Some thoughts on P2P lending

So I've been doing a bit more research on peer-to-peer lending sites, mainly Prosper and Lending Club. Basically, they are both pretty similar, but how they go about with the lending process is different. Prosper relies on an eBay style process with borrowers posting a listing and starting interest rates. Lenders bid and lower the interest rate until time runs out. Decisions are based on info borrowers submit to Prosper. Lending Club reviews information as well, but their lending process is different. Borrower listings are assigned a credit grade based on information that includes their credit rating, DTI, etc. Then an interest rate is assigned. No bidding. Kinda more of a Buy it Now approach.

There was an article out there talking about the differences. The author had some investments with Prosper, and although Prosper uses a different approach in terms of the borrowers' credit rating, he attempted to figure out what interest rate he would've received if he invested in a similar loan on Lending Club. He concluded that lenders would probably receive a higher interest rate at Lending Club, while borrowers can take advantage of the larger lending base at Prosper and receive a lower interest rate.

Now does that mean I should stop my investments at Prosper and move my money to Lending Club when it gets back from the loans? I don't know. Maybe I'll do better at Lending Club. Or maybe I won't. But right now I'm averaging at least 20% return with my 7 loans. So far Prosper doesn't seem to be going down yet, and there is an abundance of loans to bid on there (although things are locked while Prosper tries to get registered to offer a secondary market for their loans). Also, cash that gets repaid and haven't been reinvested is held for me at a Wells Fargo account with FDIC insurance. So, I hear some bad things out there, but I haven't been burned yet. I think I'm gonna stick around on Prosper and keep feeling things out.

Good news/bad news about Prosper

I got an email from Prosper yesterday telling me they are registering their promissory notes with the appropriate parties so that they can create a secondary market for their lenders. What this means if this passes is that lenders can sell their portions of a loan to get cash back prior to loan maturity. Say you have $200 stuck in loans and you really need it, but the loans don't mature for another two years. Sell that in the secondary market and get some of it back right away. That's pretty good news in that it creates some liquidity in the Prosper community. It turns out this was what Lending Club was doing when it was not accepting new lenders. So Lending Club, it seems, is ahead of Prosper.

Now the bad news is that Prosper has been making some pretty disturbing moves, including contradicting their own legal agreements with their own borrowers and lenders. According to some sources, their default rate is pretty high as well (35% for loans originated from June 2007 on). Personally, I'm not seeing this default rate. Either I picked my loans well or I'm just plain lucky. But I have $300 invested and I have $30+ in returns. I've been lending since October 2007, so you can quickly say I got 10% return. However, my loans did not all start in October, so it's probably closer to mid to high teens. I don't really feel like calculating it all out, but I'm definitely sure I'm getting a much better return than in the stock market (I'm getting negative return right now).

Now since Prosper is in a mandatory "quiet period", I cannot make new loans. This period will last until their whole registering their promissory notes thing is finished. I guess what I need to do now is decide whether I should stick with Prosper or just let the loans mature (or sell them in the supposedly upcoming secondary market) and switch to another peer-to-peer lending site like Lending Club. As I've said before, I have had not problems with Prosper, but a quick search definitely shows concerns regarding Prosper. I need to do some research and check up on Lending Club as well. Peer-to-peer lending has kinda been frowned on, but it's been such a great investment for me this past year. We'll see how it goes. Who knows? Maybe I'll find another area to invest my small Prosper funds in.

Dow is down...AGAIN.

O...M...G...

My portfolio and 401k are bleeding money. I thought the bailout was supposed to help. Good thing I don't need that money anytime soon.

"The goggles...they do nothing."

Senate votes on a revised bailout plan tonight

So, I got into work this morning and found out that the Senate will vote on a revised bailout plan tonight. This new plan will increase the amount that is currently insured by the FDIC, so that would be good. However, this new plan will include a package of business and energy tax breaks that the House of Representatives originally rejected. So now, even if the Senate passes this plan, the House might still reject it. We're just gonna see what happens today.