Risky New Investment Venue

[scrubradio]

The newest craze to hit the investment world seems to be peer to peer
lending. Are any of you investing in Prosper?

 

[virginia]

Wow - I looked at the website. That is really cool. I wish I'd had that idea!
I think that if you chose the right group - you could do pretty well.

 

[scrubradio]

Wow - I looked at the website. That is really cool. I wish I'd had that idea!
I think that if you chose the right group - you could do pretty well.

The site is still very young and developing day by day. They are doing
a decent job of improving. I have been watching it grow since June.
There are a couple of data scraping sites that are gathering information
on performance of loans etc. wiseclerk.com and ericscc.com are two such
sites.

I find it interesting, but I am hesitant to think that it could be considered
as a place to invest a significant portion of ones portfolio. It is unproven
and high risk. I currently have 3% of my total portfolio invested there. I
am earning 19.75% interest at the moment but could loose part or all of my
investment if the loans defaulted.

The biggest player has about 560k invested ( details here).

The business (prosper) has had issues with bank transfers and other
problems that have caused headaches for lenders and borrowers alike.

Their forum is quite entertaining and sometimes frightful. It is hidden in
the help section.

As far as the group concept goes, it leaves alot to be desired.

My personal rating of the site: A fun interactive investing hobby that will
probably develope into a worthwhile investment tool over time if managed
properly. Time will tell.

 

[scrubradio]

I forgot to add that there are more drawbacks to investing there. Prosper
doesn't currently pay interest on funds in your prosper account. You don't
start recieving interest until a loan gets originated.

It can take up to 2 weeks from the time you start a transfer until a loan
originates. Even longer if you get outbid or the loan fails verification and
the money is returned to your account.

I've had all of the above happen. The longest period of time that my
money was tied up not earning interest was 2 weeks so far.

I'm sure there are more that I haven't tossed out here. Just as I have
remembered these, I am sure I will remember more later.

 

[riskadverse]

I heard about this a couple of weeks ago on CNBC. I'm not sure they were talking about prosper specifically, but the peer to peer lending concept. The default ratio was very very low, although I would guess that would change as it becomes more popular and scam artists get involved. CNBC's was looking at it from an IPO possibility. IPO's like this remind me of the dotcom boom of the late 90's. For any of you that missed that boom and bust, you may get another opportunity. Bon Chance!

 

[REWahoo]

Here is an earlier discussion of prosper....

http://early-retirement.org/forums/index.php?topic=5902.0

 

[virginia]

Scubradio
What is Prosper's cut?

 

[brewer12345]

This will seem like a great idea until we hit a recession with a significant up-tick in unemployment. Then it will be a collection of people asking themselves, "what the fcuk was I thinking?!"

 

[scrubradio]

Here is an earlier discussion of prosper....

http://early-retirement.org/forums/index.php?topic=5902.0

Thank you, I tried using search for "prosper" and "prosper.com" and
couldn't find anything relevant.

 

[scrubradio]

Scubradio
What is Prosper's cut?

1% front end fee, .05% backend

 

[d]

newest craze

craze, as in crazy ... good choice of words.

 

[OAG]

Why not just offer SMALL ($5 to 10K) 2d trusts on RE. You get above market interest and then when the home is sold you get your money back. This is just what this reminds me of -- but it seems worse since these appear to be "personal loans" backed by the borrower's "promise to 1- Pay interest and 2- return Principal or maybe both the P&I at some point in time. Even RE is not too much of a plan now since you may be wiped out due to falling values (not enough money on the table to repay the 2d). In most cases this probably would not be the case for the diligent lender. Someone said "Crazy" and that is what I think this is. Even small losses are losses.

 

[Cool Dood]

1) everything that’s already in the world when you’re born is just normal;

2) anything that gets invented between then and before you turn thirty is incredibly exciting and creative and with any luck you can make a career out of it;

3) anything that gets invented after you’re thirty is against the natural order of things and the beginning of the end of civilisation as we know it until it’s been around for about ten years when it gradually turns out to be alright really.

-DNA

You guys are a bit too concerned about this, I think. I'm sure in about ten years this will seem perfectly normal, and will have similar returns, default ratios, etc., to any other comparable form of lending.

 

[Delawaredave]

-DNA

You guys are a bit too concerned about this, I think. I'm sure in about ten years this will seem perfectly normal, and will have similar returns, default ratios, etc., to any other comparable form of lending.

I am over 30, but I think this is a neat idea - and not against the normal order of things. I'd love to see this peer-to-peer / microlending help people and take a whack out of our bloated banking infrastructure.

People must rationalize out all the risk in their heads because they make dozens of small $250 loans.

Maybe the risk truly is rationalized - and there's a way to make solid "low double digit" returns on money loaned to people who otherwise would be paying 20% on credit cards.

Gotta look at loan request listing below. Picture of guy has him wearing sunglasses in front of a margarhita glass (I would pick something more conservative if I were asking for money). 90 people have bid to loan him some money to fix a roof at 10.50%. Guy has loan/income ratio of 8%.

How a guy with 8% loan to income ratio owning a house in CA can't save $6,000 to fix a roof over his head is beyond me. Could there be a reason he can't get home equity loan ?

http://www.prosper.com/public/lend/listing.aspx?listingID=43163#bid_history

Personally, the economy is too near the edge and the idea too unproven for me to consider any serious money.

 

[Martha]

They have been in business only since last February. Let's see how they are doing a year or two from now. The default rate has got to get mighty high and the lack of control by the investors after default will very likely have some negative fall out.

I still see a securities issue (the sale of loans could be considered the sale of a security), but so far I haven't heard of any state AG's office complaining. But then again, I haven't looked either.

I wouldn't touch it, not even with play money.

 

[TromboneAl]

Wild. I find it scary, but I admit that when eBay started I thought that was scary (send money to a stranger?).

 

[Alex]

I like it, it is interesting. But it's not my cup of tea. I'll stick to index funds and LBYM....

 

[Nords]

As far as the group concept goes, it leaves alot to be desired.

One of the keys to microlending in Africa & India is to support a group instead of a single entrepreneur. The group dynamic tends to minimize the possibility of deadbeats (because no one will work with them if they don't trust them) and it can recover from catastrophic illnesses or even death.

 

[FinanceDude]

This will seem like a great idea until we hit a recession with a significant up-tick in unemployment. Then it will be a collection of people asking themselves, "what the **** was I thinking?!"

Maybe put "prosper" in these quotes, and problem solved.............

 

[Dry Socks]

Maybe this is a stupid comment...
You could break down the borrowers into 3 groups:

1) Bad credit rating willing to pay a high interest rate.
Do I really want to lend to someone who thinks paying me 18% is a good idea ? This seems very risky.

2) Good credit, low interest rate.
What's the point for me ? I take risk and get a low rate.

3) Middle ground, reasonable credit rating, medium interest rate.
Maybe ok. But, am I supposed to research each one ? If I put a small amount of money to a lot of borrowers, that's a lot of research work for me. If a put a larger amount of money to a few borrowers, that's more risk for me.

Is this investment supposed to fall under the "good deeds" category ?
I'm reminded of the old expression "no good deed goes unpunished!"

 

[Nords]

Is this investment supposed to fall under the "good deeds" category ?

More like "charitable contribution" without the possibility of a tax deduction...

 

[FinanceDude]

Maybe this is a stupid comment...
You could break down the borrowers into 3 groups:

1) Bad credit rating willing to pay a high interest rate.
Do I really want to lend to someone who thinks paying me 18% is a good idea ? This seems very risky.

2) Good credit, low interest rate.
What's the point for me ? I take risk and get a low rate.

3) Middle ground, reasonable credit rating, medium interest rate.
Maybe ok. But, am I supposed to research each one ? If I put a small amount of money to a lot of borrowers, that's a lot of research work for me. If a put a larger amount of money to a few borrowers, that's more risk for me.

Is this investment supposed to fall under the "good deeds" category ?
I'm reminded of the old expression "no good deed goes unpunished!"

The question I posed to myself is: Would I put $10-20K in loans on here to make some money, and do I accept the risk involved? The answer was, and still is, no...........

I don't see doing $500-1000 in loans total on here...........not enough return for the headache...........

 

[d]

Let's see how they are doing a year or two from now.

ditto. i checked this out a while ago and concluded that the return did not sufficiently compensate for the (perceived) risk ... and i think the risk is considerable. the idea of skipping the middle-man (and associated fee) is attractive, but, as with many things, the middle-man serves a purpose and (at least partially) earns that fee. if this turns out to be a good idea in practice, i can join-in sometime in the future ... i don't want to be on the leading edge of this one.

 

[scrubradio]

Great responses, it was exactly what I had hoped for. To run an
investment idea accrossed a bunch of investors and let them eek
out any bad vibes they have.

Personally, I agree with most that was said here about the risk as
well as time spent doing it.

I do find that it has a useful purpose though. Using standing orders
one can filter out all the bs listings and lend money to the semi
secure individuals. A standing order can be set up to bid only on
listings where the borrower has a clean credit history that is 5 years
old or older with a reasonable DTI and low ammount of inquiries.

Of course they can be tweeked even more to tighten the criteria in
anyway the lender wants.

But even if you can automatically pick and choose the good listings
without spending alot of time searching through them, the other
inherit problems with the site still cause significant reason for
concern.

 

[Martha]

.

I do find that it has a useful purpose though. Using standing orders
one can filter out all the bs listings and lend money to the semi
secure individuals. A standing order can be set up to bid only on
listings where the borrower has a clean credit history that is 5 years
old or older with a reasonable DTI and low ammount of inquiries.

One issue with this strategy is the shortage of good credit worthy borrowers. The rate will probably be bid down by competing lenders to a rate that doesn't justify the trouble and the risk.