Peer to Peer Lending Status – October (2008)

photo credit: Derek Farr ( DetroitDerek )
With all the economic troubles surrounding the subprime lending meltdown, borrowers are finding it difficult to secure loans. As a result, borrowers in need of personal loans are turning to peer to peer lending institutions to find required capital. One such institution that brings individual lenders and borrowers together is Prosper.com. I have been a lender on Prosper since January 2008, funding over $2,000 to borrowers during that time.

Each month I post the status of my peer to peer lending account that I have through Prosper. This account brings in extra income and is one of my more established passive income streams. My current loan portfolio includes -

• Number of Loans - 54
• Average Interest Rate - 16.97%
• Daily Interest Accural - $1.10
• Number of Late Loans - 6

Over the past month, I have increased the number of loans from 49 to 54 with no open bids. The average lending rate for loans in my portfolio rose from 16.80% to 16.97%. My daily interest accrual jumped from $1.01 to $1.10, as a result of adding 5 new loans to my portfolio. This daily interest accrual will bring in around $33.00 per month in interest income. This form of interest is an excellent source of passive income. My long-term goal is to bring in $50.00 per month in interest income through Prosper, which will fund 1 new $50.00 bid. The magic number that I am shooting for is to bring my daily interest accrual up to $1.66.

Late Loans
I currently have 6 late loans in my portfolio, compared to 5 from last month. These late loans make up 11.1% of my portfolio compared to 10.2% from the prior month. A few of the borrowers of the late loans have filed for bankruptcy which is disappointing but not surprising given the current economic conditions. The breakdown of these late loans are as follows -

• Loans in Bankruptcy – 2 loans - While the status in Prosper does not show the loans this way, I am classifying them as Bankruptcy. I have $43.51 remaining principal to be paid on one of the BK loans and $45.40 on the other. I am expecting the worse in these two situations and am preparing to take a hit of $88.91 on my earnings. I have enough in interest earned over the course of my Prosper experience to cover this amount without a loss. However, if more and more bankruptcies are filed, then I may have a problem.
• 2 months late - 2 loans - I have two loans in the 2 months late payment status. I am optimistic in these loans at this point and still expect to collect on them.
• 4+ months late – 2 loans - While not as bad as the 2 loans in bankruptcy, these loans are becoming a concern. There have been no signs of any payments yet on these. At this point, I can say that the value of the loans are increasing provided they are eventually paid off.

Prosper.com Status
Recently, Prosper has closed down the funding of any new loans, which means that lenders will not be able to lend money in the short-term. According to Prosper, they have temporarily shut down any new accounts from being opened as well as the lending of any new loans.

According to the Prosper.com site -

“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.”

Based on the current status of Prosper, I plan on suspending my automated transfer of funds completely to Prosper. In the past, I would transfer $25 per week ($100 - $125 per month) from my bank account to my Prosper lending account to help fund new loans. Recently, I posted that I would be scaling back to $25 per month to free up some extra cash. Assuming it will take a few months for Prosper to come back online, it doesn’t make sense sending this cash over until I can put it to use. Therefore, I will no longer be building my Prosper lending account with new funds until they open back up.

Tagged as: Prosper.com