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For some time now, I have been warning about the mortgage crisis and its impact on P2P loans. The fact that Ed Mcmahon, Johnny Carson’s former sidekick, is in default on his home mortgage shows just how screwed up some Americans were in their thinking about debt, the housing market, and personal finances. Ed Mcmahon went on Larry King live to describe his debt problems.

Fame helps because Donald Trump Read the rest of this entry »

This is the second post in a series on my recent experience applying for mortgage refinancing.

While applying for mortgage refinancing, I asked the loan officer for credit score wisdom based on her experience. I knew most of the advice but I found some of her comments interesting so I’ll post the collection of advice, tips, and cautions:

• A hard credit pull negatively impacts your credit score. A hard pull is a loan application that would result in credit if approved. If you check your own credit, it is a soft pull and does not effect our credit score.
• Check your credit score three times per year for Read the rest of this entry »

This is part one of a series of what I learned by talking to a mortgage broker last week.

I stopped by my credit union to check into refinancing my mortgage last week. The rates were low and with the likelihood that the fed was going to drop rates again, I decided this might be a good time to refinance from a 30 year fixed to a 15 year fixed interest rate mortgage.

I asked the mortgage broker many questions about the current mortgage market. She passed along some interesting information including the details about Read the rest of this entry »

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. Read the rest of this entry »

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 »

Elaine Appleton Grant at the Boston Globe writes about P2P lending in her article “Lending to relatives? Read this.“ Elaine starts the article out with a catchy and sympathetic (at lest for lenders) story of a brother who did not bother to pay a sister $500 for a used car sold on credit. In short, the sister repossesses the car from her brother because he never pays. Elaine goes on to explain such services as Virgin Money, Prosper.com, Lending Club, Zopa and GlobeFunder.

The most surprising part of the article to me was that Virgin Money is providing secured P2P loans (backed by property) and loans with values up to $1 million dollars. Also, Virgin Money is providing reverse mortgages. This sounds like a great idea where the parent may be in need of cash and have equity in the home. Combine that situation with children who may not agree on money matters and this could explain to financially illiterate Johnny why his sister Jane, who supported mom for 10 years at $500 per month, receives more of mom’s home value upon mom’s death.   Of course, the major problem with that scenario is if nice Johnny visited mom everyday while Jane was off traveling the world. Oh, well, P2P lending through a bank cannot solve all family problems.

The article ends with a great quote about family loans:

John Napolitano… recommends lenders overcome the squeamishness of asking a relative to document a loan. “People don’t document loans, because they feel stupid saying ‘I want to have you sign this note,’ ” he says. “But even dumber is sitting there at Thanksgiving dinner with the guy who hasn’t paid you in a year.”

By the way,  Elaine Appleton Grant asked about family lending on LinkedIn before writing this article.

Stanley Bing at CNN Money blogged about the subprime lending crisis and the falling dollar in his article “Who’s to blame for the credit crisis, the housing slump, the weak dollar, and the fear of recession? It’s a guy named Leonard.”

Yes, Bing, you have me interested. Who the heck is Leonard and why is he responsible? Of course, I am expecting a tongue in check answer from you, but let’s find out… Who is this guy Leonard?

It’s clear this whole subprime mess is much worse than anybody anticipated. Things are crashing. Stuff is burning. The best and brightest minds are at work on how to solve this crisis before it sinks the global economy into a hopeless morass that will plague us all for decades. No, wait. They’re the ones who caused it… I believe it is our duty… to pinpoint blame.

Bing goes on to “interview” the former head of a bank, an investment bank board member and a quant who all send him on the search for Leonard Flanken. Bing happens by Flanken Read the rest of this entry »

If you have been reading my recent posts at Personal Loan Portfolio, you know that I am in the process of formating a P2P lending strategy. However, lending does not seem to be a good business to be in recently. Countrywide, one of the nation’s largest mortgage lenders, is hemorrhaging jobs and money due to poor lending practices. Countrywide is not alone — see the recent financial results at Morgan Stanley , Citibank, and Merrill Lynch which have all been negatively impacted by their mortgage backed securities investments. These recent results make for a frightening lending environment.

Today, MSNBC is reporting that mortgage foreclosures rose 30% in the third quarter of 2007 over the second quarter. The level is double the third quarter 2006. That makes the overall US foreclosure rate one out of every 196 households. How does this rise in foreclosures impact your Prosper lending strategy?

First, why the increase in foreclosures? Too many borrowers bought more house than they could afford by taking out an adjustable rate mortgage (ARM). ARMs give the borrower a lower introductory mortgage rate on the assumption that the borrower will 1) sell the house before the rate adjusts upwards or not long after the rate change, 2) the borrower will earn more money in the future and thus be able to take on the additional payment or 3) refinance at a lower rate or under better terms in the future. Too often, I believe that the reason that borrowers took on ARMs was that they simply did not understand the interest change.

An upward rate adjustment of only 2% could add over $600 per month on a $500K mortgage payment[1] — but the story is even worse if the borrower had received a special introductory rate. Add to the picture rising gasoline prices, rising home owner’s insurance rates, and inflation. This makes the foreclosure rate very understandable in the markets that had high price home appreciation, especially considering that many people can no longer sell their house at a profit in the slow moving and declining market. According to BankRate.com, a borrower has a 1 in 3 chance of losing their home if they took out an ARM and had an initial interest rate of less than 4%. Unfortunately, foreclosure even impacts those who borrowed wisely according to the Center for Responsible Lending:

The center’s property value analysis was based on academic research indicating that a foreclosure lowers the price of neighboring properties by 0.9 percent on average. That impact was higher in poor neighborhoods, where prices dropped 1.4 percent on average.

So how does this effect a Prosper or other P2P lending strategy? Read the rest of this entry »