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).