I've already mentioned I've grown disappointed with Prosper.com and will not be lending any more money through there. I've noticed now that they have added a new feature called "Community Payment" which I'm not sure I like. The concept is simple: if a member of a group is behind on payments, other group members can chip in and make a payment on the overdue loan. This helps keep the group's rating up by cutting down on the number of late loans the group has, which can scare away other lenders from that group.
As a lender, I should be glad for this. If the borrower can't pay me, at least someone else will. In fact, this has just happened. One of my loans is 2 months late and I received a community payment. The amount was only $1.43 and after all the late fees and service fees, I only get $0.21, which is still better than nothing (although not by much).
But on another level, I am against this idea. The point of Prosper, I think, is for people to help other people get back on their feet by lending them money. But part of getting back on your feet means learning and accepting fiscal responsibility. The community payment option gives borrowers less of a reason to accept that responsibility. I think it is also a huge source for potential abuse. If you find a group whose members tend to make community payments for others, why not join that group, borrow money, and default on the loan? The community payments will stretch out even further the amount of time it takes for a loan to go to the collection agency and thus, hurt your credit score.
Friday, August 25, 2006
Another Prosper.com Update
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6 comments:
Very good point, Shaun. I side with you on this. BTW, thanks for putting your story out there - it has really made me think twice about not doing some things I might otherwise have done. BTW, it's good to hear your commercial venture is starting to gel. I smell success in this deal!
I've been thinking about lending some money on prosper.com as well. It's good to read some feedback about this site, since I don't know that much about it, and haven't taken the proper time to learn the ins and outs of lending and borrowing on prosper.com.
Generally, I prefer to lend money with Real Estate backing it up though, so I think I might stick to that.
Overall, it looks like August has treated you well.
Anon - Toss in the fact that it's my birthday month and my day job just gave me a large bonus, and you could say August has treated my extremely well so far!
fivemznyc - Prosper now is providing details on their default rates, so that's one more piece of the puzzle you can use to judge the site.
Steve - glad to have helped!
Shaun,
What are your lending criteria? Do you perform any vetting on your borrowers?
My criteria are pretty strict - thus, I have only found 7 loan requests worthy of my bids. However, by doing so, I feel that I limit my downside, and to date, all my borrowers are current. I communicate with them periodically to see how things are going - makes the person-to-person aspect seem more real. I dont know if anything I do means a damn thing, but so far so good (fingers crossed). My overall rate of return is 15.5%, and is 11.8% risk-adjusted.
The downside is that it takes an inordinate amount of time to deal with prosper. I am working on some risk models looking at past loans to see if I can derive a standing order that will fulfill my criteria and be reasonably safe.
I also have been disappointed with Prosper. Three months ago I funded four loans at $50/ea (the minimum), and one of them has never made a payment. All of the loans were written to "A" and "AA" borrowers. I would hate to have a 25% default rate, but it looks like that is what is happening. MM over at PFBlog has invested somewhere around $9k though, so he must be happy. And, his net worth is 5x what mine is.
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