Junk Mail Bruhaha

My Microfinance has started a bit of a controversy by claiming that Prosper is selling their personal information to direct-mail marketing organizations.

So recently I’ve had a HUGE surge in junk mail, junk email and junk phone calls from people in the past few months asking for a fictitious company (FANAFI Foundation). When I asked one of them today where they got my business name (FANAFI Foundation) they politely told me it was SOLD to them by Prosper Marketplace, Inc.!

Prosper's Chief Marketing Officer Catherine Muriel wasted no time responding. She quickly denied the charge and promised to investigate:

Prosper would like to confirm that under no circumstances have we or do we ever sell our member names or group names for marketing purposes. How this company - Direct Capital Corp. - obtained the FANAFI name and contact information is something we are looking into and will investigate fully, however, the information was not originated from Prosper.
Catherine Muriel - CMO - Prosper Marketplace, Inc.

The story has captured some imaginations because of Prosper's personally identifiable information crusades. After all, there's nothing more satisfying than catching a corporation acting hypocritical. I was initially skeptical because I could not directly connect FANAFI with a Prosper login in a meaningful way. Traveler505 put together a more well thought out commentary on the .org:

I had seen this earlier, but hesitated before posting a link because, quite frankly, the whole thing doesn't make a lot of sense to me.

AFAIK, the only context in which Prosper would have "FANAFI Foundation" in its member database is that it was Jeff's Prosper ID from March 7, 2007, to January 11, 2008. (He also used it for blogging and website purposes, but that wouldn't normally become part of his Prosper member data.) It's possible that his group was named FANAFI Foundation (as opposed to FANAFI or FANAFI Financial) at some point, but I don't recall it (and there is no historical record of group name changes).

Jeff is a borrower, as well as a lender and GL, so it's conceivable - though highly unlikely, since I doubt that FANAFI Foundation has generated much income - that he listed FANAFI Foundation as his employer when he listed. (He didn't list as self-employed on the second listing.)

If Prosper were to sell member data for marketing purposes, it's hard to believe that they would include User IDs in the database, or that the buyers would want that data, IMO. It just doesn't strike me as an industry norm. This is particularly true, I would think, if the data was filtered through a third party (Experian, as Jeff alleges); I would expect that even if Prosper didn't adhere to list management industry norms, Experian would.

Experian is certainly in the data marketing business. I don't know if they serve as list broker for companies like Prosper, as opposed to collecting and selling their own data. Because Jeff is a borrower, Prosper would have reported his payment history to Experian and, unless he opted out, Experian might sell that data (in some form) for marketing purposes. But the data uploaded from Prosper, AFAIK, would not have included his User ID; the only Experian field I can think of where that could be provided is employer, and, again, I doubt that Jeff claimed to be employed by "FANAFI Foundation."

Like Jeff, I'm a borrower, lender, and GL, but I haven't gotten any junk (mail/phone/email) referencing Traveler505 or Comprehensive Borrower Services. I doubt that anyone is manually cleaning the lists to differentiate between User IDs that sound like a business and those that don't. (However, my main contact is a cell phone, which telemarketers tend not to call, and my other numbers almost always go to voicemail when the Caller ID suggests telemarketer. But that leaves a physical address and unfiltered email mailbox which haven't gotten any junk like he describes.)

Color me confused. I hope that some additional information surfaces about this report.

I'll be watching as more develops, though I'm hoping it is a bit of confusion and not Prosper acting poorly.

Using P2P Lending For Free Credit Reports

My Money Blog has published one of those slightly underhanded tactics that have been known to P2P lending nerds for a while.

Prosper person-to-person lending offers up another perk - a free credit score for prospective borrowers. If you’re a lender already, it’s not too difficult to become a borrower. I just had to verify my address and phone numbers, and they offered up my credit profile. You will need to provide your Social Security number, though.

That's right. If you start the process to borrow money via Prosper or Lending Club, you can get a free peak at your credit report. Prosper uses Experian while Lending Club uses TransUnion. That's two credit reporting agencies, and we'll note that Prosper will refresh the credit report after 30 days. While I might sometimes feel guilty about pointing out this "feature", it's been an open secret amongst Prosper users for a long while and I'm not a big fan of open secrets.

Update: If you want to get your credit report through places that actually intend to give it to you in all it's glory, check out Simple Dollar's post.

Prosper Threatening $7 Million Month In January

LendingStats recently added a terrific feature that extrapolates the dollar amount of loans expected to completely in a month. They've been estimating January to be a $7M month for over a week, and it looks like it's an actual possibility with Prosper already booking $6.35M on the month. This is a dramatic turn around from September ($5.44 M), though it hasn't gotten close to April's $8.82M.

Prosper has 4 days to finish out the month. Lets see how they do.

Prosper Adds Another Collection Agency

I just received the official announcement of the new collection agency that RateLadder mentioned a few days ago.

Dear Mike,

We are pleased to announce that Prosper Marketplace has added a new collection agency – AmSher. AmSher is a privately held receivables management firm based in Birmingham, Alabama. Starting out in the retail trade in 1939, it migrated to collections. It is a nationally recognized collection and receivables company licensed to conduct business in all fifty states.

AmSher is now available as a selection for new bids as of January 25th, 2008. If you would like to change your default collection agency, click here.

Learn more about collections at Prosper.

Sincerely,
Prosper

Being entirely uninvolved in the collection business, I don't know who they are, but at least they have some sense of humor:

Face it. Your accounts receivable becomes less and less collectible by the second. Because as accounts age, bad things happen. People move, they lose jobs, they run off to Mexico with the pool guy. But when accounts are charged off and AmSher’s third-party collections wizards take control, it’s a whole new game. We find your elusive customers. Fast. And we help them figure out how to pay you back. Quickly. With AmSher, nobody gets off the hook. And nobody gets hurt. We’ve had years of practice to make the process as painless and near perfect as possible.

AmSher's collection fee is a flat 17% of the collected amount, regardless of duration from payment, compared to the tiered rate with Penncro and FirstSource that gives 15% the first month, 10.5% the second month, 7.35% the third month, and a 5% bonus if collections brings the loan current. A little bit less if they bring the account current in the first month, and more otherwise.

I'll be swapping my default over because lenders need actionable information and I'm willing to pay to get it. On that note, if anyone digs up anything on AmSher, be sure to share.

Prosperous Land: The Missing Posts

Yes, I have befallen the curse of the idiot blogger. In early January I put up several noteworthy posts (if I say so myself) while running back and forth to Las Vegas. Little did I know that I had completely forgotten that it was 2008 and entered the posts as if they were written in January 2007. So, for those who completely missed out because they were, you know, in 2008, here's the rundown on what was lost in the time warp:

• December Collections Report
• Prosper's November Income
• Latest Debt Sale
  

Additional Details On Prosper's Default Sale

One of the advantages of tracking how loans age is that some interesting tid-bits appear. Prosper finished a just-in-time-for-tax-year debt sale at the end of December. While researching the loan aging during December, I extracted a few details about the debt sale.

Of the 702 loans that transitioned to default from Dec 1, 2007 to January 1, 2008, 672 were 4+ months late and 30 were 3 months late on Dec 1. What's more curious is that 142 loans that were "4+ Months Late" on Dec 1 did not go to debt sale. Now, we know from Prosper that there are 68 loans active in their legal collections effort. What, then, has held up the sale of the other 74 loans? This makes me wonder if there is some detail or factor that reduces the odds of debt sale that may be very relevant to lenders. Time for some investigation.

Mr. Toad's Wild, Prosperous Ride

If you're just waking up and checking the TV, radio, or internet, you may have noticed that the Fed just dropped interest rates 0.75%, the stock market is down 3%, depending on the index you look at and when you check, and it's not a good day for corporate profits either (BoA and Wachovia, DuPont). In other words, the financial markets are freaking out. The financial boogyman has appeared, noticed that he economy is looking like it's slowing down a bit, and started uttering the word "recession"

If you're still lending (and it's mighty tempting to stand aside while the market sorts itself out), I highly recommend having a comprehensive strategy that attempts to mitigate the damages from the financial mess that the US has wrought upon itself. It would've been preferable to start this a few months ago, but welcome to the party if you're just arriving. Look for stable jobs in stable states. Look for loans that noticeably improve the borrower's financial condition as opposed to increase their debt load. So, what does this look like?

Risky loans:

• Are in California, Florida, and Nevada (though Prosper doesn't technically lend here). Arizona, New Mexico, and Georgia aren't looking too great either, and Michigan is Michigan.
  
• Have borrowers employed in real estate, finance and banking, construction, or are "self employed".
  
• Are taking the loan to start a new business, expand their house
  

Safer loans:

• Have borrowers employed in federal, state, or local governments with jobs like administrator, teacher, military, postal worker.
  
• Are refinancing debt to a lower interest rate where the interest rate savings is obvious

Americans In Debt, Lend Conservatively

The articles on US's bipolar relationship with debt will continue to appear at regular intervals. This is just the latest.

JPMorgan Chase & Co. and Wells Fargo & Co., two of the nation's largest banks, on Wednesday joined a growing chorus warning that the subprime mortgage mess is just the start of a sweeping lending crisis. And some fear that consumers falling behind on all kinds of loan payments could tip the economy's scale toward recession.

Strapped consumers are having a tough time making payments on credit cards, home-equity loans, and even for their cars. This has caused three of the top five U.S. commercial banks that have already reported damaging fourth-quarter results to set aside some $12.5 billion to cover future loan losses - and that number will likely grow as the year wears on.

I'll keep typing it until I'm arthritic in the fingers. The economy is slowing down and this increases default rates (just ask Prosper). Add additional margin to your loan bidding and spend the time to seek out good deals for your loans. It is better to walk away from an unprofitable loan than get caught high and dry. How much margin, you ask? Increase Prosper's default projections by about 50% and you might be in the right ballpark:

Serious delinquencies also are up sharply: Some of the nation's biggest lenders — including Advanta, GE Money Bank and HSBC — reported increases of 50 percent or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.

Brains In Vegas Stay In Vegas

CES and Las Vegas were great, but my brain hasn't recovered. Instead of something insightful, you get a linkfest.

How I Overcame My Fear of Lending Money on Prosper.com

I’ve invested in the stock market for more than 15 years. I own mutual funds that invest in junk bonds, emerging markets, micro cap stocks and other very risky investments. I’ve lived through severe market downturns like we saw in 2000-2002. I’ve watched my portfolio balance plunge, all the while holding steadfast with my investment choices. So why then was I so afraid to lend a few hundred bucks through Prosper? And more importantly, how did I overcome that fear to become a lender?

Good customer service at Zopa

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.

You Can Lend P2P, but Can You Collect?

But I see a lot of downsides, as does Jean M. Garascia, an associate analyst with Javelin and author of its report.

"For lenders there is always the issue of default -- will someone get paid back," Garascia said.

People may be lured by the promise of better rates earned on their money without carefully considering the higher risks of this direct lending. Even with documentation, the default rate is higher than what financial institutions experience.

Peer-to-peer lending helpful, but know rules

Sometimes you have to take matters into your own hands.

At least that's the mind-set of individuals who lend and borrow money from each other online, known as peer-to-peer lending. In this virtual community you may stand a better chance of obtaining a loan for your start-up business or earning an attractive return.

But though based on self-rule, peer-to-peer lending is not without its conditions. Consider the following before you forgo the bank entirely.

At Last, a Bank of Your Own

SO YOU NEED A FEW BUCKS -- NOT DONALD TRUMP money, mind you, but a little mezzanine financing to pay down holiday credit-card debt or get you through tax season. Besides friends and relatives, have you ever considered your peers -- simpatico strangers on person-to-person lending sites like Prosper (www.prosper.com) or Lending Club (www.lendingclub.com)?

Color Me Stunned

RateLadder posted late last night that Prosper has been e-mailing lenders regarding their new foray into collections via legal judgments. They have provided a process by which lenders may opt-in to the legal proceedings.

The purpose of this email is to inform you of your right to choose what action you would like to take with regard to the accounts of the legal collection test currently underway.

Of the original 74 loans in the legal test, 68 remain (6 loans have fallen out due to such things as curing or bankruptcy filings). In order to present the strongest case, our law firm believes that it is best for Prosper to be the official owner of the loan when suit is filed. As such, we have developed the following process to accomplish this:

...

You may choose to accept the $33.11 (the “debt sale amount”) for your loans now or to receive a pro-rata share of the net recoveries of this legal test pool. The pro-rata share would be based on the gross amount due on your Notes divided by the gross amount due to all lenders who choose to be in the test, calculated as of January 23, 2008 (the “Pool Commencement Date”), i.e., the date after which lenders must respond to this notification indicate whether they wish to participate in the test on a pro-rata basis. Based on the gross amounts due as of $325.26 if all lenders chose to remain in the test, your share would be 4.4211%.

This has been some time in coming. Doug Fuller has been preaching legal action since he started, and more recently RateLadder posted on the "New Collection Agency" results. This is all solid work, and kudos to Mr. Fuller for shepherding this along.

I also want to send a general kudos to Prosper's management for proactively contacting lenders about their plans. In the past, Prosper has taken more of a forgiveness instead of permission attitude toward their lender interactions. I am heartened to see that they're doing things entirely above board, within their legal framework, and allowing lenders the options to participate in their tests.

Prosper Adjusts Portfolio, Lender Bidding Guidance Criteria

Just as they had done last month, Prosper has yet again refreshed the portfolio and lender bidding guidance statistics. Unlike last time, these changes are large and significant. Both are now making extensive use of DTI and loan amount, two known risk factors that Prosper has not previously controlled.

For the portfolios, Prosper has added additional standing order criteria based on DTI, Loan Amount, employment, and 10 year default criteria. Based on how it has been sliced, I am intensely curious to see if Prosper can deliver the necessary loan volume to satisfy lenders who use portfolios. Another oddity is that the same standing order is used in the "Moderate" portfolio as well as the "Aggressive" portfolio (Credit = D, Non Autofunded, 0-1 Inquiries, Amount <= $9999, DTI <= 70%, yada yada - I'll note that this is of 10am (CST) today - they'll probably change it). They had previously done a reasonable job keeping the portfolios after different sets of loans. On the lender bidding guidance side, Prosper has expanded the number of slices to 67, and chopped up heavily based on DTI and loan amount. For the sake of posterity (and that I expect it to change again in a few months), here's the full list

Segment	Credit grade	Criteria
1	AA	No automatic funding, DTI <=40%, loan amount <$10K
2	AA	No automatic funding, DTI >=40%, loan amount <$10K
3	AA	No automatic funding, 0-1 inquiries, loan amount $10K+
4	AA	No automatic funding, 2+ inquiries, loan amount $10K+
5	AA	Automatic funding only, loan amount <$10K
6	AA	Automatic funding only, loan amount $10K+
7	AA	Borrowers with no extended credit data
8	A	No automatic funding, loan amount <$7.5K, 0 now delinquent
9	A	No automatic funding, loan amount <$7.5K, 1+ now delinquent
10	A	No automatic funding, loan amount $7.5K+, 0 now delinquent, 0-1 inquiries
11	A	No automatic funding, loan amount $7.5K+, 0 now delinquent, 2+ inquiries
12	A	No automatic funding, loan amount $7.5K+, 1+ now delinquent
13	A	Automatic funding only, loan amount <$5K
14	A	Automatic funding only, loan amount $5K-$9999
15	A	Automatic funding only, loan amount $10K+
16	A	Borrowers with no extended credit data
17	B	No automatic funding, loan amount <$7.5K, 0 now delinquent, 0-2 inquiries
18	B	No automatic funding, loan amount <$7.5K, 3+ inquiries
19	B	No automatic funding, loan amount <$7.5K, 1+ now delinquent, 0-2 inquiries
20	B	No automatic funding, loan amount $7.5K+, 0 now delinquent, 0-1 inquiries
21	B	No automatic funding, loan amount $7.5K+, 0 now delinquent, 2+ inquiries
22	B	No automatic funding, loan amount $7.5K+, 1+ now delinquent
23	B	Automatic funding only, loan amount <$10K, 0 now delinquent, 0-1 inquiries
24	B	Automatic funding only, loan amount <$10K, 0 now delinquent, 2+ inquiries
25	B	Automatic funding only, loan amount <$10K, 1+ now delinquent
26	B	Automatic funding only, loan amount $10K+
27	B	Borrowers with no extended credit data
28	C	No automatic funding, loan amount <$7.5K, 0 inquiries, <=40% DTI
29	C	No automatic funding, loan amount <$7.5K, 1-2 inquiries, <=40% DTI
30	C	No automatic funding, loan amount <$7.5K, 3+ inquiries, <=40% DTI
31	C	No automatic funding, loan amount <$7.5K, >=40% DTI
32	C	No automatic funding, loan amount $7.5K+, 0-1 inquiries
33	C	No automatic funding, loan amount $7.5K+, 2+ inquiries
34	C	Automatic funding only, loan amount <$7.5K, 0 now delinquent, <=20% DTI
35	C	Automatic funding only, loan amount <$7.5K, 1+ now delinquent, <=20% DTI
36	C	Automatic funding only, loan amount <$7.5K, 20-40% DTI
37	C	Automatic funding only, loan amount <$7.5K, 40%+ DTI
38	C	Automatic funding only, loan amount $7.5K+
39	C	Borrowers with no extended credit data
40	D	No automatic funding, loan amount <$10K, 0 now delinquent, 0-1 inquiries
41	D	No automatic funding, loan amount <$10K, 1+ now delinquent, 0-1 inquiries
42	D	No automatic funding, loan amount <$10K, 2+ inquiries
43	D	Automatic funding only, loan amount <$10K, 0 now delinquent, 0-2 inquiries
44	D	Automatic funding only, loan amount <$10K, 1+ now delinquent, 0-2 inquiries
45	D	Automatic funding only, loan amount <$10K, 3+ inquiries
46	D	No automatic funding, loan amount $10K+
47	D	Automatic funding only, loan amount $10K+
48	D	Borrowers with no extended credit data
49	E	No automatic funding, loan amount <$5K, 0 now delinquent
50	E	No automatic funding, loan amount <$5K, 1-2 now delinquent
51	E	No automatic funding, loan amount <$5K, 3+ now delinquent
52	E	No automatic funding, loan amount $5K+
53	E	Automatic funding only, loan amount <$5K, 0 now delinquent
54	E	Automatic funding only, loan amount <$5K, 1-2 now delinquent
55	E	Automatic funding only, loan amount <$5K, 3+ now delinquent
56	E	Automatic funding only, loan amount $5K+
57	E	Borrowers with no extended credit data
58	HR	No automatic funding, loan amount <$3K, 0-1 now delinquent, <=20% DTI
59	HR	No automatic funding, loan amount <$3K, 0-1 now delinquent, >=20% DTI
60	HR	No automatic funding, loan amount <$3K, 2+ now delinquent
61	HR	No automatic funding, loan amount $3K+, 0-2 now delinquent
62	HR	No automatic funding, loan amount $3K+, 3+ now delinquent
63	HR	Automatic funding only, loan amount <$3K, 0-2 now delinquent
64	HR	Automatic funding only, loan amount <$3K, 3+ now delinquent
65	HR	Automatic funding only, loan amount $3K+, 0 now delinquent
66	HR	Automatic funding only, loan amount $3K+, 1+ now delinquent
67	HR	Borrowers with no extended credit data

December Collections Report

If a 150" flat panel isn't enough for you, how about some collections info...

This is part of my ongoing series monitoring collections efficiency (November's report for comparison). For a reminder on the methodology, I took a snapshot of the loans on Dec 1 and compared this to the same loans on Jan 1. The statistics are below.

Dec 1 Status	Total	Got Better	Stayed The Same	Got Worse
Paid	1808		1808 100.0%	0 0.0%
Payoff in progress	24	23 95.8%	0 0.0%	1 4.1%
Current	12172	150 1.2%	11647 95.6%	375 3.0%
Late	215	63 29.3%	33 15.3%	119 55.3%
1 month late	316	39 12.3%	34 10.7%	243 76.8%
2 months late	272	1 0.3%	7 2.5%	264 97.0%
3 months late	252	3 1.1%	7 2.7%	242 96.0%
4+ months late	822	2 0.2%	142 17.2%	678 82.4%

As previously noted, loans that improved their state or stayed the same require some kind of payment activity to maintain their position. The table below shows the percentage of loans that show signs of payment versus loan latenesses compared monthly.

Period	1 Month Late	2 Months	3 Months	4+ Months
Dec 2007	23.2%	3.0%	4.0%	0.2%
Nov 2007	20.3%	8.4%	6.1%	0.9%

Overall, the December numbers come out flat. The increase in collections for 1 Month Late loans were balanced by decreases for all other loan categories.

Linkfest In Exile

Why is it that all kinds of news start happening when I'm having to scrounge around for both time and a wireless connection (and CES starts tomorrow - it was nice having all this free time). So, I'm gonna knock this out and go have breakfast.

Prosper Raises Borrower Origination Fees (Prosper Blog)

Effective today, Prosper has increased the origination fee for borrowers. The rationale behind this increase is to enable us to better cover our administrative costs and bring our fees more in line with the market. We have endeavored to continue to keep the fees very straightforward for our borrowers.

Doug Fuller delivers the first of the long promised collections updates. Feels a little light on answering questions people want to know, but I'll take it as a good start.

One of the many activities aimed at improving collections undertaken in the last couple of months was the testing and implementation of an “Early Delinquency” letter series. Although borrowers were already receiving reminder emails and phone calls during the early delinquency period (1 -30 days past due), we thought it worth seeing if an actual letter might drive additional payments. We conducted an initial test in mid-October where half of the early delinquency population was sent a letter and half was not. Measured by the number of manual payments initiated, the results were good. In the three weeks after the letter was mailed 57% more recipients initiated a manual payment (41% vs 26%).

Prosper Pays Up With Style - Refunds to Lenders and Group Leaders

Also, because Prosper was clearly in error the application of all of the above payments in question, and our error involves a time delay between when Prosper should have made payments to lenders, Prosper will pay interest at California’s legal rate of 7% on all amounts due to the affected lenders or GLs, from the date the payment should have been made. Interest will be paid in all 3 situations mentioned above.

Alternative Lending Sites Often Have Good Deals; Each Has Its Own Twist

Prosper is the most laissez faire of the peer lenders: It allows almost anyone to borrow and lend on its site, after it checks that person's credit and verifies his or her identity. At Prosper, borrowers with the worst credit scores could be stuck with rates as high as 30%, if they're funded at all. Consumers with great credit might be able to receive rates of 7%.

"We think it defeats the purpose if you have to know people" to borrow and lend money, says Chris Larsen, Prosper's CEO. "It's kind of like on eBay. If you can only sell products to family and friends, we think that doesn't lead to the best prices."

Prosper's November Income

This is part of my continual effort to calculate Prosper's corporate income. The criteria have been adjusted to account for the varying lender service fee that Prosper has charged over time. If you may recall, at one point Prosper charged 0.5% to service all loans. On Feb 12, 2007, they shifted to 1% for B - HR loans and on Oct 30, 2007 they changed AA to 0.0% and A to 1.0%. I had previously used 0.5% for AA - A, and 1.0% for B - HR. (Bloggers note: yes, I'm running behind. I'll have December's income sooner or later).

And with that, into November First, origination income:

Credit Grade	Loans Originated	Borrower Fee	Income
AA	$1,345,959	1.0%	$13,459
A	$1,399,375	1.0%	$13,993
B	$1,599,181	1.0%	$15,991
C	$1,200,586	1.0%	$12,005
D	$578,809	1.0%	$5,788
E	$149.684	2.0%	$2,993
HR	$156,647	2.0%	$3,132
Total			$67,365

And now loan servicing income:

Credit Grade	Outstanding Loans	Lender Fee	Income
AA	$10,454,327	0.5%*	$4355
A	$11,928,813	0.5%*	$4,970
B	$14,499,621	1.0%*	$10,392
C	$16,345,721	1.0%*	$11,764
D	$12,344,656	1.0%*	$8,685
E	$5,996,014	1.0%*	$3,766
HR	$4,171,570	1.0%*	$2,696
Total			$46,631

The sum total is $114k for November. As I mentioned before, the changed methodology will reduce the income compared to the methodology used in previous months. You're welcome to make comparisons with October, but take it with a grain of salt.

Update: Prosper recently announced that they're changing the origination fees. This should have a rather dramatic increase on revenue. Most curious.

US Consumer Loan Issues

It looks like the American borrower is getting further behind. Ain't that a kick in the shins.

Americans are falling further behind on consumer loans, with late payments rising to the highest level since the nation's last recession in 2001, data released Thursday show.

In its quarterly study of consumer borrowing, the American Bankers Association said the percentage of loans at least 30 days past due rose to 2.44 percent in the July-to-September period from 2.27 percent in the previous quarter.

I can't say it enough. Build margin in your bidding because the economy is shifting around and Prosper's statistics will be optimistic in a declining economy. Target a higher ROI and avoid states that are having economic problems.

Latest Debt Sale

With the tax season upon us, Prosper is finishing their last debt sale of the year just in time for 2007 tax year write-offs (because nothing makes a tax filer more cranky than deferring write-offs while having to pay taxes on the associated income).

We completed a debt sale this week which will be evident as of today on the account pages of lenders who own loans that were sold.

When a loan is sold, it is marked as defaulted on the Prosper site and in the performance metrics. If one of your loans was sold you received or will receive an email notifying you of the default and indicating the sale amount. Sale proceeds will be transferred directly into your Prosper account a few days after you receive your email notification.

Here are the details of the sale:
• Eligible loans were more than 122 days past due as of December 4th, 2007, provided the loan was not part of any bankruptcy filing.
• 701 loans were sold.
• Price range: 2.8% - 14.5% (as % of principal).

Pricing is determined solely by the debt buyer and can vary from sale to sale. Several factors were used to determine pricing in this sale, with homeownership, credit grade and state being primary reasons.

The average rates broke down as follows:

Category	Average Recovery Rate
Homeowners	12.5%
No Home AA, A	9.6%
No Home B, C, D	9.1%
No Home E, HR	7.3%
No Home NC	4.3%
All Loans In Texas (with the ex's)	3.5%

The previous debt sale was home owner agnostic, while this one paid top dollar (12.5% average) for home owners. The real kick in the pants happened in Texas. On the Prosper blog, RateLadder commented:

The debt collection law in Texas is very debtor-friendly. For example, certain post-judgment remedies are not available there, such as wage garnishment, and in Texas the homestead exemption is not limited as in most other states. Texas courts often rule in favor of consumers in debt collection cases. Therefore, Texas debts sell for a fraction of what debts from other states do.

New Type Of Borrower

Prosper has put in a system where the borrower can indicate how they'll use the loan proceeds. Some examples include debt consolidation, home improvement loan, business loan, and so on. If the CreditCards.com is correct, they may need to add "Heat the home" to the list:

For perhaps as many as 27 million American adults, keeping warm this winter will mean borrowing money and 20 million will use credit cards to be able to afford their heating bills, according to a CreditCards.com poll.

Nearly 12 percent of Americans say they will need to borrow money to pay winter heating bills; 9 percent will need to use credit cards to be able to afford their heating bills. The poll, commissioned by CreditCards.com and conducted by GfK Roper Public Affairs & Media, surveyed 1,004 randomly selected American adults by telephone Dec. 7-9, 2007 to gauge their attitudes about energy costs in 2008. A majority say they expect oil and gasoline prices to get worse in 2008.

I have generally avoided anyone who writes a listing requesting money to pay their bills. That is an indicator of trouble to come. I will consider borrowers who are looking to improve the energy efficiency of their home, especially when the payback is easy to understand (like a new high efficiency air conditioner or heater).

Happy New Year

Yes, happy new year. Glad you made it through 2007.

If you're looking for a profound year-end summary, try somewhere else (like RateLadder or Prosper Lending Review). I'm just going to keep doing what I'm doing. My only goal is to be less stupid in my bidding, but that's not something specific to the new year.

The posts are going to continue to limp along for a bit. My day job is sending me to Las Vegas to man the CES booth. It will no doubt be exciting, but free time outside of airports will probably be lacking (DFW has free wifi, so there's hope for the layovers).