Lending Club & Prosper continue to grow

Consumers Find Investors Eager to Make 'Peer-to-Peer' Loans

Excerpt:

Prosper and Lending Club together originated about $871 million in loans last year, more than double the prior year's total and up tenfold since 2008. Lending Club says it is on track to lend $2 billion this year. ... Prosper, which began making loans in 2006, says its annual default rate is 5.8%. Lending Club, which opened in 2007, says its annual default rate is currently 4%.

Comment: I formerly invested with Prosper. At the max I had about $ 5,000 in loans. My return was about 3% (not high enough for the effort in my own view). But I could look at this again. I feel I need to make at least 7% to make it worth my time.

Former Wells Fargo Chairman and CEO Dick Kovacevich backs peer-to-peer lender Daric

Former Wells Fargo CEO Dick Kovacevich backs peer-to-peer lender Daric

Excerpt:

Redwood City-based Daric, a peer-to-peer lending platform competing with Prosper and Lending Club, has raised money from some of the Bay Area's top players in financial services. The company's registration statement with the Securities and Exchange Commission lists as investors former Wells Fargo (NYSE: WFC) Chairman and CEO Dick Kovacevich and Jennifer Johnson, chief operating officer at San Mateo mutual fund giant Franklin Resources (NYSE: BEN).

Comment: Daric (screen shot of home page above) is not yet open for business. I could be interested.

Peer-to-peer lending - 5 years

Comment: NYTimes article on Prosper and Lending Club. Good read. See further comments below

The Gamble of Lending Peer to Peer

Excerpts:

No more banks! Let the people play loan officer! The hype was literally suffused with the rhetoric of revolution when a company called Prosper began operations in February 2006. “Prosper gives people the opportunity to take back the marketplace for consumer credit,” the company’s co-founder, Chris Larsen, said in its news release.

The big idea went something like this: Borrowers would post a request for funds and explain why they needed the money. Lenders could put money into part or all of any loan that caught their fancy. And Prosper (and later, Lending Club) would run credit checks of aspiring borrowers for the lenders, watch for fraud, collect and distribute monthly payments and take some money off the top for itself.

People borrowed for breast implants and home renovations, and lenders pored over payment data in search of patterns that could help them select better borrowers in the future. To the Securities and Exchange Commission, however, all of this looked like investing, not lending, and both companies stopped taking in new lenders for months in parts of 2008 and 2009 to get their regulatory houses in order.

...

... here’s the far more basic function that these companies actually serve: the majority of customers who borrow use the loans to pay off higher interest debt. They are paying 18 percent or more to credit card companies, and they seek Prosper or Lending Club loans that charge, say, 10, 12 or 14 percent. So as an investor, your return would be the interest rate that borrowers pay, minus the companies’ small fee and whatever money the borrowers fail to repay.

Most lenders throw a couple of $20 bills into many dozens of these loans. And once they do they end up with a portfolio of sorts. So it isn’t a stretch to see how these loans may look, in aggregate, like an entirely new asset class, one that could zig when bonds or stocks zag.

This has attracted investors who are hardly motivated by helping the little guy or needling the banks. Hedge funds are writing seven-figure checks to Lending Club to get in on the action. More conservative types, like money managers for wealthy families, are also dipping their toes in. In total, borrowers have signed up for more than $400 million in loans through the two companies in the last five years.

Comment - my experience:

• Below are screen shots of my Prosper account
  
• It's hard to "play loan officer!" I've learned a lot. I had hoped to make 10%. My reality is more like 3%
  
• I now have $ 300 left in Prosper (at one time over $ 4000)
  
• I think that with more cautious investing I could make 5-6%
  
• If I had a free $ 10,000 I would like to put it in Prosper and just invest in AA loans and see if I could make the 5% per annum
  
• Now less interested because I am investing in dividend paying stocks and making about 3.3%
  
• My wife is less enthusiastic about Prosper than I. I suppose she is more "risk adverse"
  
• To compare my $ 4000 Prosper investment with a good dividend paying stock - let's say Bank of Montreal (NYSE - BMO): The small investor could open up an account in Sharebuilder and invest the same and make 4.8%.
  

Borrowing: an alternative to dealing with the banks

Peer to Peer Lending Provides Nice Alternative to Banks

Excerpt:

If your looking to borrow money, these clubs provide an alternative to dealing with the banks. Its a neccessary alternative to have out there, as in these hard times even people with good credit are being denied loans by the banks.

All in all, I think its a pretty good system. As long as both sides realize what their getting into. If both sides are straightforward and honest, then both sides win. There really is no way for the borrower to lose out, as they know the terms they are getting into beforehand and all the money is secure. For lenders, its an investment that carries inherent risk. The payout comes with the risk. I think the tip to be diversified is key when it comes to the lending aspect.

I say thumbs up to peer to peer lending.

Comment: Worthwhile read

Peer to Peer Lending - 2 year checkpoint

Prosper is Back! (We mean it this time)

Excerpt:

Finally… the moment we and so many supportive and loyal Prosper community members have been waiting for… after nine long months of navigating the rapidly changing regulatory landscape, we are thrilled to announce that Prosper’s registration statement with the SEC has been declared effective. Prosper lenders can once again invest directly in fellow Americans and small businesses!

Although this has been an excruciatingly long and frustrating process, especially considering that it has played out during the worst credit crisis in 70 years, this is a watershed moment. Prosper is the first Internet auction-based P2P loans marketplace and trading platform to have its SEC registration declared effective, which means the SEC is permitting Prosper to facilitate auctions in a way that has never been done before.

Comment: My experience (now 2 years into this):

• I've made money but not as much as I had hoped. But thus far it has beaten the returns of a 3 year CD.
  
• The stats:
  
  
  
  • 84 loans total (most for $ 50)
    
  • 17 have been paid in full
    
  • 3 defaulted (Grading: A, C, D). I was stupid to make the C and the D level loans!
    
  • 2 are in collections. One B and one AA.
    
  • 61 are current
    
  • Detailed stats available here.
    
  
  
• Contrasting my other investments (401K), I've done much better with Prosper.
  
• I'm still not ready to jump in deep with any real commitment of significant funds.
  
• My go forward policy is to reinvest returns in $ 25 chunks only in AA loans with an expected return of 5.5%.
  
• I don't expect to add new funds to the mix until the economy improves and I have great confidence in Peer to Peer Lending
  

Prosper goes "quiet"

Comment: From Prosper.com website. Additional filing to enable "secondary lending".

Excerpt:

Prosper Filing Registration Statement; Enters Quiet Period

Prosper has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future.

The registration filing is a necessary step toward making the secondary lending market available to the community. This is something many of you have been asking for, and we believe the liquidity of a secondary market will make Prosper even more vibrant.

Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. If you're an existing lender, your current lender agreements will be unaffected; your existing loans will continue to be serviced; you'll be able to track and monitor your loans; and you'll be able to withdraw funds from your Prosper account.

If you're a borrower with an existing loan, you will continue with your current borrower agreement and be unaffected by the registration process. If you're a borrower seeking a loan, you will still be able to create a new loan listing, which we will endeavor to fulfill through alternative sources.

A successful registration can take several months, but we assure you we will do our best to move forward as quickly as possible. Until this process is complete, we're required to be in a quiet period and will be unable to respond to press, blogger or other inquiries about Prosper or the registration filing until it becomes effective.

We apologize for any inconvenience this may cause, and want to thank you in advance for your understanding and support.

Comment: Hopefully this process will move quickly! I think they are trying to implement their "resale platform". See SEC filing: the Resale Platform

Excerpt:

Resale of the Notes – The Resale Platform


Prior to the date of this prospectus, the Notes have been non-transferable except by assignment to a collection agency upon default. As soon as practicable after the date of this prospectus, Prosper intends to establish a Resale Platform on which the Notes may be resold to other Lenders after three months following the date that the initial Lender acquired the Note from Prosper. After the three-month holding period, if a Lender desires to resell a Note prior to the end of the Note’s term, the selling Lender may post the Note on the Resale Platform for resale in a similar auction format as a Borrower listing. If another Lender purchases the Note, the Note will be transferred through the Resale Platform to the purchasing Lender. Unlike the origination of Loans and the sale of Notes to Lenders through the Platform, a Note sold through the Resale Platform must be purchased in its entirety by a single Lender. Once a Note has been resold through the Resale Platform to a subsequent Lender, the Note may again be resold through the Resale Platform without any required holding period. Except for sales of Notes on the Resale Platform, the Notes will continue to be non-transferable except by assignment to a collection agency upon default.

Notes outstanding prior to the date of this prospectus will become transferable through the Resale Platform as a result of the amendment to the Lender Registration Agreement, effective as of the date of this prospectus. Previously, the Notes were non-transferable except by assignment to a collection agency upon default.

Explanation of "secondary market" here:

The idea is that a lender can sell his investment in a loan to another lender who buys it. It could work similar to trading bonds.

Suppose a lender have invested $100 in a AA loan at 12% interest, it is current and has still 18 month to run. Depending on the assessment of the buyers it could sell for a premium, that means the buyer pays the lender a price above $100 e.g. $102 or it could sell at a discount below $100 e.g. $97.

A premium would occur if buyer demand is strong, assessing that the 12% (and the other loan specifics) are an above average market deal. A discount could occur if the loan is assessed by the buyers as below average (on interest rate or other loan specifics) or if the risk for default is impacting (e.g. the loan is already late).

More about "prosper.com"

www.prosper.com

Comments:

• I took four screen snips and posted them.
  
• Prosper has 4 built in investment plans. You can also build your own. For example I have built two: "AA only" and "Very Conservative Plan". The image top is of Prosper's Conservative plan
  
• One can set up automatic transfers and then have the plan do the investing for you. Manual bids are also permitted.
  
• For me, I invest $ 50 per month.
  
• So far I am making about 10% interest
  
• John_14_6 is my Proper investor name.
  
• If interested, you may check out my lending stats here.
  
  
  
  • As you can see, one loan went belly up and I lost $ 48!
    
  • Even with that loss, my return is 10%
    
  
  
• Of late, I only invest in AA and A loans. AA borrowers have a FICO score of 760+
  
• And I limit my exposure to any one loan to $ 50
  
• I rarely do C or B category loans
  

If you want to try it out, Prosper has a referral program. You can get a bonus for either borrowing or lending. If interested email me at jrpeet [at] gmail [dot] com and I will send you a referral. The latest referral bonus is: The referee gets $ 25 if they sign up and fund a loan (you can do this with as little as $ 50). And the referrer gets $ 25.

I am a big proponent of safe savings. Another great site with great rates is Ingdirect.com.