Prosper Pitching To Hedge Funds

I almost overlooked this little nugget. Prosper has taken to pitching it's lending platform as the perfect solution for hedge funds to get into the consumer credit market.

“Prosper is America’s largest peer-to-peer marketplace with over 600,000 members,” stated Kirk Inglis, CFO of Prosper. “As credit markets experience unprecedented changes, institutional lenders, including hedge funds, are using Prosper to diversify portfolio returns without the lack of transparency and fees associated with structured consumer debt products.”

Bear Sterns has shown how well hedge funds handle risky marketplaces. I'm not sure I like the idea of these guys throwing weight around in the Prosper bidding process.

Update: If you're coming over from P2P-Banking.com (Wiseclerk's site) and can't figure out the thing about Texas, try this link. Now if I could find Wiseclerk's e-mail address...

Office Linkfest

Hello, Mike. What's happening? Uh… we have sort of a problem here. Yeah. You apparently didn't put one of the new coversheets on your Prosper linkfest reports. Mmmm. Yeah. You see, we're putting the coversheets on all the Prosper linkfest reports now before they go out. Did you see the memo about this? Yeah. If you could just go ahead and make sure you do that from now on, that will be great. And Uh, I'll go ahead and make sure you get another copy of that memo Mmmm, Ok?

In other words, work's been kickin' my tush this last week, hence few posts. Fortunately, it's nothing that a good linkfest can't fix up!

LoanChimp continues to finish out his increasingly ill-named 3-part Prosper Days summary:

• Prosper Days 2008 Recap - Part 8
• Prosper Days 08 Recap - Part 9 of 9

HollowOak walks off the field. Sniff...

Motherdust teases out statistics for social lending factors.

The social factors that seem to be most relevant are multiple friends bidding, and/or friends who bid substantially ($300+). These factors are at least as important as autofund, low DTI, and even current DQ’s. When we combine the fundamental and the social factors, the default rate improves dramatically.

The Prosper Blog had their own version of the linkfest.

Prosper Lending Portfolio wonders about loans in Pennsylvania

What were these lenders thinking? Interest rates of 1% and less when Prosper also takes a percentage point of the interest paid. 47411 was a money loser automatically — even before default. These loans do not make any logical sense. So, I must check… How are BorowersGL and MuleShoes doing on their rate of return on Prosper peer-to-peer loans

Tom at Prosper Lending Review did a survey on whether people should dump tons of money into Prosper as a conservative investment strategy (want to guess at my take on the situation?)

What Should My Target Prosper ROI Be?

With the Fed dropping interest rates like they're going out of style, it's an appropriate time to discuss what average annual return to expect from Prosper. The easiest way to look at it is to say "I'd like to get 10%". Unfortunately for us individuals, this is not how the finance world operates, and, in an bidding system like Prosper, this matters.

We're competing for borrowers who have alternatives like traditional banks. These banks set the rates borrowers pay based on the prime rate plus some fixed offset to compensate for an individual's credit risk. This effective indexes the bank's return to the prime rate, which is, in turn, indexed to the Fed Funds rate (that quickly dropping number). In this same vein, lender should index their expected return instead of always anticipating a certain return amount.

Ok, so what should lenders use as an index? I have often looked toward a number that corresponds to the risk-free rate of return I can get on my money. As in, how much can I get for no effort and virtually no risk? My index of choice for Prosper loans is my bank's 3-year CD, though this can be approximated by Bankrate's 3-year CD list. I then add a percentage, typically 5%, on top to provide additional cushion for the risk. This is my target average annual return on Prosper.

My long-time target was 10%, back when the economy was fine and CDs were 5%. And, despite some rather bonehead newbie bids, this was still achievable. Since that time, I've revised my target down to 8% as interest rates have fallen. I suspect that I'll be revising downward again real soon.

To use this number, I make sure that my estimated return for every bid exceeds my target average annual return. Happy bidding.

Does Idle Cash Matter?

There has been constant griping about idle cash not earning interest on Prosper. I had always assumed that the effect was small and that Prosper had better things to be doing with their time. Like fixing collections. I had never bothered to calculate it out. j9359 did and proved that it doesn't matter too much:

For my account the difference is minimal, one or two basis points once past the initial period. But I don't put a whole lot of cash into Prosper and then let it sit idle.

That's right. If there was interests on his idle cash, it'd increase his ROI 0.02%. I can understand why Prosper is trying to improve the pool of borrowers, improve collections, implement a secondary market, enhance statistical reporting tools, or just about anything else ahead of getting interest on idle cash.

Friday Fun: Gordon Bailey Quotes

Prosper CEO Chris Larson has been pushing the idea that Prosper combines aspects of George Bailey and Gordon Gekko to do something in the financial marketplace. What insightful quotes might we expect to hear uttered around this Mr. Gordon Bailey?

• Look, Daddy. Teacher says, every time a Prosper loan funds an angel gets his wings.
• A toast! A toast! A toast to Mama Dollar and to Papa Dollar, and if you want to keep these loans out of collections, you better have a family real quick.
• Greed is good. Now, come on, get your clothes on, and we'll stroll up to my car and get... Oh, I'm sorry. I'll stroll. You fly.
• I don't throw darts at a board. I bet on sure things. Read Sun-tzu, The Art of War. Every battle is won before it is ever fought. And I'm gonna build airfields, I'm gonna build skyscrapers a hundred stories high, I'm gonna build bridges a mile long.

Update: And after watching the stock market today... (hat tip)

Final Prosper Days Roundup

In the final roundup of Prosper Days commentary (previous ones), LoanChimp did a 7 part recap of his Prosper Days experience. LC was notable for being the most experienced lender on the high-ROI panel, and spread his chimpy-wisdom to all who would listen. Go bananas.

• Prosper Days Recap - Part 1
• Prosper Days Recap - Part 2
• Prosper Days Recap - Part 3
• Prosper Days Recap - Part 4
• Prosper Days Recap - Part 5
• Prosper Days Recap - Part 6
• Prosper Days Recap - Part 7