Can you steal a home

Why he started
Recently at one of these occasions, I met a man dating one of my wife’s friends who readily admitted to defaulting on over half a million dollars in mortgages to one of America’s largest banks. He explained that he had a small chain of stores that was running short of cash so he needed cash to fund the shortage. He also worked as a manager in a home construction business so he was familiar with real estate, appraisals, and mortgage financing.

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Since the main business was short on cash, he decided to buy an undervalued house and refinance it at above market value to bring in some cash. (The properties he purchased were undervalued on paper only and not based upon actual condition.) He pulled a list of low value for sale properties in a distressed part of town. Knowing how loose appraisals were running (often only a computerized value check), he ran the list of for sale properties against a list of recently sold properties. He often found that are distressed properties selling in the $15K to $20K range surrounded by properties selling for $40 to $50K. These are not California or New York prices, but repeat multiple times and it can add up to more than a half a million dollars and the same thing must have been happening on a much larger scale in other markets.

How it worked
He would buy a property at $15K, mow the yard, plant $300 in landscaping, paint the front exterior, and add curtains to the windows. In total, he would spend less than $1,000 prepping the house for reappraisal. The initial financing came from a local millionaire who offered his money at around 12% for 60, 90, or 120 day periods. After cleaning up the property a bit — putting lipstick on a pig — he would go to the major bank and refinance so that he could pay back the original financier. The major bank would refinance for $50K based on the surrounding properties’ recent sale values and the bank would often not even require the appraiser do a drive by inspection. He knew this by the appraisal reports he would receive from the bank which only showed comparison values and not a single picture. If there was ever a picture it was only of the exterior.

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So a $15K house would give the owner $50K in cash (less refinance fees and some “lipstick”) netting him about $32K in cash to fund a new house to refinance or to keep the main business above water. Considering that most of the mortgages were in the $50K range and that he defaulted on $600K in loans, he was able to do this twelve times before the scheme caught up with him. He said that he believes that the mortgage mess occurred because the banks did not care if he paid back the loans because the mortgages were immediately resold to other investors after the bank pocketed fees on both sides of the transaction.

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As I mentioned before in relation to Prosper loans, you want the loan originator’s interests to be in line with the investor. Otherwise, you are asking for trouble just like the above example.

Does he feel guilty?
I asked the man who defaulted on the mortgages if he feels at all responsible for the current economic mess, and he did admit feeling a bit guilty about defaulting on the homes but he said that banks were enabling partners in the fraud because they wanted to resell the loans so badly that they did not even care about fraud. He also reminded me that these same banks who gave him this money based on a computerized appraisal are the same banks that congress voted to give $700 billion dollars of tax payer money. Forgive me if I have little confidence.

By the way, you can’t really do this same scheme now because banks are requiring an in-person appraisal.

• Credit Score Advice from a Mortgage Lender: Mortgage Refinancing Experience
• The Mortgage Foreclosure Crisis and your P2P Lending Strategy
• Vote For P2P Lending: Crunchies and Change.Org
• Review of My First Loans with Lending Club
• Boston Globe Writes about P2P Lending

I planned to blog in commiseration with Tom about being denied for a loan. Tom was denied for a Zopa loan and I was rejected for a GE Money Bank credit card through Amazon. GE Money Bank took 10 days to tell me that they could not verify my identity despite the promise on Amazon.com of a 30 second approval process. I have a 800 credit score and provided all information including a phone number and they could not verify my identity. They did not bother calling to verify and customer service told me the process is computer automated. Ten days for a computer program to return results? I doubt it…

Sorry /Rant Off
I’ll skip the remainder of my planned rant about Amazon’s relationship with GE Money Bank and their horrible off-shore service and move on to saying good bye to quasi p2p lender Zopa. Zopa has closed its lending in the United States due to the credit crunch. Since the loans were actually funded by credit unions, this should make you question the stability of the credit unions backing the Zopa operations. I have friends on the board of my credit union and they have been mentioning the lack of loan opportunities for lending out depositors’ money. My credit union is flush was cash, and these CUs can’t make a few small dollar P2P loans.

The credit crisis should be creating a BONANZA for P2P lending — horrible stock market returns combined with people needing credit.

Another P2P Bank Bites the Dust
The P2P lending space seems to be taking casualties quickly. Lending Club is still not taking loans allowing lender bidding on loans despite the not-so-recent SEC filing due to the SEC imposed quiet period. One shop never even got off the ground and turned to blogs to sell itself likely for cheap. Prosper is raising fees like it is bailing water and Loanio opened very late to little fan fair.

Blogging Proof of a P2P Downturn
It is obvious that the P2P lending space is losing steam as fast as a broken particle collider when Kevin @ Rate Ladder only has five posts from September 2nd to October 4th. Once upon a time, long ago in the P2P lending space — a year ago — he posted daily.

When I hosted the 10th peer lending carnival, Lazy Man and Money and I traded a few emails including one where he lamented the downturn and lack of excitement for the industry. And as I think about returns long-term, despite the recent great performance of P2P loans versus my stock portfolio, now is likely a much better time to buy stocks.

Good Bye Zopa
So good bye Zopa. I know you offered potentially holy grail negative interest loans to borrowers, but it looks like you could not hack a market down turn. I am glad I never signed up for Zopa and do not plan on signing up for any new P2P lending services for a while even if they are paying great referral bonuses.

What is next?
In the near term, I plan to plow my extra cash into a doubling up my emergency fund, doubling down my long-term bet on the US stock market, and buying extra camera lenses. And I plan to spend my time working hard and enjoying my family (and my camera) — not checking the gloomy news or my already-tanked portfolio.

So what do you think about Zopa closing and the state of P2P lending?

• Lending Club IRA: Why it is good for your retirement
• Where Should I Invest My Next $500? You Decide
• Advice for Potential a New Peer-to-Peer Lender
• Zopa Open for P2P Lending in the USA
• Carnival of Peer-to-Peer Lending #10

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.

• Financial Risks in P2P Lending
• GlobeFunder – Hedge Fund or Peer Lending?
• Lending Club Quiet Period: Is a Secondary Loan Market Coming?
• Homeowners Resorting to Arson due to Foreclosure
• Zopa Promises to be Different

Question: What is the difference between my Prosper Marketplace remaining cash and a wide-angle lens for my DSLR camera?

Answer: In a week, they will be one in the same so there will be no difference.

I had $250 in cash in my Prosper account waiting to be loaned out to borrowers, but today I initiated a transfer of my cash back into my checking account. I decided that the only thing guaranteed to be around three years from now – and thus my best overall investment – is a new camera lens. I’ll need to add a little more cash to buy a good lens, but it will be much more useful and enjoyable than watching P2P loans.

Why am I pulling the plug on my Prosper Investment by removing my remaining cash?

Several reasons:

1. I want to wait to see how well my Prosper loans perform over a longer period of time before investing more. (see my lender stats)
2. I still strongly believe that the stock market is a better investment over a long period especially due to the tax treatment of the investment classes.
3. I believe that Prosper lenders are under valuing risks and bidding down interest rates too low because there seems to be an almost never ending new stream of new lenders.
4. Speaking of that almost never-ending stream of lenders, the latest stats show that the loan volume is dropping the last few months. There was also a drop last summer so it may be seasonal that people have more to do in summer, but I want to be sure before tying up more money.
5. I grew bored of searching for decent loans. (I still hate the idea of the automatic bidding portfolios due to the number of borrowing idiots out there who will practically announce that they are idiots in their loan descriptions.)
6. I was frustrated with finding a perfect loan at the reasonable rate with less than a day left only to be outbid at the last second by people dropping the interest rate far below my desired rate of return considering the risk.
7. The overall economy and housing markets still show signs of weakness and people are going to pay P2P loans last.
8. I read some of the posts on creditboards.com which will scare the hell out of any sane lender.
9. Executives are bailing ship, are certainly no longer lending, and one is even late on paying his loan.
10. I noticed how few of the early Prosper loan investors are still actively lending.
11. I read several posts in the lobby such as why I won’t bid anymore.

Do I consider my P2P lending experience a failure?

So far, not at all.

1. I have learned a great deal about credit.
2. I have learned that there are lots of borrowers and lenders with amazing fantasies about reality.
3. I have confirmed my belief that you should wade into a new investment class. (See muleshoes and other Prosper cliff divers as a cautionary tale.)
4. Additionally, so far my portfolio of loans is doing fine both at Prosper and Lending Club.

Maybe I’ll pick up lending with Prosper again in the future, but it won’t be for at least several months until I have the chance to let some more dust settle on my portfolio and the company.

Technorati Tags: P2P Lending, Prosper, Prosper Marketplace, investing, dslr

• Lending Club Quiet Period Burn Rate Update
• Change in Lending Club Cash Burn Rate Due to Quiet Period
• Prosper and Lending Club Advice for New Lenders
• P2P Lending: Everyone is Watching
• Advice for Potential a New Peer-to-Peer Lender

Tom at Prosper Lending Review may have topped my compiled blogger advice for new lenders by posting advice from 11 people for someone considering peer lending. The person seeking advice is concerned about stock market returns and the low bond/CD rates and therefore is considering putting a 100K into P2P loans to earn 10%. To sum up my advice:

• Consider the fees — you can increase your returns in any investment by lowering the fees paid.
• Consider taxes — the income tax treatment of peer loans reduces your return plus the taxes can be difficult to file. The Roth IRA is a better investment than P2P loans if eligible.
• Consider the investment timeline — over the next 30 years stock returns might not be fantastic, but a few months of 30 years is not a good sample for long term evaluation.
• Consider starting peer to peer lending slowly. This was many bloggers mentioned initial mistakes in P2P lending.
• Consider the stats of the top ten lenders. In general, they are not receiving a 10% return and many are doing much worse.

The advice from several others also echoed my thoughts: 1) Invest for the long term 2) Consider fees 3) Peer-to-peer is too new to commit a large portion of an investment portfolio 4) start P2P lending small. See all the detailed advice at Prosper Lending Review.

lending advice, poll, p2p lending, investing

Technorati Tags: lending advice, poll, p2p lending, investing

• Lending Club IRA: Why it is good for your retirement
• P2P Lending: Everyone is Watching
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• Carnival of Peer-to-Peer Lending #10
• Lending Money via Prosper to Increase Returns

I decided to review the statistics at Lending Club and I scrolled down past the table towards the CSV file of data. There I noticed an amazing figure — Loans Not Approved for Listing. 5,137 loans for $44.9 million dollars have been denied for listing on Lending Club. The total number of loans approved is only 645 for $5.2 million. Only 11.2% of all loans submitted to the site were approved for listing, so Lending Club is attempting to keep out many of the lower quality lenders despite the fees that they could earn for originating possibly many of those loans. [Update: See the comments by Rob at Lending Club to know what loans are denied.]

I am glad to see how many loans they are filtering out, but one statistic on the page bothers me – the percentage of Lending Club’s late loans is currently premature to present in my mind. Currently, the percentage late is listed as 0.47% with a footnote that reads:

“A loan status changes from ‘current’ to ‘late’ when a payment has not been made within 15 days after its due date. For purposes of the statistics presented on this page, the entire amount of principal remaining due (not just that particular payment) is then considered ‘late.’”

A better footnote would also include that the average loan is only 79 days old. (I mentioned in an earlier post that Prosper posts a similar short-term statistic, but Prosper does footnote the time frame covered.) Seventy Nine days… that means the average borrower has only needed to make two out of 36 payments. Approximately 162 loans out of 633 issued (26%) have not had a single payment due yet (less than 30 days old), so those should be entirely thrown out of the late calculation. A better number is actually 0.849% late, but again it is still premature to present that statistic. ( (4 late / (633 – 162)) = 0.00849)

Notes: 1) On the fully paid loans, I had to estimate the issue date (#90376 and #122065) because the issue date field is blank. I used the average of the issue date of the loans on either side. 2) All statistics are current as of Thursday January 10th.

• Prosper.com Correlations: Late Loans and Interest Rate Caps
• Eric Launches LendingClubStats.com
• Another Late Lending Club P2P Loan
• Lending Club late loan is current again
• Pennsylvania loans or what were early Prosper lenders thinking?

I heard last year about SUV owners who were upside down in their car loans resorting to arson due to high gasoline prices. Out of desperation, car owners torch (or pay $300 to a professional arsonist for the service) to collect the insurance money. There is a great quote from the article:

At the root of the problem: People pay too much for a vehicle they really can’t afford…

Jennifer Mieth, manager of fire data and public education at the Massachusetts State Fire Marshall’s Office, said car fires are “cyclical.” She added, “When times are good, fires are down. When they are bad they go up.”

…Rowe is not the only one who has seen an increase in SUV fires. Arson investigators in San Diego County saw vehicle arson go up 34 percent between 1998 and 2002, prompting analysts to surmise that more people facing economic hardship may be setting fires to their cars to escape high payments.

The sub prime mortgage crisis has similar roots. I recently posted that you should watch out for homeowners in your P2P loans due to the desperate means home owners may use to pay the mortgage in order to save the house.

It seems that some home owners are willing to resort to arson to extract themselves from their mortgage:

A recent report by the industry-funded Coalition Against Insurance Fraud notes that with “untold thousands of homeowners struggling with ballooning subprime mortgage payments, fraud fighters are watching closely for a spike in arsons by desperate homeowners who can no longer afford their home payments.”

History indicates such a spike is coming. “When the economy is down, we see an increase in fraud,” says Dennis Schulkins, a claim consultant in State Farm’s Special Investigative Unit.

Allstate spokesman Mike Siemienas says his company has seen an increase nationally in arsons among homes in foreclosure. In California, the state’s insurance division reports that the number of questionable residential fires in 2007 increased 76 percent over 2006.

National arson statistics for 2007 aren’t yet available, but Federal Bureau of Investigation crime data shows there was a significant uptick – 4 percent – in suburban arson in 2006, when the real estate downturn began to take hold.

If some homeowners are willing to resorting to arson to save their finances, I imagine that they would not be afraid to take our a P2P loan that they cannot afford, so as I select my Prosper loans I will be looking for renters.

• Risky Business: Using Payday Loans to Pay the Subprime Mortgage
• The Mortgage Foreclosure Crisis and your P2P Lending Strategy
• Lending Club’s SEC S-1 Risks
• P2P Lending to Students with DUCK9: Heard of it?
• My First Lending Club Payments All on Time

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 has little to risk by lying a little on a P2P lending site to borrow some cash to save their home. It just might work, so lenders must be on the lookout out for the scammers like Jessica. Unfortunately, with the old Prosper Forums being censored (i.e. deleted), there is not a great place to try to out scammers like Jessica anymore. Many of the old Prosper community members who used to participate at Prosper.com, such as TokyoJoe, who discovered the link between the Prosper loan autofunding option and default rates, now reside at Prospers.org Forums. (Most of the forum is hidden unless your register.)

After reading a bit at Prospers.org, if you still have the stomach for risk, here is a heat map of the subprime mortgage crisis to give you an idea where this may be a bigger problem for borrowers. My post on the foreclosure crisis also listed hard hit markets where people may be in quick search of cash.

Stanley Bing wrote about who is to blame for the mortgage crisis — All the bankers, hedge funds, and CEOs point to the people who took out the adjustable rate mortgage. It is a humorous account of of a very sad situation.

Comment below on the article “Risky Business: Using Payday Loans to Pay the Subprime Mortgage”

• Stanley Bing: Who is to Blame for the Subprime Credit Crisis?
• My Mortgage Refinancing Experience: Post Mortgage Crisis Delivery Fees
• The Mortgage Foreclosure Crisis and your P2P Lending Strategy
• First Two Months Blogging P2P Lending
• Homeowners Resorting to Arson due to Foreclosure

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 a total stock market index fund. I have already admitted that I believe that a total stock market index fund is superior investment to P2P loans. I have already invested in Lending Club loans, but not Prosper or Zopa loans. Therefore, I would personally like to invest in Zopa or Prosper loans so that I can have more P2P lending sites to compare to in my experience.

Please comment on the reason for your selection…

I will let you know what decision was taken after the poll closes on Thursday December 13th, 2007 at 9PM. (I am not certain, but I believe that is Central timezone.)

poll, vote, investing, investment, prosper, lending club, zopa, stock market, money, p2p lending, wisdom of crowds, index fund

*Since I am trying to follow the wisdom of the crowd, I must recieve more than 20 votes for me to follow this advice, so please help me solicit advice by passing long this poll to other people who may be interested in voting. If less than 20 votes are received, I will not follow the poll.

Technorati Tags: poll, vote, investing, investment, prosper, lending club, zopa, stock market, money, p2p lending, wisdom of crowds, index fund

• Poll Results: Investing Next $500 with Lending Club
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• Review of My First Loans with Lending Club
• Poll Results: Lending Club will Survive

Late night web browsing brought me view Rate Ladder’s first Lending Club portfolio. He posted some good suggestions for improving Lending Club as I think I did on my review of my first loan portfolio with Lending Club.

One item in his review of his first Lending Club portfolio left me scratching my head when compared to my first loans.

About Rate Ladder’s first portfolio:

Here is the mix of Lending Club credit grades of my initial 20 bids ($500)…

RateLadder Lending Club Portfolio Mix

* A color chip A (30%)
* B color chip B (5%)
* C color chip C (25%)
* D color chip D (5%)
* E color chip E (15%)
* F color chip F (10%)
* G color chip G (10%)

This portfolio has a weighted average rate of 11.63% and an expected monthly payment of $16.45.

It has a risk level (what is this?) of 2/5.

I too am left wondering what is the Risk Level and what does it mean. Let me use the examples of my two loan portfolios at Lending Club:

The first loan portfolio is compromised of 11 loans which are exclusively of A, B, and C credit risks. I was very conservative since this was my first set of P2P loans to extend. The Lending Club risk score was 2 out of 5. The second loan portfolio consists of only 4 loans C (1), D (2), and E (1). The risk score assigned is 5 our of 5. When looking at the risk scores of only my two portfolios, the risk score made perfect sense. My first portfolio included more loans at a much higher grade.

Now, compare my first portfolio which is 11 loans of only A, B, and C and rate ladder’s which includes 40% of his portfolio in the lower three grades (D, E, F, G) with a total of 20 loans. His portfolio also receives the same 2 out of 5 risk score. Rate Ladder took on lower credit grades but across more loans so it may be justified. Does anyone have any more portfolios to share along with the risk score so that together we can try to gather a better understanding of the how the risk rating score is generated? Anyone at Lending Club have a few minutes to comment on the Lending Club risk score and how it is calculated?

At this ten seconds, I am thinking that the risk score is heavily weighted towards the number of loans in the portfolio. However, my research for advice for new P2P lenders, I did learn that too many new lenders put all their eggs in a single loan which creates tremendous default risk, so a risk ranking based upon percentage of the portfolio in a single loan my be a good way to prevent new lenders from making bad decisions.

Cross Portfolio View Needed

In addition to an advanced search that Rate Ladder requested and more fields displayed on the portfolio review page that I requested, the main functionality needed at Lending Club is an overall portfolio view. When combined, I would imagine according the the current Lending Club risk score rules, my $400 risk 2 portfolio and my $100 risk 5 portfolio average out to be a risk 2/5 portfolio.

lending club, p2p lending, risk

If you are considering peer-to-peer lending, sign up with Lending Club or Prosper using those links to receive a cash bonus.

Technorati Tags: lending club, p2p lending, risk

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• Review of My First Loans with Lending Club
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• My first late loan at Lending Club

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?

Since all the following edits came from Prosper Marketplace IP addresses, the implication is that someone from within Prosper’s offices made the following changes. Here is the link to the Prosper.com edits of all Wikipedia pages. The changes include a few of edits of self promotion such as adding Prosper.com to the Wikipedia page on loans, businesses in San Francisco, and Peer to Peer Lending. I don’t consider those edits much of an issue, but technically businesses are not supposed to use Wikipeida to promote themselves.

On the Prosper Wikipedia page itself, Prosper employees likely made several changes:

• Whitewashing: Someone turned the first paragraph into almost into marketing but they did leave a few criticisms to keep the changes from being too obvious.
• More whitewashing: Someone removed criticisms of the abuse of the group system and of licensing and rate caps. (Note that the removal of the group system criticism was about the time that the group system was removed due to the abuse so while no longer valid complete deletion of the criticism is still whitewashing.)
• Squashing Competition: Someone at Prosper.com removed a reference to Zopa. The removed note said Zopa was a similar website in the UK which is factual.
• The most obviously inappropriate edit — someone with a Prosper Marketplace IP address removed the entire criticism section.

By the way, someone at Prosper is also a huge fan P2PNoBank and RateLadder. They added links to those sites One, Two, Three, Four, and Five times. The first edit was actually made to Kiva’s web page! Why is someone at Prosper so fascinated with those websites?

Also, Prosper.com is not unique in making changes to their Wikipedia web page. Someone at Kiva removed negative information about their web servers crashing. I checked for Zopa edits and found none.

Of course, we’ll never know if any Prosper employees knew about the Wikipedia scanner and made other edits from home…

Disclaimer: I am relying on the Wikipeida Scanner to accurately reverse look up IP addresses of edits. If those lookups are incorrect, my data is also incorrect. I used only the IP addresss alloted to “Prosper Marketplace.” Additionally, there is now way of knowing if an employee made these edits on their own initiative and were not directed by Prosper Marketplace management. However, these Wikipeida edits taken together with removing the old forums and moderating the new forums may indicate pattern. Of course, they were dealing with rebellion in the forums, but it seems like they may be deleting criticisms rather than dealing with the root causes.

What do you think users from Prosper Marketplace IP addresses editing Wikipedia? Do you consider it abuse or vandalism? Or was Prosper making some minor corrections?

Wikipedia, Prosper, P2P Lending, internet, criticism

Technorati Tags: Wikipedia, Prosper, P2P Lending, internet, criticism

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Zopa, the P2P Lending company from the UK has now opened its virtual doors in the United States. Zopa has been providing a P2P marketplace in Italy and the UK for some time now. The rates that they are offering to borrowers (currently starting at 8.75%) for unsecured loans are quite low and can go as low as nothing with help. The rates provided to lenders, although greater than a government CD, are not outstanding, but Zopa’s differentiating factor from other P2P lending sites is that Zopa loans are guaranteed.

To summarize and simplify Zopa’s somewhat complex model, let me walk you through the steps as a lender — How Zopa Works:

1. Register and open an account with one of the member credit unions.
2. Lend money to the credit union at a flat and guaranteed rate which is higher than a CD, but is also backed by the FDIC up to $100,000.
3. You pick a small portion of your return (called help) and give to a particular borrower(s) to lower the borrower’s monthly payments.

So again it is a guaranteed flat rate of return which is greater than a 1 year CD, unless you choose to lower the return to give the difference away. The return is less than you might earn with Prosper or Lending Club, but you do not take on the credit risk, so your principle is not at risk. You are lending money to the bank and not directly to the individual in this case. So to inject the P2P aspect of the lending, Zopa allows you to give away a bit of the differential between the rate at which they loan out the money and interest that they are paying you. So if you loan Zopa, er, rather the credit union via Zopa, lots of money, you can discount the rate at which your uncle, bother, or sister (or the girl who has a cute picture — and I expect to see lots of attractive pictures posted at Zopa) borrows money by you giving the borrower a bit of the return to lower their payment. According to the marketing material, everyone wins. Well, as long as the lender is happy tying up their money for a full year at rates just slightly higher than a government bond – or less than government bond if the lender prefers to give more juice to borrowers. And of course Zopa wins who takes no risk on the transaction since Zopa is actually a middle man between the credit unions and the individuals.

The True Irony of Zopa

Did you catch that last bit? My review of Zopa is that it is ironic that a web 2.0 P2P lending site is actually serving as middle man between borrower and bank and lender and bank. Zopa has injected themselves into the middle of a transaction that you could have more directly entered. Very ironic, but at least they do seem to offer good rates and an interesting concept.

Update: Zopa Borrowers Receiving Negative Interest Rates on Loans

More than ironic… What is the point of using Zopa lending to a relative? If your purpose is to gift a relative some money by lowering their rate by lending your money at less than the going rate, might I suggest you simply gift the relative some money instead and cut out the middle man?

Zopa Explained in their own words – To save you from clicking through all the How Zopa Works screens at the offical website, I have posted the marketing text here minus all the nice pictures. And what is up with the cupcakes? All the references to cupcakes seem more like fruitcakes to me…

To show you how Zopa works, we thought we’d tell you a story about Becky and Bob. Becky needs some money, and some help with the loan payments. Bob has some extra money, though he’s not excited about the idea of losing any of it, and he loves cupcakes. The cupcakes matter. Read on…

Becky is a baker and wants to start a gourmet bakery in her neighborhood. She needs $7,000 for a professional-quality oven. She’s got good credit (a FICO of 640), so she’s eligible for Zopa. She applies and receives an unsecured personal loan on Zopa. In the process, she joins one of our partner credit unions with just a click. She gets a great rate – almost half of what she’d pay at a big bank. But she can lower her payments even more…

Becky’s profile tells other Zopa members buying Zopa CD’s that she’d like some help with her loan. She can post an essay, pics of the oven she’ll buy, the logo for her new bakery, even a video of her mixing up her “mystery chocolate” cupcakes. She can even promote her profile off the site, using email, her blog, or her Facebook or MySpace page. That way, friends & family can help her without losing any money – or a friend.

Bob’s parents just gave him $10,000 as a graduation gift. So far, he’s stifled the urge to buy some new wheels…for now. So he’d like to put the money somewhere for a while, and earn something better than he can get in a checking or savings account. But he doesn’t want to lose any of it, and he’ll need it back in 1 year. Enter Zopa. The Zopa CD is a guaranteed and insured investment. It pays a higher rate than comparable choices. So he applies, and in the process joins one of our partner credit unions. But now, the cupcakes come in…

A Zopa CD must help at least one borrower. So Bob finds Becky’s profile. Mmm, cupcakes! He decides to pick her. Bob can set the rate and amount on his Zopa CD. As he sets that, he raises or lowers the help that he wants Becky to receive. Bob’s help becomes a monthly benefit to Becky that reduces her monthly loan payment. That’s good news for Becky!

So our story has a happy ending. Bob gets a great return without any risk, and he helps Becky make better cupcakes. But this is where you come in. If you’ve got some money to spare, Zopa is the place to share it and do some good while you earn a terrific rate, risk-free. And if you need to borrow, it’s most likely your lowest-cost option. And it’s darn sure the friendliest. Why not give us a spin?

… a nutty fruitcake.

What does Zopa Mean? I was wondering this and you can find the answer in the FAQ: “Zone of Possible Agreement and is the overlap between one person’s bottom line (the lowest they’re prepared to sell something for) and another person’s top line (the most they’re prepared to pay for something).” Zopa is also just one letter difference from the Russian word for a$$ — Zhopa.

Zopa is calling this whole concept Social Finance:

We’re coining a term to describe what we do. It’s called social finance. It means we want to improve the tools of financial services–investments, and loans, and so forth–by allowing people to use them to help themselves, and other people, at the same time.

There are lots of variations inside the world of social finance, like online person-to-person (“P2P”) lending, which we pioneered in 2005, and the world of international microfinance, which we admire…

Every bank is about sharing money–your money goes in, they share it with other people, called borrowers. They pay you 2%, then charge them 18%. But it’s not very satisfying, since you don’t know, and can’t say, who you’re sharing with. And too much of that money goes to polish all those marble floors.

Social lending? To me Zopa sounds like the Web 2.0 way to generate lots of publicity for an incredibly complex way to gift people part of your earned interest.

The Zopa official US blog so far does not have anything of great interest. A found ten dollar bill, a free used ping pong table, and a little blustering are not exactly exciting.

Still want to learn more about Zopa? Other posts on Zopa include:

• First Impressions of Zopa at WiseClerk
• Rate Ladder posted on the Zopa launch and a link to his Zopa Profile
• MyMoneyBlog says Zopa is a credit union disguised as p2p lending

Zopa, P2P Lending, Credit Union, Loans, Risk, Investing, Social Lending

Technorati Tags: Zopa, P2P Lending, Credit Union, Loans, Risk, Investing, Social Lending

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