“Credit crunch a boon to social lending” | Lafferty Retail Banking Insider
In their latest edition of Retail Banking Insider, Jane Cooper at Lafferty has a piece entitled ‘Credit Crunch a boon to social lending’. We are mentioned and quoted in the along with Zopa and Prosper.
The themes are:
- banks have increased their pricing
- banks have cut back lending
- lenders [investors] are seeking alternative vehicles with better and predictable returns
- good quality borrowers with better credit scores are using social lenders
- Zopa continues to have very low default rates
Lafferty Group - Intelligence to bank on | Newsletters
Credit crunch a boon to social lending
The credit crunch has not been bad news for everyone in financial services: the current conditions have been a boon for social lending websites that connect lenders with borrowers without the intermediation of a bank.
Our contribution was to note that lenders [investors] are seeking better returns, and that while we are aiming our service at good quality borrowers it is our intention to offer support and alternatives for those unable to qualify on the CommunityLend service.
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CommunityLend is a finalist for Red Herring Top 50 Award
We are pleased that we have been selected as a finalist for the Top 50 Award that will be announced by Red Herring September 16th, 2008.
Red Herring Canada 2008
Red Herring Canada will host its first annual Top 50 Awards, celebrating the most innovative and promising companies in Canada. Adding to the success of our yearly [...]
Even in Turbulent Markets, the Core Business of Banking Remains Profitable in Canada
Irrespective of the way that the capital markets react to this week’s earnings announcements from most of Canada’s largest banks, the core message from each of their announcements will be clear – banking in Canada continues to be a highly profitable business, this, despite the significant issues around sub-prime investment exposure and a worsening economy.
Looking [...]
Borrower Maps, Blog & Bug Fixes
It’s been a while, but I have a few updates here. First, I’ve added a Map function to the lender data screens that will show a kind of “heat map” for which states you are lending to. Not extremely useful, but a neat curiosity anyways.
Second, I finally added a real blog to the site. I’ll try to post there regularly to answer some of the frequently asked questions I see in my inbox as well as to opine on whatever else I might find interesting.
Finally, there are a couple of bug fixes with this release, mostly related to a new “Pending Completion” listing status that Prosper rolled out recently. This has been causing some listings to fail to load, so that should be good for keeping things up-to-date.
Prosper.com - You got some ’splainin’ to do
Be careful what you say to the judge. It can get you into lots of trouble. On July 25, 2007, prosper.com issued a loan to “Oakland Gaerke” for $25,000. (We know this from public bankrutpcy court records.) A couple of payments were made, but then payments stopped, and the loan is now long overdue (by something like 9 months).Six months later, on Jan 23, 2008 Mr. Gaerke entered a chapter 13 bankruptcy proceeding in the Northern district of Ohio bankruptcy court. As part of that proceeding he filed complaints with the court claiming identity theft. (Gaerke’s amended complaint of Apr 29, 2008.) He says his wife “Ashley Gaerke” took out the prosper loan (as well as a lot of other credit) without his knowledge. He says he’s not responsible for these loans, and he wants the court to let him off the hook. (He wants the court to tell Prosper.com to go pound sand.) There’s also a divorce in process. In short, this is now a complex mess.Whether this is or is not identity theft is of great interest to prosper’s lenders, because of prosper’s identity theft guarantee. Prosper guarantees that it will repurchase loans from lenders in cases of verified identity theft. If this is identity theft, then lenders must be made whole. If this is not identity theft, then maybe lenders get nothing. Prosper essentially stopped buying back such loans about a year ago. Lenders wonder whether there has magically been no identity theft in the past year, or the cases are simply hidden in the obscurity of non-public facts and ignored by prosper. There are very few cases where the facts become public. This is a case where facts are public, so lenders are watching closely.I don’t know whether identity theft occurred or not. I wasn’t there. I don’t know who’s telling the truth. However I do want to delve into one small aspect of this mess: How prosper has chosen to respond.As part of Mr. Gaerke’s claim that the Prosper loan was identity theft, he says that Prosper never contacted him, and never verified his identity prior to originating the loan. I would have expected Prosper to defend itself against this charge, producing or at least offering to produce records showing how and when the fellow was contacted and his identity verified prior to loan origination. This verification is Prosper’s duty, so I figured maybe they kept records, and could produce them. Maybe sworn statements from the verifier person, or recordings of phone calls. They didn’t produce any of these things. Here’s what they did…Prosper chose to deny that Prosper ever made a loan!Prosper’s answer was filed with the court on May 30, 2008, by Prosper’s lawyers Patricia Fugee and Gregory Nuti. The meat of the document says:Loans in a total amount of $25,000.00 were extended to the Plaintiff by individual bidders using Prosper’s website (“Lenders”) and the funds were disbursed to the Plaintiff by Prosper through direct deposit to the joint checking account of Defendant, Ashley Gaerke, and the Plaintiff. Prosper acted as the Plaintiff’s authorized agent to procure loans in the total amount of $25,000.00 from various Lenders on behalf of the Plaintiff. By way of further answer, it is denied that Prosper loaned any money directly to the Plaintiff or Defendant, Ashley Gaerke.They’re claiming that Prosper never loaned money to Gaerke! They’re claiming that the Prosper members who bid on the loan (those folks Prosper calls “lenders”) actually loaned the money to Gaerke, and Prosper only acted as an agent to procure these loans from “lenders”. In other words, they’re effectively saying to the judge, “Hey, this guy has named the wrong defendant in this action. We’re not the right guys. This guy should have named the 50 lenders as defendants, not poor little us. We’re just the middleman.”I guess you’d call that a “technical defense”. Lawyer’s soft shoe. Instead of engaging on the issues, you find some techncal point that the plaintiff got wrong, like “He hasn’t proved that I’m the guy who should answer for that.” There are several problems with this position that Prosper thru its lawyers Fugee and Nuti have taken. The most blatant problem is that it isn’t true. This position is the exact opposite of rather clear language in written legal agreements between Prosper and its lender members.Lets examine some of those legal agreements, so we’ll know how Prosper actually works. We can then compare that with Fugee and Nuti’s statement above.The most important agreement is called the Lender Registration Agreement (LRA). It defines how Prosper’s “lender” members and Prosper interact, and each parties roles. Prosper has changed this agreement many times, but with a little digging, I believe I’ve found the version of the agreement that was in use mid-2007. We don’t have to look far to find wha the LRA has to say about this issue. It is so important that it is discussed in the very first paragraph at the top of page 1.Note: Your role as a Prosper “lender” is that of a loan purchaser, and your rights and obligations as a purchaser or prospective purchaser of Prosper loans are set forth below. Although you are referred to in this Agreement and on the Prosper website as a “lender,” you are not actually lending your money directly to Prosper borrowers, but are, instead, purchasing loans from Prosper. Well that’s pretty darn clear. Prosper “lender” members buy the loans. We don’t lend the money to the borrower directly. Us “lenders” just purchase them. In case there’s any ambiguity, they go on and explain who does the lending, and who sells the loans to us.All loans originated through Prosper are made by Prosper Marketplace, Inc. from its own funds, and then sold by Prosper to the winning bidder or bidders on the listing. Explicit. Prosper makes the loans from its own funds, then sells ‘em to us. If that weren’t explicit enough, they go on to tell us why it is done this way. Prosper is the originating lender for licensing and regulatory reasons and is licensed in all states where licensing is required. Prosper uses the term “lender” instead of “loan purchaser” for the sake of brevity and simplicity, and for the convenience of Prosper users who appropriately view Prosper as a marketplace for connecting individuals who wish to borrow money, with people who have money and the desire to fund loans to other individuals.Ok, so not only is it done this way, but it has to be done this way, because of lending regulations. It couldn’t get much clearer than this. The next agreement of interest is the “promissory note”. Several of these are drafted for every loan that Prosper makes. One contains the name of each “lender” member. Prosper also changes the form of these documents from time to time, so I examined one from mid-2007. The first three llines of the document tell the story. Prosper writes:Promissory NoteBorrower: xxxxxxx (Real name and address not displayed) Lender: Prosper Marketplace, Inc. (Assigned to: xxxxxxx) The Promissory note clearly identifies “Prosper Marketplace” as the lender, and goes on to say that the note has been assigned (ie sold) to the lender member. (I’ve x’d out the names of the actual borrower and lender members. Prosper has issued many thousands of these documents, and they all identify Prosper Marketplace as the lender. This could not be more clear.With these facts clear, how can it be that Prosper’s lawyers have told the court the exact opposite?If Prosper’s statement to the court is truthful, then Prosper loans would appear to be in violation of various lending regulations, and Prosper would have acted in violation of its legal agreement with its “lender” members. If on the other hand, Prosper’s statement to the court is not truthful, then … I don’t want to say the word, but you get my drift.In summary (and with apologies to Ricky Ricardo) :Prosper, you got some ’splainin’ to do!Reference materials: Documents that were filed with the bankruptcy court are available to the public via www.pacer.gov I have copied here a few documents relevant to this discussion for your convenience.. Mr Gaerke’s amended complaint Prosper’s response to Gaerke’s amended complaint Ms Gaerke’s response to Gaerke’s amended complaint Prosper LRA, circa mid-2007 Prosper also filed an ‘S1′ with the Securities and Exchange commission on Oct 1, 2007, disclosing the Prosper loan process in great detail. I haven’t quoted it here, but on the matter at hand it is consistent with the LRA. You can find the Prosper ‘S1′ at www.sec.gov .Notes: I have avoided mentioning the Prosper listing# or loan# or the borrower’s Prosper screen name here, to comply with Prosper’s wishes that borrower’s screen names remain anonymous, in other words not be associated with the borrower’s name. PS: I don’t take credit for finding this. I learned about it in an active online discussion about this loan among prosper lenders.
Prosper.com - lender statements now 7 months late
In early 2008, $735,000 of late prosper loans disappeared from lender’s statements. On 01/15/08, prosper promised monthly “supplementary statements” to lenders covering these loans. Hasn’t happened. No statements have been produced. By my count, Prosper.com is now 7 months late on delivery of these statements to lenders, on the status of OUR loans.This is simply one example of a much larger problem. Prosper management refuses to accept their responsibility to lenders. Once loans go late, they don’t lift a finger. In this case, that includes not even telling lenders the status of collection efforts on these loans.Shame. Over and over again. Shame.For a more detailed explanation, see http://www.prospers.org/blogs/Fred93/2008/08/03/prosper_com_lender_statements_6_months_lProsper told us they would take legal action against the 68 late borrowers in this “legal test” group of loans. Today, eight months after they started the “legal test”, many of the defendants have not even been served (with legal papers initiating a suit). We can tell that by observing the county court web sites, some of which display this information. Judging from the filings we can observe, it looks like about half of the suits haven’t been served yet, eight months after the program began. You could never tell this by looking at statements provided by prosper, of course, because there are no statements, even tho they promised them! There aren’t even excuses!Shame. What a way to run a company.Where do they get the chutzpah to act this way?PS: The best discussion among Prosper.com lenders can be found at http://prospers.org
Make Saving a Habit: Like Washing Your Hands After #2…
Why do people habitually do certain things? I stumbled upon a great article on consumer habits (or lack thereof when it comes to saving and financial planning) that I wanted to share with my readers. The simple reality is that we need to not only mak…
Borrower Gets Funded on 57th Try
This is one for all of you Prosper borrowers that have not gotten a loan funded on the first try, get discouraged, quit and never come back. That’s not the case for Prosper borrower mvbrothers2 who tried to get their listing funded an incredible 57 times before finally getting the loan.
I didn’t believe it when I heard about it, but I saw it for myself. The loan finally funded on July 15th. The 3 pages of expired and withdrawn listings date all the way back to Febuary 2007, a total of 17 months of trying!
So, for all of you borrowers that think it will never happen, maybe you too will get a single lender to fund your entire loan like this one after 57 tries.
LendingClub file revised S-1; suggests progress being made
LendingClub has filed a revised S-1 with the SEC. This suggests progress, and will be as a result of comments on the original S-1. Comments from the SEC are not public until final approvals.
www.sec.gov
As filed with the Securities and Exchange Commission on August 1, 2008
UNITED STATES SECURITIES [...]
Prosper.com - lender statements 6 months late
Supplemental statements tracking $735,000 of loans were promised monthly, and are now 6 months overdue.On 01/15/2008, Prosper.com sent an email message to many lenders, explaining that 68 very late loans were being moved to a new category, a “legal test”. In this test, Prosper would try taking legal action against very late borrowers, instead of just doing nothing. I thought at the time that it was a good move. Prosper’s 01/15/2008 email promised …Since this is a test, we have not yet designed the system to track these revenues within the normal statement process. As such, the loans will be defaulted at zero value and the accounting provided on a monthly basis in a supplementary statement.However, Prosper has never bothered to send lenders any of these promised supplemental statements! $735,000 of loans have simply disappeared from lender’s view.That’s right. No statements. No reporting. Prosper has kept lenders completely in the dark on the status of these loans. I figure January’s promise of monthly statements should have produced one in February, and another in March, April, May, June, and July. That makes them now 6 months late. Fact is, with great effort lenders can track the status of some of these lawsuits. This happens because many courts make some lawsuit status details public via their web sites. (Not all courts make status available online, so we can’t see the status of all of them, without travelling around to the various county courts, and checking the records manually.) The visible status isn’t pretty. Most of the suits weren’t filed until April. Four months later, many of these suits have not even been served against the borrowers. Among the suits that have been served, it appears that none has yet come to trial. It looks like the entire legal test has been horribly underfunded by Prosper. Now seems more likely that it will be aborted rather than serve as a symbol of Prosper’s strength and a deterrent to deadbeat borrowers.