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I was expecting Prosper’s Quiet Period to go similar to Lending Club’s — Quiet for a few months and then come back out better than ever. Therefore, I am amazed at what I just read…
Prosper Receives a Cease and Desist Order from the SEC
Considering that Prosper was already in a quiet period and no longer talking bids on loans, this seems like an unnecessary step by the SEC, but they may have felt it was necessary to make a point. I also wonder if they had not received complaints because of their misleading marketing — including quotes in the media on horribly misleading default statistics. Or maybe it was their complete failure in collections as Prosper continued to focus on origination and not on operations.
I have transferred out all the money in my account possible and am glad that I stopped lending with Prosper some time ago.
Quotes from the Cease and Desist Letter
There were some interesting points to the cease and desist letter that I would like to highlight (any emphasis added is mine).
Read the rest of this entry »
Aug
Internet Loan Scams - Scammers Contact me for Funding
I regularly receive scam emails requesting large loans through my contact form on this loan related website. Most of these are probably some type of advanced fee fraud if you were to start corresponding with the individual.
There are some people who take pride and joy in wasting scammers time by corresponding with them, but I don’t have time for that. Although it is humorous to read through some of the tales of scam-baiting at 419eater.com.
I hope other people are not falling for these loan scams, but unfortunately they are. There are various types of financial fraud on the internet — here are some examples of people who were charged. Of course, there is also the famous Prosper case of Jessica Wolcott.
The best email that I received had the subject line “Seeking a loan for $350,000″ and the email body text of “need funding.” That is all the email contained.
Here is one below that claims to be from Atlanta Georgia, but if you look up his IP address he is somewhere in the Caribbean.
I am a small company in Atlanta GA which with need to join together the sum
of $100.000 to pay the emission of bonds private and public which will be
sold in the whole world by NEW YORK Stock Exchange stockbrokers I also have
several sources of international investors who will buy the bonds of my
company when it are emitted and published out of purse. Since year 2000
that I fight to succeed. I have to accomplish several voyages to find
partners who now will help me to carry out my macro commercial project and
industrialist who is at 100% innovating and reliable like says it to me
economists. I wish that you to help itself to find funds to pay the
emission of the bonds for my company by the means of my lawyers located at
Miami FL. Of course I will give you more information to make a enquette
before engaging you with me. I am French and does not speak quite English
but takes lessons to learn.
Aug
Top Ten Referrers and Posts for the First Half of 2008
Thank you to the blogs and forums that sent me the most traffic in the first half of the year. Also, I’d like to take a look back on the most popular posts of my p2p lending blog for the first half of the year.
Top Referrers:
- 1) Lazy Man and Money has sent me a good deal of traffic because I like his articles enough that I comment frequently on the site. Recent post I liked: Is organic food worth the money?
- 2) P2P No Bank - I even changed my blog theme to get back on this site.
- 3) The official prosper blog is also a good source of traffic. Not only does the official blog post the prosper numbers but it also posts interesting items like the history of p2p lending.
- 4) Rate Ladder often has interesting posts like the Zopa security issue.
- 5) Despite Peer Lend being more infrequent in posting than me. The site still sends me regular visitors.
- 6) The very unofficial prosper forums still send me traffic. I occasionally still visit there for posts like the Peak Prosper Theory.
- 7) Prosperous Land who unfortunately recently quit blogging had many good posts such as listing all the Prosper Days videos.
- 8 ) Lending Club’s Official Blog was also a frequent referrer.
- 9) I was surprised to see Moolanomy because I rarely comment there and don’t remember a particular post there that sent me a lot of traffic. I quite liked the recent post on building extra income streams.
- Wise Clerk was a top referrer.
Apr
Change in Lending Club Cash Burn Rate Due to Quiet Period
Lending Club has gone quiet and is no longer allowing lenders to lend, but borrowers can still borrow money according to their email notice. Those loans will be funded by Lending Club. From the email notice:
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.
This made me start to consider the change in the Lending Club cash burn rate (definition of burn rate). Since I have no idea what Lending Club’s burn rate was, I can only estimate the delta in the burn rate.
Debt Kid mentions in his take on the quiet period that he thinks that a high estimate of Lending Club’s burn rate was $400,000 per month considering 22 employees. The pre-quiet period burn rate is not nearly as important as the change the burn rate since Lending Club agreed to fund all borrowers until the SEC issues are sorted out.
Lazy Man asked what loans would be funded, but to make my delta calculation, I will assume that similar loans will be funded as were being funded before the quiet period since Lending Club said “borrowing… will remain generally unaffected.” I will also assume that the loan volume will stay the same since borrowers are not nearly as concerned about the stability of the company as lenders.
Lending Club Stats lists the March originations as just over $4 million. So the burn rate will be rate at which cash is loaned out plus the interest received in the mean time. I assume also that lending club will receive the average interest rate of approximately 12% and that Lending Club will still capture the same origination fees.
$4 million per month Read the rest of this entry »
Jan
P2P Lending: Everyone is Watching
My funds arrived to Prosper Marketplace a few days ago. I planned to jump into Prosper and start carefully selecting loans for funding. I browsed a few loans, but I have cold feet.
So I opened my blog to reflect…. Why am I nervous about bidding? I had no problem lending on Lending Club for a total of about $1,000 to date. So why is Prosper Marketplace different?
My trouble in starting to bid seems to come down to the openness of the market. That same openness is great for transparency. As I have read on other blogs, browsing P2P lending is voyeurism. I think it is a bit of Voyeurism and Exhibitionism.
Peer-to-Peer lending feels voyeuristic for several reasons:
- Many loans provide interesting, entertaining, or just odd stories.
- After browsing loans, you cannot help but to feel more secure in your own financial future because you had to read so many poor quality loans.
- It can be fun to pass judgment on others occasionally and with Prosper or Lending Club, you can decide who receives funding and who does not.
- Peer-to-Peer lending allows you to feel superior to others who are not as financially savvy. That is why most of them need the money.
Peer-to-Peer lending is great fun to view the financial lives of others. I like that part of the openness.
So what about the exhibitionism? Read the rest of this entry »
Jan
First Two Months Blogging P2P Lending
Thank you for reading my first two months of blogging P2P lending. During this time, I have written 37 articles on P2P lending as I have shared my experience and learnings about peer-to-peer lending.
I would like to thank all the bloggers who have linked to my posts and added me to their blog roll. P2P No Bank Aggregator (managed by Rate Ladder) has provided a some traffic and makes it easy to break into the P2P lending blogging scene and to keep up with other blogs. Lazy Man and Money also sent many users my direction with the first Peer to Peer Lending Carnival. My MicroFinance (link removed 3/5/2008 because blog now MIA) was the first to add my blog to his blog roll. Other blogs have followed such as Prosper Lending Review and I have received a few mentions in the official Lending Club Blog such as this announcement. Wise Clerk also linked to several of my posts. I am certain that I missed some more bloggers, but I cannot remember all the links at this time.
Bloggers also helped create the content for my most popular post to date “Advice for New Prosper and Lending Club Lenders.”
Also, thanks to Lending Club which has already paid out Read the rest of this entry »
Dec
Glenn Chapman on P2P lending at Prosper, Virgin, Kiva and Zopa
Glenn Chapman wrote an article about P2P lending which can be found at Yahoo.com News. Included in the article were Prosper.com, Virgin Money, Kiva, and Zopa. Below are a few excerpts from Glenn Chapman’s article and my comments. Glenn Chapman begins the rehashed material article with a great feel-good tag line:
The Internet is directly connecting investors and borrowers, letting them take banks out of the lending equation and put their money where their hearts and dreams are.
Never mind the details that Zopa is actually adding a layer of bureaucracy between the bank of the people involved rather than removing it in its US based model:
Zopa feels US investors are steering clear of risk so, in contrast to its London-based service, the firm guarantees lenders will get their money back. Lenders at Zopa put their money into the equivalent of certificates of deposit, selecting borrowers they want to direct funds to and picking interest rates from pre-set ranges. Zopa banks on its borrower-screening savvy to minimize losses.
On to the Prosper.com information listed in the article because this was my reason for posting about Glenn Chapman’s article in the first place…
If a Prosper borrower fails to pay back a loan the default is reported to credit agencies and eventually sold to collection agencies. The default rate on Prosper loans is a meager three percent.
There are several items related to Prosper.com that people complain about 1) censorship (see my article on Prosper editing Wikipedia and the comments at the WSJ) 2) poor collections (link to one of Prosper’s Top Lenders Collections Issues) and 3) the default rate is higher than expected and advertised.
Prosper claims the default rate is 3% which is only technically true by the Prosper.com definition of a default and includes all loans — even very recent ones. The 3% default figure does not take into account that the average three-year loan is only less than one year old. Prosper statistics on Lending Stats can easily prove this. Take a look at the below graph generated from LendingStats.com:
Prosper’s statistics are technically correct per their definition — less than 3% of Prosper loans have been put in the status of “defaulted.” However, for a Prosper loan to go into default, it must be more than 4 months late and only once per quarter are all loans which are more than four months late are classified as defaulted.
Considering that the average age of a loan listed currently at Prosper is only 284 days (approximately 9.5 months) and that it takes four or more months to be considered in default, there are many more loans that are going to default in the near future. See this prosper statistics page which shows default rates on loans originated in the first several months of the site to be in excess of 20%. That is right, the default rate is probably going to actually be more than 20% after three years. A default rate of 1 in 5 loans is horrible. Banks would be out of business, but Prosper does not share in the risk only the people lending.
How Many Prosper Loans are Late? Read the rest of this entry »
Dec
MySpace Founder Giving Kiva Gift Certificates for Christmas
MySpace Co-Founder and CEO, Chris DeWolfe, is giving Kiva.org gift certificates to his employees for Christmas so that they can provide microcredits (found via Fortune). You can gift Kiva gift certificates too by purchasing them on the Kiva website. That is a great idea to generate buzz and interest in Mircoloans and MicroCredit for international development. The Grameen Bank received the Nobel Peace Prize in 2006 for its microcredit program, so I expect the concept to continue to grow. It is the teach a man to fish concept (and give him a few bucks to buy a pole and lure) that makes microcredits long-term more sustainable than giving out a loaf of bread.
Another alternative development Christmas gift is OxFam which allows you to give farm animals to help reduce poverty. See the OxFam Catalog to order.
Continue below for Links about Kiva: Read the rest of this entry »
Dec
Prosper.com Edits Wikipedia: Removing Criticism
Wiseclerk mentioned the fighting over the Wikipedia article on Prosper. (The disagreement can be seen on the Wikipedia talk page. ) This reminded me of the wikipedia scanner. The wikipedia scanner checks Wikipedia edits versus the IP address of the editor and looks up the domain to find out possibly what company or governemnt agency made the change. Some interesting examples of Wikipedia Scanner usage include:
- BBC shows the CIA edited the page for the President of Iran
- Diebold axed a section of a page which included criticisms of its voting machines
- Someone in the Democratic Party HQ modified Rush Limbaugh’s page
So what did Wikipedia users with Prosper Marketplace IP addresses edit on the Prosper wikipedia page? Read the rest of this entry »
Nov
Blenders Borrowing-to-Lend: Earn money on good credit?
As I browsed Prosper loans, I was surprised at the number of community members who would like to use their good credit score to borrow money in order to reinvest the money in other P2P loans. This is called leverage and by definition it does increase risk. Is it a strategy that is likely to payoff?
The borrow-to-lend strategy was referenced before in an article on OmniNerd. As of this posting on the Prosper website, LeedsGirl (AA credit) is looking for $2,500 to reinvest in Prosper loans. Bpyatt is asking for a similar loan for $10,000 at 11%. MoneyDoc99 (AA credit) is borrowing money to reinvest as part of a Doctoral project. The list of people doing this goes on, and on and on. In fact, at least 5 of the 25 people who appeared on the first page of loans were lenders borrowing to reinvest in prosper loans. Another person on the front page is reinvesting in the Chinese stock market. The funniest part is the text of this loan request, which is already completely funded at 12%. Engle writes in his loan request:
I recommend this investment to anyone with $5,000 USD sitting around. The USD will continue to depreciate in the next few years… Since I do not have the capital to readily invest in foreign markets, I am request this loan to fund my “riskless” investment in the Chinese currency and market.
It sounds like he would also recommend this investment to anyone — even if they do not have $5,000 laying around to invest. I would certainly not call the investment without risk. If it was a “riskless” investment, it would pay the same rate of return as a US treasury bond. Maybe he forgot about the Asian financial crisis which occurred only about 10 years ago. I would question anyone’s investment acumen who calls an investment in single market on borrowed money “riskless.” Personally, I have been increasing my stock percentage in foreign funds due to the likelihood that the dollar will continue to depreciate, but it is certainly not a strategy without risk.
I am calling the strategy Borrow-t0-Lend, but many of the people on Prosper trying the strategy label the practice “Borrowing to Reinvest.” Other lenders call the people who borrow to lend “Blenders.” So is it a good idea to use your good credit score to lend to others with a lower credit score? Read the rest of this entry »
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