Dec
10
US Mortgages Worse Than My Prosper Account
December 10, 2008 | 2 Comments
This is no laughing matter. Blomberg reports that “One in 10 American homeowners fell behind on mortgage payments or were in foreclosure during the third quarter…” . My prosper account is not doing great either.
I have so far removed $3,000 from the original $20,000 investment, which makes current principal investment in Prosper $17,000. (These come from loan payoffs from responsible debtors, and regular loan payments). There are 222 active loans, five of them write offs according to Prosper (5 – $461.77) and ten of them more than one month late and write offs in my mind (10 – $837.9), for a potential total loss so far of just a tid bit less than $1300 in those 15 loans. Yet, 15 loans out of 222 is 7%, still better than the U.S. Mortgage industry standard.
One thing I have noticed is that only two of these bad loans come from the “Excellent Credit” plan (a plan I created myself with custom criteria that I entered and classified by Prosper as “Low Risk”), and none of them come from the Prosper supplied “Conservative Plan – Very Low Risk”. This reveals something very important:
Humans mess things up badly! Humans can’t be trusted with credit matters – not even myself.
Prosper has an interesting gossip value: you learn about the lives and doings of many people. It also tends to make you ignore one or to blemishes on the credit profile if you believe the story. By creating portfolio plans you protect yourself from your own mind — the one that ignore credit blemishes and red warning lights when it shouldn’t.
I think humans also took us into this credit mess. Bankers and Mortgage brokers ignored credit reports, insufficient documentation. They also broke the 20% down rule, and the “no more than 39% of your income in debt payments” rules. All of us where part of the problem: I had mortgage brokers who ignored condominium fees and taxes into payment calculations for qualification purposes. Hopefully they will go back to adhering to rules and avoiding falling into human-made mistakes.
As for me? I had thought of trying out LendingClub.com . Not right now. Some clients are slow on paying and I am low on liquid cash, so I will keep the cash I got out of Prosper.com. I am waiting for them to re-open and allow for trading of loans. I plan on putting my delinquent loans for bidding – will try for 21 cents on the dollar, but will take 11 cents (Prosper always keeps 1% of the loan value). Anything left and any future investments, if any, will probably go into the great performer “Conservative” plan. I still see some value in Prosper, just that it is not as easy as it seems. I see value on the Mortgage industry as well – just not as easy as people thought.
The other Prosper Postings:
- Prosper… Will I Prosper?
- Should I be the Bank?
- Prosper – More Prosperity for 2008
- Prosper: My First Loss
- Prosper: In A Quiet Period
Related Posts:
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2 Comments so far
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You should really give Lending Club a shot. I think you’ll like how easy it is to auto-select loans, as well as get good returns on lower risk borrower notes.
We recently raised our minimum borrower FICO score to 660, as well as raised interest rates across the board. We want to make sure we are doing everything right to make our lenders happy!
Can I email you something? Thanks.
dk
Product Ambassador
lendingclub.com
The expected Christmas rally may have been priced into the market already, when it was defying all sorts of negative news to stay this level. I don’t think the market hasn’t bottomed out yet, as the gurus on CNBC and other channels have been declaring for the umpteenth time. I think we could reach new lows in the next few weeks because there is only indications of a deepening recession, without an end in sight.