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"eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 09:18 AM   #1
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"eBay of Finance" Individual-to-Individual Loans as Investment?

I saw this posted over at Slashdot. There doesn't seem to have been a discussion over here about this type of thing. Offhand it seems high risk. Has anyone toyed with these?

www.zopa.com
http://en.wikipedia.org/wiki/Zopa.com

www.prosper.com
http://en.wikipedia.org/wiki/Prosper_(web_site)

They are described as "eBay for finance" or "eBay for loans" where individual lenders are matched up with individual borrowers. I'm sure lots of regulatory questions are popping into your head now, but I'll skip the details as I'm sketchy on them myself and really am mainly trying to find out if anyone here has delved into this type of thing.

I'm more intruiged to be a lender, but offhand I have difficulty imagining that they can provide collection services and manage to keep the returns decent enough to offset the extra risk as opposed to a MM fund or ING Direct or Emigrant Direct.
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 09:23 AM   #2
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

I remember a thread about it, a while back.

A lot of the loans are to really dicey looking people...and IIRC...YOU'RE the collection agency if they default.
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 09:24 AM   #3
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Jim, here is a thread where we talked about one these lenders: http://early-retirement.org/forums/i...4853#msg104853

Tread carefully.
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 09:27 AM   #4
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Quote:
Originally Posted by Cute Fuzzy Bunny
.

YOU'RE the collection agency if they default.
Actually no. At least for Prosper you don't even get to know the name of your borrower. Prosper does the collection and sells the loan off if unsuccessful.
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 09:31 AM   #5
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Prosper looks like you are basically making credit card-type loans and relying on Prosper's mechanisms to underwrite the credit. So you don't get to look at income, debt service levels, etc., you just rely on Prosper's letter grade. If things don't pan out, they hire a collection agency for you, but basically you get squat as a recovery.

I think there are a lot more places to earn the same return or better with less risk.
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 09:32 AM   #6
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Yeah. If you want junk quality debt, go buy Vanguard's high yield bond fund w/ 7+% yields.

Some of those Prosper loans are ridiculous. Especially the "I want to pay off my credit cards" and "I need $3000 for a new laptop and new outfits for my new job".

Or the guy asking for $600 to fund his advertising expenses for his business (so he can grow his business). I don't know about you, but if a business owner can't find $600 to advertise and grow his business, I wouldn't want to lend him much money.

Caveat emptor...


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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 09:34 AM   #7
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

I was going to start a thread on this...

You could probably manage to devise a "Prosper retirement," where you lived off the interest from Prosper loans. I guess the return might not make up for the added risk and other stuff, instead of just using bonds or whatever instrument. Although I guess it will eventually be arbitraged to a pretty fair price. Still, probably a good idea to diversify, and one wouldn't really want to retire on just loans/bonds anyway...
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 09:40 AM   #8
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

I suspect that Prosper will do just fine until the next spike in unemployment. Then those loans will default in droves and it will be game over.
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 09:41 AM   #9
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Quote:
Originally Posted by brewer12345
I suspect that Prosper will do just fine until the next spike in unemployment. Then those loans will default in droves and it will be game over.
You have a really cynical view of human nature
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 09:47 AM   #10
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

I wonder how many of these loans actually get made.* Most of the bidding on the Prosper site is at pretty hefty interest rates.* As I posted on the previous thread, there are a number of usury issues and even Proper posts state by state interest rate limitiations.

I would be very concerned about securities issues. A sale of a loan is the offering of a security.

Zopa is for UK lenders only.
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 09:58 AM   #11
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Oh, I didn't see that previous thread on Prosper. Google failed me.

Okay, good enough for me. I wouldn't touch these with a 10 foot pole.

And good point comparing these to high yield bonds where I compared them to ED, ING and MMs.

Zopa is running a "Free Chickens With Every Loan" ad at the top of their site. It was the first thing I saw. It doesn't instill a lot of warm fuzzy feelings about putting money there!

Thanks all!
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 09:59 AM   #12
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Quote:
Originally Posted by Cool Dood
You have a really cynical view of human nature
Nah, just experience in looking at credit card companies. Go look at what happened to COF's stock price in the last recession.
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 10:01 AM   #13
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Quote:
Originally Posted by brewer12345
Nah, just experience in looking at credit card companies. Go look at what happened to COF's stock price in the last recession.
Hm, just looked... they seem to be in almost exactly the same place they would've been if the boom and recession had never happened. Other than the high volatility which a small place like Prosper might not survive, I don't see what's the matter....
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 10:04 AM   #14
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Quote:
Originally Posted by Cool Dood
Hm, just looked... they seem to be in almost exactly the same place they would've been if the boom and recession had never happened. Other than the high volatility which a small place like Prosper might not survive, I don't see what's the matter....*
I think the ride from 70 to 25 in about a year was pretty upsetting to lot of shareholders.
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 10:04 AM   #15
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Free chickens? I'm there!!
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 10:08 AM   #16
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Quote:
Originally Posted by brewer12345
I think the ride from 70 to 25 in about a year was pretty upsetting to lot of shareholders.
Well, I'd imagine the bursting of any bubble to be pretty upsetting to a lot of shareholders. So? There's no harm done other than a few hurt feelings.

I still don't see what's the matter. (Not trying to be a pain in the a**, just asking! )
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 10:11 AM   #17
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Quote:
Originally Posted by Cool Dood
Well, I'd imagine the bursting of any bubble to be pretty upsetting to a lot of shareholders. So? There's no harm done other than a few hurt feelings.

I still don't see what's the matter. (Not trying to be a pain in the a**, just asking! )
Just by way of comparison, take a look at the chart of a conservatively run lender/financial institiution over the same time period. Just for laffs, look at AF. Lenders without a ton of unsecured credit risk generally did quite nocely in that time period, and were definately less volatile.
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 10:21 AM   #18
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Quote:
Originally Posted by brewer12345
Just by way of comparison, take a look at the chart of a conservatively run lender/financial institiution over the same time period. Just for laffs, look at AF. Lenders without a ton of unsecured credit risk generally did quite nocely in that time period, and were definately less volatile.
Hm....



Correct me if I'm wrong -- what I see is COF blasted ahead of AF during the boom, fell back a bit during the bust, and never dropped back down to the level of AF. So unless you bough COF at the height of the bubble, you'd have been much better off in COF. As I said (in bold, even ), correct me if I'm doing something wrong...
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 10:26 AM   #19
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

You are missing two important things:

1) AF pays out very significant dividends and COF does not. Big difference in total return over time.

2) I am suggesting that piling into Prosper now is akin to buying COF at the top.
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?
Old 05-17-2006, 10:32 AM   #20
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Re: "eBay of Finance" Individual-to-Individual Loans as Investment?

Remember Conseco?

We had the stock for a while and sold, making some money.

Then they bought Greentree and its iffy loan portfolio and ended up in Chapter 11.
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