's something that's bad enough to cause me to not get a quote on a Zopa loan?

Account details?

No, that can't be it, not too crappy, even if I have to say it myself.

There are more details and screen shots, but you get my drift. I have a very good credit record. I've never had difficulty in getting credit when I needed credit. Last time we made use of credit was in 2006 when we took the 6-months-same-as-cash deal on a new air conditioning unit. You can see the details in the above screen shot.

So I decided to make use of the friendly offer to call Zopa's office and inquire.

The Zopa email says their office is open 8am - 6pm PST, Monday to Friday. Today is Monday January 14th. I called the first time at 10:48 am CST which I believe is 8:48 PST. GOt a voicemail that their office hours is 9am - 6pm. Wish they could get the right hand and the left hand to know what the other is doing.

My last call to Zopa was at 11:44 am CST this morning. I still get told to call them back during regular office hours. What those hours are is of course anyones guess.

Lending at Zopa

2008-01-14T11:22:00.000-06:00

I thought I'd check out Zopa lending. It doesn't seem appealing to me, but I wanted to experience the process. Ponying up $500 for a one-year CD at 5.1% isn't the worst entry price to check out something new.

Sometime last week I started the process. Part of it is that Zopa has to open an account for me with a credit union to hold my CD. That process has not yet completed.

The actual process is relatively painless. All you have to do is to look at a list of borrowers (if there was a way to search I didn't see it) and decide which borrowers are worthy of your "help"

"Help" is interesting. It means that some of the interest you earn on your savings is in fact given to a borrower (who you may not know from Adam) and applied to lower their monthly repayment amounts.

At the least amount of help, your interest rate is fortunately not reduced from the nominal 5.1% offered, it is only if you decide to help one or more borrowers more that your effective interest rate is reduced.

Here's a screen of the minimum help:

If I were generous enough to sacrifice my entire earnings on my Zopa CD to the borrower, here's how it would have looked:

Anyway, all that remains now is to wait and see how long it will take Zopa and the credit union to finally open my account.

LendingClub - all those pennies are adding up

2007-10-04T19:11:00.000-05:00

Seems I'm spending more time blogging about LendingClub than I'm blogging about Prosper lately. Well, Prosper is in the doldrums right now. I can't work up enough enthusiasm to restart investing there (my current portfolio is aging quite nicely, thanks) and the forums have become quite boring lately. P2P lending isn't what it used to be a short year ago.

So in the meantime, I have this little portfolio over on LendingClub and their antics are frankly weird.

All my loans now have had the opportunity to make one payment, so I thought I'd take a look at how things are shaping up.

Remember (for those of you not wanting to search back in my blog), here is my portfolio overview:

My "expected monthly payment" should be $13.91. See? The number is right there in black and white. Now usually, with fixed-term repayments, the monthly payment is exactly the same every month, only the portion going on interest varies slightly based on the number of days in the month. So I am fully expecting to see $13.91 credited to my account every month.

Here is the header of the "Performance" tab of my portfolio.

Hey! What's this? Total Payments $13.85? That's short a whopping 6 pennies! Who didn't pay their loan in full?

That's weird. On first glance every borrower paid and is "current." Look closer, and you will notice that s few of the loans actually paid a penny less than the expected monthly payment. If they keep that up, they'll never get to pay off the loan in the agreed-upon time.

The other option is that LendingClub isn't doing the math as carefully as Prosper is doing it. Prosper has display capabilities up to 6 decimals for fractions of a penny and their math is usually very accurate. Doesn't seem at first glance that LendingClub is as careful with my pennies as Prosper is.

LendingClub - Wacky portfolio accounting

2007-09-18T14:33:00.000-05:00

Here is my account overview page on LendingClub.com..

I've already devoted a post to that silly little penny in my account. But here's a more puzzling set of numbers:

First, here is a look at my portfolio contents: (yea, yea, click for the viewable image).

Easy math: 17 loans at $25 is $425. The expected monthly payment on the entire portfolio is $13.91. The first loan is due to make a payment on Sept, 21st.

But look at the performance summary tab of my portfolio:

There's a whopping $502.62 in "Current Loans." I'm puzzled. Perhaps I'll get over my headache and go through the hassle of contacting Customer Support.

But I've had enough of Customer Support, what with 5 calls to Dish Network yesterday and three calls to Aetna Healthcare yesterday and today and a bunch of other little things thrown in. Not that anyone would be interested. Oh yea, Microsoft Windows Live OneCare, Time Warner Cable and a bunch of others too. I'm seriously sick of contacting Customer Support.

LendingClub - The Extra Penny

2007-09-18T14:19:00.000-05:00

As I wrote last month, I invested in a small portfolio on LendingClub.com.

The portfolio was supposed to be an automatic investment of $25 in each of 20 different loans. Three of the loans didn't pan out for one reason or another, leaving me with 17 loans of $25 each and $75 returned to my account. My account also contained a small test withdrawal LendingClub made to test access to my bank account. This was for the princely sum of $0.44.

After two of the loans didn't fund, I withdrew the two bids and the sample deposit - $50.44 in total. Now the math is pretty easy, that should leave me with the one returned bid of $25 in my Lendingclub account.

Not so according to LendingClub. Somewhere along the line, I gained an extra penny. (Click for larger image).

That's not all. In my next post, I'll show you some really wacky accounting for my loan portfolio.

My first Lendingclub portfolio

2007-08-17T15:21:00.000-05:00

Yes, well, so I've been silent for a lot longer than I thought. Truth be told, I can't seem to garner the enthusiasm to analyze the Prosper data files lately. However, Prosper today made a great change and started linking loans to listings in their API. That's huge. Maybe I'll resume some work in the near future. Right now I'm mostly occupied building a new, faster desktop that perhaps will crunch the Prosper data files faster.

I've also started to check out LendingClub, the facebook P2P loan application. As a first test, I've used their automated portfolio builder to put together a $500 portfolio of 20 loans of $25 each. Based on my Prosper experience, lending by the numbers are far more likely to yield desired results (if it is a return of your funds that you desire, that is).

Difference with the automated portfolio builder, I didn't get to specify as many criteria as I do with a Prosper standing order, I merely selected my desired return (see image).

After that, Lendingclub churned away and displayed a list of selected listings. It was possible to adjust the amount targeted for each listing, or to discard the listing entirely, it was also possible to add additional loans to the portfolio. I choose to do neither and in short order I had the following portfolio.

In a few months I'll let you know how that's working out for me.

It's taking more time

2007-07-16T16:50:00.000-05:00

I have downloaded the data, but the volume of data (especially the bid data) has grown so much that every time I pull an analysis, I lose interest before the results come in.

I'm still pottering with it, but I'm thinking I'm going to need an upgrade in computer before I can resume my regular scheduling.

Just one nagging thought from my past. Working with the data downloads are data (disk) intensive. As such, I'm not sure that only upgrading the processor will do the trick, and I don't know many laptops that have substantially faster harddrives (faster than 5,400 rpm, that is).

So it may take some time before regular analysis resumes.

Resurrection

2007-07-06T15:25:00.000-05:00

Wow, geeze.

I said I was going to be busy for a while, I didn't mean to fall off the side of the earth.

Now that things are approaching normalcy again, I'm fully intending resurrecting this and again post what I perceive to be interesting looks at the data on Prospers.com.

Prosper 2.0

2007-02-12T13:41:00.000-06:00

Today is the first day of Prosper Days in San Francisco. The lucky Prosperites are all there, the rest of us are sitting at home, hoping for news from the convention.

They are off to a good start. This morning when I opened my mail, there was an announcement from Chris Larson himself. A great number of changes indeed. You can read about it in this post on the Prosper forums by Prosper Andrew.

It is gratifying to see that a concept I have been touting since the early days I've been blogging has been implemented. Lenders will now be protected from their irrational impulses.

Gone are the days of NC (no credit history) borrowers. The bottom of the HR (high risk borrowers) are also excluded from borrowing on Prosper. The range for the remaining HR and E borrowers have been adjusted to better reflect the new spread of credit grades. Some borrowers that previously were E-grade will now fall into the HR grade.

Prosper has also taken steps to improve its profitability by charging both lenders and borrowers more for listings in the lower credit grades. That means that borrowers have to borrow slightly more and lenders have to charge slightly more to maintain the status quo. Whether rates will reflect this is anyone's guess. My guess is that we'll actually see rates decline even more.

The new Q&A feature is interesting, it circumvents some of the crazyness in the forums. My beef? You can't bookmark a listing that you have asked a question of. Please Prosper, help us out, give us a way to store listings that we are interested in! How do you expect us to keep track of all the listings we've asked questions of?

There are other beneficial changes, such as the expanded ScoreX data. I'm delighted. For the next few weeks I'm pausing all my Standing Orders until the dust settles somewhat and all the pre-Prosper 2.0 listings flush out of the system. that will give me some chance to reflect on how I want to adjust my SOs to take the expanded data into account.

Oh. An interesting feature is the ROI calculation in the Marketplace Performance data page. For kicks I decided to check out how Prosper has performed during my tenure there.

The ROI data is only available on seasoned loans, so the ending date for ROI calculations must be at least 5 months past the date of observation. This means today (Feb 2nd, 2007) we can only check out the ROI up to October 11th. Well, that works nicely, I've been at Prosper since May 11th.

For AA grade lenders, the overall Prosper performance over that time is a respectable 9.10%. For A, B, C and D grades, 10% isn't so bad. But look at the E and HR data. A lender who concentrated on E-grade loans would be down the tubes for -2.9% and the poor HR lender a whopping -25.6%!

No wonder Prosper is trying to curtail lending on those grades - the numbers are awful! Crazy loans have been funded and some lenders must have sad-looking portfolios .

So, reflect on that while you surf over to Prosper and investigate the goodies on offer. Remember: high interest rates are commensurate with high risk. Play with HRs and you will get burned.

Kudos to Prosper for a job well done and thank you for the Marketplace ROI data - it is a sobering reality check for lenders.

Listings Pending Verification

2007-02-10T19:42:00.000-06:00

Holeinswiss asked about verification, so I dumped the data and had a look. I'm impressed. Prosper is as good as their word. THey said back n December that they'll focus more resources on verification and it seems they have done so. Check the numbers.

2007-01-27 Listings Pending Verification

2007-01-27T14:37:00.000-06:00

It has been a while since I've published this list. Well, here it is. I am involving myself in some extra-Prosper activities for the foreseeable future and I'll have less time to track these and other interesting Prosper numbers for the next few months. Please stay tuned, as there are things about Prosper that piques my curiosity, I'll be investigating them and reporting on them, it just won't be with as much frequency as in the past.

The short list for those who only want to see the most recent numbers:

The full spreadsheet with the history of these numbers as far back as I've traced them (Link to the spreadsheet):

2007-01-19 Listings Pending Verification

2007-01-19T10:19:00.000-06:00

I really think things have improved dramatically. Prosper was as good as their word and seem to have put in significant additional effort since early December. I've updated the spreadsheet as well for those interested in it.

Revisited: More Bidding Patterns

2007-01-19T08:58:00.000-06:00

Once I told the Prosperites over at Prosper's forums, they came up with a few interesting comments. Especially Nonattender. He pointed out that I charted winning bids as opposed to winning bids in funded loans. He was also curious as to what the chart would look like when viewed from the back.

So this post is for you Nonattender.

The revised chart (winning bids in funded loans) viewed from the "front":

Clicking the chart image opens a new window/tab.

And viewed from the "back".

Clicking the chart image opens a new window/tab.

More bidding patterns

2007-01-18T18:11:00.000-06:00

This one is a biggie. I've been working on it before, especially around the 22nd of December, but I couldn't get it in a nice format to display. Today I worked a bit more and now I'm ready to bring you ... tadaaa....

How each month's lenders bid over time. I plotted Prosper lenders by their tenure on Prosper and then correlated their bidding for each month of their tenure. (I cut off the pre-public lenders and months). So, for the January 2007 bidders, we can only see how they bid in January 2007. For the members that joined in December 2006, we have their bidding pattern for December 2006 and for January 2007. And so forth for every month back to March 2006. Each color series thus represents the bids made by that "generation" of lenders.

Graph should open in separate window/tab if you click on it.

First thing, notice how every generation of lenders start off the month after they join with a big wave of investment that then gradually tapers off over time. I think the first-month surge can be attributed to the fact that the lenders join over the course of the month, so not all borrowers are able to bid for the duration of the month, so the next month we see all those borrowers out in full force.

Also, note the incredible surge in bidding by the members joining in November - the surge in July is similar, but just smaller. I think the November members must be the readers of Business Week. It is clear to see why rates dropped so dramatically. I doubt there were enough listings to accommodate such a flood of new money.

Any other conclusions and remarks are up to you, the reader. Feel free to post your observations here or back on Prospers.org the unofficial home of Prosper lenders, group leaders and borrowers.

2007-01-18 Listings Pending Verification

2007-01-18T12:23:00.000-06:00

I'm trying to include a new column for median days pending verification. To those who requested the information with most recent date at the top, I'll look into it, but it is easier for me to add the data to the bottom of the spreadsheet than the top. I've tried to display less data, perhaps that helps.

Feedback, as usual, is welcome.

2007-01-17 Listings Pending Verification and Other Musings

2007-01-17T17:42:00.000-06:00

Life is interesting. You'll notice on the right there is now a section on my blog named "Sites I Visit". Those are some of the sites on the Internet that I find interesting and that relates to Prosper.com. It came about as a result of an email asking/offering reciprocal links. Apparently there is goodness in having reciprocal, content-matching references in my blog to other blogs. Well, I'll see how it works out. I don't want to overwhelm you, gentle reader, with too many links and ads and whatnot. Hence I've decided that regardless of how much I want to experiment with Google AdSense, for the time being, my blog will remain pure and unsullied by advertising.

Well, what about listings pending verification, you ask? I'll come to that in good order. Before I do, however, I'm proposing a format change in the statistics I'm offering. I'm not intending to apply it retroactively, although I can, I think it'll just be too much work.

The change is to provide the median age of listings pending review, rather than the average age. The idea behind the median is that exactly half the listings will be older than that and half will be more recent. The other half remains undetermined.

For yesterday, the median age of listings in this state was 5 days, today it is 4 days. Compare that with the average age of 3.28 and 3.29 days for those same two days. I can't simply add another column of data, the chart has to fit into the limited space my blog makes available here on the left of the page.

So please think about whether you think the median age will be more informative than the average age and drop me a note or leave a comment. I'll also be asking the same question over at Prospers.org. So feel free to drop in there and leave a comment. Feel free to browse the site as well. Perhaps you'll like it and stay.

OK, without further ado, here are the numbers:

2007-01-16 Listings Pending Verification

2007-01-16T16:08:00.000-06:00

I just can't get it right. Sometimes I say "pending review", sometimes "pending verification". Well, when you look in the database, its pending verification, but I think (too lazy to confirm) that on a listing it say "pending review". Just today renamed all my files and procedures involved in gathering this information to have "verification" in them.

Something that really bugs me (but not in a bad way) is how Prosper's verification procedures work. Some days they close 50 loans, then the next day 1 or 3. It's not as if it is a weekend, the off days are asymmetrical. Really strange. Do they just sit around on some days chewing the fat or do they spend those days assisting Customer Support?

Do Lenders Learn From History?

2007-01-15T18:33:00.000-06:00

I always espoused the thought that new lenders were lured into bidding on higher-risk loans because of the high interest rate. I also thought that lenders would learn and adjust their bidding patterns accordingly.

But is that truly the case? Take a look for yourself. I took all winning bids made on Prosper (the data is roughly similar if I take all bids, but I was interested in where lenders' money ended up) and correlated the bids with the lenders length of tenure on Prosper. So all lenders have made bids in the 0-month category, but only those lenders from the pre-public days have been around to make 15-month old bids. Capice?

So, if we as lenders unwisely lent to high-risk borrowers, the HR and E categories should comprise a large part of our early (first 3-4 months?) lending, and then a tapering off, or a switch to lower-risk loans should be observed.

Well, here's the chart:

It looks to me as if beginning lenders don't en masse jump into the deadly high-risk pool, but there seem to be a definite shift in attitude occurring around months 10-12 (the earliest public Prosper Lenders). Months 13-15 are data from when Prosper wasn't publicly available.

2007-01-15 Listings Pending Review

2007-01-15T18:24:00.000-06:00

Here we go:

Blame the Lenders? Or the Borrowers?

2007-01-13T17:34:00.000-06:00

There is much talk of the poor quality of listings on Prosper. Many lenders complain that they cannot find quality listings to bid on. Even more lenders are complaining about the higher-than-normal^* default rates that they seem to experience.

There are, in my opinion, two possible causes. One is that we are getting poor quality listings to bid on, the other is that we are making poor choices.

First, let's look at what is on offer. The following chart shows, on a month-by-month basis, the composition of all (funded, unfunded, withdrawn, whatever) listings on Prosper.

Wow! HR listings make up nearly 60% of the total listings. Add the E-grade listings and we are up to 80% of the buffet on Prosper. Slim pickings, indeed. remember, these are credit grades that banks and Experian assign great risk to.

What do lenders do in the face of such a dubious menu? See this chart.

I think we display some restraint, but not nearly enough. In the last 3 months or so, we've started allocating nearly 50% of our funds to those risky credit grades! That's ridiculous.

The great thing about writing this blog is that I can lay the blame wherever I choose. And I choose to blame high interest rates. The famed Cellardoor always found a way to introduce the phrase "adverse selection into threads.

Now the way I understand adverse selection is that we choose to do that which is wrong for us. We choose to bid on listings with high interest rates because the high interest rates appear attractive. What we don't fully factor in that those high interest rates come with great risk to our capital.

Lenders that stay on Prosper after a while see the defaults add up in their portfolios, wise up and move away from the highest risk grades. New lenders pile into these high-risk loans and make tragic mistakes. I'm going to figure out a way to plot this and see if I can prove this theory.

I think Prosper should do two things. One, make it attractive to higher-grade borrowers to come and borrow on Prosper. That include speeding up the borrowing process and inhibiting lower-grade borrowers from having so many listings on Prosper.

Two, protect lenders from themselves. Even the mighty Big Gulp eventually suffered defaults in his portfolio of HR loans. Mandate some form of restraint on lenders, be it relative portfolio allocation, minimum amounts, time as a lender, whatever. Just stop new lenders from burning themselves on the deadly, attractive flame of high interest rates.

^* I'm well aware that there is no such a thing as "normal" or even "expected" returns on Prosper. The published rates are woefully inadequate and doesn't cover listings with high DTIs. The published rates doesn't seem to apply to loans on Prosper. Lenders build individual portfolios that greatly differ in performance.

2007-01-13 Listings Pending Review

2007-01-13T16:13:00.000-06:00

I'm also considering adding Google AdSense ads to these pages. If you have an opinion one way or another, surf over here and let me know. Thanks.

2007-01-12 Listings Pending Review

2007-01-12T12:31:00.000-06:00

Learn About Cancelled Listings

2007-01-12T09:19:00.000-06:00

Here is a list of listings cancelled within the last 30 days.

A Busy Day at the Office

2007-01-11T20:05:00.000-06:00

Yes, it must have been a busy day at Prosper's office. Just look at how many listings they've been cancelling.

Incidentally, I've had a fun day. Now that I've solved my data assimilation problem, I've had some fun playing with the data. This is what, my 4th post for today? Oh well, I'll find something else to do tomorrow. Perhaps.

2007-01-11 Listings Pending Review

2007-01-11T17:35:00.000-06:00

Thanks to Prosper John for getting the data download fixed. Here's todays update on the Prosper position. Seems the Prosper Elves have been hard at work!

Prosper is Hard at Work

2007-01-11T15:53:00.000-06:00

Just a few days ago I published a graph on how many bidders are actively bidding each month. Over on our new lenders-only forum, Prospers.org, Xelint-Enterprise asked if I could overlay that with the number of loans.

Interesting idea, but Prosper only issues about 420 Loans on average each month, so if I try to create a bar chart with one bar being 7,000+ bidders and the other being 400 loans, the scale is so off that it hardly makes sense. So I hot on an idea. I created the graph, but divided the number of bidders (lenders) by 10. So, in the following chart you can see the orange bars should be roughly the same shape as in my above-referenced post, only divided by 10. The green bars show the number of loans issued each month. December was a record-breaking month for new loans as well as bids and lenders bidding!

I hope Prosper gets the bugs out of its verification and CS procedures, it's really slowing down things and making lots of people unhappy. I understand that it will take time to work the wrinkles (and that's all it is) out, but the clamour is getting quite heated over on Prosper's forums.

No New Information

2007-01-11T13:48:00.000-06:00

For the last two days the Prosper data download seems to not have any data in it fresher than January 9th. Hence I'm unable to update the statistics on listings pending verification. I hope that it is a Prosper operating glitch rather than a response to my analysis of that data.

Bah, humbug. I'm a closet conspiracy theorist and definitely doesn't follow Occams Razor theory. A short email to Prosper and the download has been fixed. I'm working on a blog article about something unrelated. As soon as that is finished, I'll go download the new data.

Which brings me to another weird problem I'm having. My computer is connected to a wireless router that is connected to a cable modem. When I try to download the Prosper data file (or any large file for that matter) something goes awry and the transfer never completes. I have found that the only way I can get the download is if I take my computer upstairs and connect it to a LAN port on the wireless router. Then the download takes 2-3 minutes, which is decent for my broadband rating. It just play heck when I want to watch TV or so large downloads, I have to go upstairs. As soon as the 802.11n standard is completed I'm buying a new router and card to see if I can overcome my problem.

Of course, since I've bought my current set-up I've come to detest D-Link, the manufacturer. On my initial setup, I had a snag and received excellent help. Then I bought an additional card for one of my other computers and the install didn't work as the doc said it should, plus it messed up my Windows XP logon screen. So I contacted D-Link again and got atrocious service. So bad that I wrote them a letter about it. Their response? Nada, zip, zilch! So next time I'm buying Linksys or Netgear.

Active bidders

2007-01-09T19:05:00.000-06:00

This time I decided to look at the number of active bidders on Prosper. I did this by counting the unique bidder identities that made one or more bids in any given month.

Looks even more interesting in the form of a graph

We hade a very significant uptick of active bidders during the month of December, the month that loan rates fell to historic (ha! 6-month is a better description) lows.

2007-01-09 Listings Pending Review

2007-01-09T10:56:00.000-06:00

I'm very pleased. No, not with Prosper, but with myself. I've finally managed to improve the process by which I create these stats and manipulate the Prosper data download to a few clicks. That should leave me with more time to actually play with the data. Next on my plans is a static page for providing the listings under review data so that I don't have to create a new post every time. Perhaps just a link to the graphic image on my image host Village Photos.

Anyway, here are the stats as of this morning.

PS. I've also updated the spreadsheet.

2007-01-08 Listings Pending Review

2007-01-08T19:35:00.000-06:00

I've been otherwise occupied and apologize for the delay - here are the latest numbers. Things are looking increasingly worse for the number of loans in the pipeline.

Things surrounding Prosper

2007-01-05T19:24:00.000-06:00

There is a whole cottage-industry that sprang up around Prosper. First there are the statistics sites that present Prosper data in new and innovative ways, then there are additional forums where people can gather to chat about Prosper and lending and finally, there are blogs about Prosper.

I'd like to give an overview of those sites that I know about and I'd appreciate a heads-up on additional sites if you know of any.

Statistics sites

First is my favorite - Eric's Credit Community

Then there's Wiseclerk.com

To round off the list, there's Savage Number

Oops! I almost forgot P2P Loan Analytics

Next up are the forums

First and foremost are the Prosper Forums

Next up is the Prosper Lenders' Forum

Cellardoor

The Prosper Wiki

A newcomer is Prospers.org

Ferrix

I'm not sure the Ourtopia Forum deserves a mention.

Ourtopia

Now for the Bloggers

The first bookmark I created for Prosper-related content was for Cellardor's blog, Prosper.licio.us.

Cellardoor probably deserve a chapter in the book if someone was to write a history of Prosper. He seemed to have unbound energy and aspirations for Prosper, as well as a ready purse to support his causes. His blog (as is his writings on the Prosper forums) are prolific and profound, yet stopped dead some months back. Still a worthwhile read for any newcomer to the Prosper, though.
Seeing as to how I started with defunct blogs, the next one up is Who's bidding on Prosper.com?

A borrower on Prosper has Blogging Away Debt.

Just today I came across Rateladder.com, a site by a Prosper lender.

That about wraps up this post. I've still got to extract and report on yesterday and today's listings under review.

Oh, and if you are interested in P2P money lending, don't forget to check out Zopa the UK P2P lending organization that has been promising since August to come to the US. So, go take a gander, but don't hold your breath. I guess the EU red-tape is no match for the red tape in the US.

Something I just discovered today

2007-01-05T18:22:00.000-06:00

And I don't particularly like it.

I was perusing my Prosper.com account earlier today and I noticed a discrepancy in the numbers - kinda glaring and easy to spot - see for yourself. (Go ahead, click on the omage for a larger image, I've figured out how to make it link to its full-size replica.)

The two amounts for loans pending review doesn't agree. What's worse, the $200 figure is correct.

Not expecting much, I composed and sent off a note to Prosper's Customer support. I was fully expecting to wait for a week or so before I heard anything from them.

Great then was my surprise when this afternoon, I got a response. I was less delighted with the contents of the response.

For performance reasons, we don’t display bids on listings which funded more than 15 days ago. Therefore, your bid is still active, and the loan may or may not be funded, but at this time you just don’t have visibility to the listing that you bid on.
Listings which have ended with 100% funding from lenders go into a status called "pending review", which typically lasts 3-7 days. During this time, Prosper verifies the identity, address, and income of the borrower.
In some cases, listings pending review are held for longer than 7 days. This typically happens when we have been in contact with a borrower and expect documentation to be sent shortly but simply haven’t received it, or when documentation is received, but not legible (which requires the borrower to re-send documentation).
In any event, it is our goal to get loans originated as quickly as possible and put lenders' money to work with as little delay as possible. As a result, sometimes listings are held for longer than 7 days, but rarely more than 14 days.

So, from this I've got to understand you've developed your database so poorly that there is a performance hit if you trawl the bids made by a specific lender? And worse, you don't mind showing me conflicting information? How much does a CPU second cost versus the time it takes for your support staff to answer my (and every other lender that gets this problem) email to Customer Support?

I'm projecting that with great growth, the CPU problem will magnify itself, even for the bids made less than 15 days ago as the database and the total number of bids per day increase. That means you're looking down the barrel of a gun anyways. With sufficient growth, you'll be bottlenecked to provide lenders with the information you provide them with today by doing the 15-day trawl through your bid records. So quo vadis Prosper?