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I started peer-to-peer lending with Lending Club for several reasons, but I will invest my next $500 with Prosper Marketplace loans lat this week due to several factors including increasing interest rates and improving collection efforts.

The recent response to the poll of where to invest my next $500 was great and I followed my promise and invested $500 as directed by my readers - with Lending Club. Despite the success and fun of that poll, it is time that I gained some Prosper Marketplace lending experience. I’ll post a Prosper video tutorial similar to the video of selecting a Lending Club loans after I bid on several Prosper loans.

Actually, I only need to invest $475 rather than $500 because I have been credited for a referral to Prosper. Thank you to the person who followed my Prosper link who also received an account bonus.

I mentioned previously that the subprime mortgage crisis should impact your personal loan strategy because of the number of desperate people needing just a little quick cash to prolong a slow fall into bankruptcy and foreclosure on their homes. CnnMoney confers with their article on the number of people taking out Payday loans to pay the mortgage payment. In a small sample, 66% of the people in foreclosure counseling admitted to taking out payday loans to pay their mortgage payment. After fees and other payments, payday loans can reach interest rates of nearly 400% per year.

If anyone is considering lending money to a a home owner Prosper.com or Lending Club, I would ask any borrower who is a homeowner if s/he has an adjustable rate mortgage, and if so, when it will reset and what the new payment will be. There may be someone people who realize that they sitting under a time bomb of a mortgage and are trying to buy more fuse to the foreclosure bomb. The pending bailout is all the more likely to make people try desperate measures to fend off foreclosure since they are now waiting on the federal plan to save them.

Quote from the article on payday loans being used to payoff mortgages in Cleveland, Ohio:

“If you want to see what an unregulated market economy looks like,” said Rokakis, “come to Ohio.” There are now more payday lending shops in the state than McDonalds, Burger Kings and Wendy’s restaurants combined, he noted.

Lenders only require borrowers show pay stubs, checking accounts and references. They don’t credit-check, except to make sure borrowers haven’t defaulted on previous payday loans.

The lenders ask borrowers for post-dated checks for the amount borrowed, plus fees, which average $15 per $100 loan. If the loan goes un-repaid, lenders deposit the checks.

The term is usually two weeks, “Most people believe they’re just going to borrow the one time,” said Faith. Instead, when the two weeks goes by, they often go back to the shop and roll it over for another two weeks. To do that, they pay another $45 in fees…

When the CRL took the average payday loan principal as reported by state regulators and multiplied it by the average number of loan rollovers per year, it found that typical borrowers pay back $793 for a $325 loan.

At those rates, a person with a pending foreclosure Read the rest of this entry »

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 »

In honor of Prosper.com’s post mentioning the wisdom of crowds, I have decided to allow the readers of Personal Loan Portfolio to decide where I invest my next $500*. The poll is listed below…

Update: People’s Choice Poll Results and Analysis Posted.

Should I invest my next $500 in P2P loans at Prosper.com, Lending Club, or Zopa or skip P2P lending all together and invest in Read the rest of this entry »

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 »

Based upon my recent request, I received some useful advice from several P2P lending bloggers that I was grateful to receive before investing in my first loans with Lending Club. I am also excited to share this advice with other potential lenders. First, let me offer my own advice that I wrote on another site I just started - Five Prerequisite Investments to P2P Lending. I listed out the top five places you should put your money before even considering lending with Prosper or Lending Club.

Quick Tip: if you have not already signed up, use these links to Lending Club or Prosper for a free cash bonus upon account funding.

I received advice from the bloggers at Prosperous Land, Prosper Lending Review, Rate Ladder, Lazy Man and Money, and My Microfinance (link removed because website no longer available). So what advice did these bloggers have for newbie lenders?
Read the rest of this entry »

I decided to sign up with Prosper at the same time I am waiting for my Lending Club account to be tied to my checking account. Interestingly, Prosper allowed me to select my collections agency. The sign up process gave a choice of two companies Penncro and Fristsource and listed their collections statistics which I have posted below. Firstsource does not have a great deal of data history yet since they have only been sent a total of 77 loans, but the results under credit ratings of B-D are promising. I have summarized some of the results in the table below for easy comparison.

Click each graphic to expand and see the full collection performance statistics.

Prosperous Land and Rate ladder have both recently mentioned the communications to existing lenders about testing a different collections agency at Prosper. The above charts must be the initial results of those tests.

Correction (11/19/2007): Mike at Prosperous Land pointed out that the letter recently received is about a new 3rd collection agency. He has more information on collections in the article just posted about adding to the collections effort.

I like how Prosper seems to be open about the data that they provide.

Edit: A few hours after posting this, I realized that the numbers are posted on Prosper’s collection agency page so maybe this is not so new.

After doing a little tire kicking, I decided to sign up with Lending Club first. I have entered all the prerequisite data including the bank account number. The initial sign up was quick and required basics such as social security number to reduce fraud and because they will send a 1099 at the end of the year on interest earned. After a basic automated identity authentication, I entered my bank account information.

Lending Club withdraws a very small amount (under a dollar) from your account to validate the account information. To finalize registration, I must enter the amount withdrawn to validate that it is indeed my account. This process reminds me of the Paypal sign up process except Paypal deposits two very small amounts into your account rather than making a small withdrawal. Unfortunately, the process takes two to three days and it has only been 24 hours so it will be a few more days before I extend my first loans. I am growing impatient already.

So why did I pick Lending Club over Prosper for my first account? Read the rest of this entry »

Prosper offers some great information to read and watch before starting to lend. For example, there is a basic tutorial on lending along with several other lending tutorials on the tutorials page.

There are also videos available Read the rest of this entry »

I have read several articles on Prosper lending and other P2P lending sites that have made me interested in boosting my returns in an alternative to investing in the stock market. I have decided to try a few loans with Prosper.com and am currently working on my strategy. I have been earning terrible returns on my cash for years now in a money market account so it will not hurt to wait a few days while I formulate my lending strategy. Read the rest of this entry »