Retiring Early

Sunday, December 10, 2006

More on Prosper.com

Prosper.comAs I said in my November update, I've funded another $2,000 into my Prosper.com account and have been looking to fund a few more loans. As I'm looking through the loan requests, I found myself asking few more questions and putting a few more stakes in the ground:
  1. Group endorsements: What accountability do groups have when they provide endorsements? As I said earlier, I am somewhat skeptical about a group's involvement because they ultimately wind up getting paid if a loan is funded. Anyone can make statements about how worthy someone is for a loan, but when the loan goes into default, I'm sure they're nowhere to be found. Does anyone know what their accountability is?
  2. Credit Ratings vs. Debt to income ratios: I'm always a little curious when I see an A or AA credit rating with a HORRIBLE debt to income ratio. For instance, I saw a borrower who has an A credit rating with a 74% debt to income ratio. While this is a likely scenario for someone in college (low income, high debt), it seems odd for someone in their 40's or 50's, right? The skeptical side of me wonders if there is a loophole in Prosper.com's loan applicant process. For instance, can I provide my 10 year old daughter's social security number so her untarnished A credit rating is displayed, while I provide my own W2 forms that show my income, etc. I haven't gone through this process, so I am speculating, and one thing that's not entirely clear is how they come up with the debt side of the equation. Does the debt side all come from the credit report? If so, credit rating and debt to income ratio are tied together, then. Either way, anytime I come across a borrower that is at different ends of the spectrum for DTI and Credit rating, the red flags go up and I move on to a borrower with more normalized rankings.
  3. Bid amounts: Again, as I pointed out earlier, it takes a fair amount of time to sort through and manage bids and funded loans. Since most people on Prosper.com are trying to diversify away the risk as much as possible, you find them funding loans with $50 each. If you have $10,000 lent out, that's over 200 loans to keep track of! I wasn't that bad last round, but in this round of funding, I am going to fund fewer loans in higher amounts. My minimum funding amount per loan will probably be in the $250 range and will go up to around $500 per loan. Obviously, the trick here is to figure out how to distribute your money across higher interest rates (and risk) to maximize the return. It's a bit art and a bit science, so we'll see how it goes.
Anyone else out there trying to squeeze returns out of Prosper still? Let me know what you're up to...
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11 Comments:

  • At 12/10/2006 12:22 PM, Anonymous Anonymous said…

    I took a quick look at Prosper when it was relatively new and decided that the return to effort given the risk didn't look favorable to me. And there are no tax advantages either.

     
  • At 12/10/2006 12:50 PM, Blogger StealthBucks said…

    Hi there as to regards your wine question. I am utilizing a truly amazing web based service called cellartracker. I bought the Dymo label printer that they recommend as well. This is my third true attempt at this and this time I am now about half way through the cellar. The web site id free but I contibuted a share ware payment to keep them going. The developer is local and looks to be a Microsoft guy. Even if you have a few bottles, it's very cool. If you sign up for winebid.com (also free), you get the valuations from there as well as what the community paid on avg for each bottle. This is how I am calculating my cellar valus. I am stealthwine at this site. Same mantra, most of my friends don't know I collect wine. I have note entered many of my French, Europeaan, or whites yet. I am literally working my way around the room.

     
  • At 12/11/2006 12:09 AM, Anonymous Lazy Man and Money said…

    I took the opposite plan of attack. I feed $100 or $200 in every week or couple of weeks. I try not to spend a lot of time weeding through potential loans. I prefer to have more $50 out there in hopes of being more diversified. My theory is that I wouldn't investigate each company that a mutual fund holds, so why spend the time with Prosper?

    I think I could fund 20K worth of loans in a year (if I had that money) with very little time spent. I don't think I'd have much more than that to loan, but if I did, I could up my loans to $60 or $70 each. I don't see myself getting up to $250 loans for some time.

     
  • At 12/12/2006 5:56 PM, Blogger fin_indie said…

    mOOm: Some days I have my doubts. I'll let you know how it turns out. Obviously, in a bull market, there are cheaper ways to make a buck. We'll see if and when the market turns what the coorelation is. I have my guesses.

    Stealth: As I said, thanks a ton. CellarTracker is a great service that I'll be populating with my collection shortly!

     
  • At 12/12/2006 5:58 PM, Blogger fin_indie said…

    Lazy: Interesting. What is your method to determining what loans to fund?

     
  • At 12/12/2006 8:37 PM, Blogger StealthBucks said…

    Perhaps we will meet some day at a local Seattle Wine Geekoofest and never know it. Due to what industry I am in, I must continue to remain stealthy.....

    Cellartracker is way cool, even if you have 30 bottles. p.s. we really like the Ste Michelle Artist Series, sometimes you can find it for under $34 at the state liquor store. If you browse what I have posted so far, you can see we have quite a bit of it...

    Finally, other than the whole prosper thing (I don't get it), I enjy your postings and thought process.

     
  • At 12/17/2006 4:14 PM, Blogger fin_indie said…

    Could be, could be... I plan on getting my small cellar into the tool over the next few weeks.

    re: Prosper: I'm starting to think it's more entertainment with a slight return, rather than investing. I do have another handful of loans returning in the 17-22% range. Not bad, but it's like managing peanuts compared to the rest of the portfolio (only $3k total). We'll see. When the market turns, it may perform like a decent non-correlated asset class. Although I'm sure moom will point out that generally as the market turns bearish, defaults go up. Again, we'll see.

     
  • At 12/22/2006 2:41 PM, Anonymous finance girl said…

    hey stealth and fin_indie my brother in law in luxembourg has a crazy over-the-top wine cellar!! Every night he brought out bottles in the multiples for us to drink mostly from French vintages.

    Unfortunately I am not quite versed enough to tell you all we had (I pretty much keep to NW and CA reds), but I will say that I probably had some of the best wine I will ever have in my life!

     
  • At 12/30/2006 10:00 PM, Anonymous hciguy said…

    I've got abou $10k invested in prosper so far - I'm adding ~$1-2k/month. As of today I have about 140 loans and yes I do worry about trying to "keep track" of so many loans. In the end I realized all I really need to know is are they current or late. While I have made loans to AA through HR my current strategy is this - I look for AA or A borrowers with 0/0/0 DQ's and then I look for anything that pay's above 8%. I manually weed out certain borrowers that use key words that set me off - for example, don't ask me for "HELP" - I'm not helping you I'm loaning you - I want my money back! My average return for my current bids is about 12%. I'm only about 3 months into this and I hear the defaults typically start at about 9 months so we'll see how it goes. Best of luck with your lending.

     
  • At 1/02/2007 9:10 AM, Blogger fin_indie said…

    hciguy: Nice job weeding out the "help me" folks -- too funny. I do allow for a few deliquencies over the last 7 years because from experience, I know that missing payments can happen, despite the best intensions. Most mortgage companies do this as well. You may be able to increase your effective return by allowing some of these.

    I've recently let in more risk and am averaging around 16%, but honestly, I think that rate should be closer to 20%. The influx of lenders to prosper is just pushing rates down to a somewhat unreasonable level. I think I'm done funding for the time being at about $3000 in loans.

     
  • At 1/06/2007 11:00 AM, Blogger ~Scott~ said…

    I've got quite a few posts on my Prosper experience and lending criteria on my site...but right now, I've got $1815 in bids and loans, and a loan FROM Prosper of $1535 with accumulated interest at 7.84%

    In the interest of diversity, I've only been lending out at $50 per loan request...but I'm averaging 24% on my portfolio, with no late accounts (so far). I'll keep posting about my progress and continue to update my screening criteria, if you're interested.

     

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