What Does the New $150 Billion Fiscal Stimulus Package Mean to You?

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Today, Congress and President Bush announced a tentative agreement on a fiscal stimulus package to help avoid what many believe is an impending recession. So, what does this package mean to you? Well, there is something in this package for most everyone except for folks that make more than $75,000 (singles) or $187,000 (married couples, although the rebates are phased out beginning at $150,000 of income). Here's the quick and dirty:

Approximately 117 million American families will get some tax rebate including low income workers that currently pay no income tax (although they do pay payroll taxes).

Individuals would get rebate checks of $300 to $1,200 depending on a number of factors including income level and number of children in a household. Low-income workers who earned as little as $3,000 and paid no income tax would also get rebates. Workers who paid income taxes would receive up to $600 in rebates, or $1,200 for a couple. Taxpayers with children would get an extra $300 per child.

Businesses also get in on the action; they would get a 50% write-off on capital investments made in 2008. This is likely to help create some number of new jobs this year, so say the politicians.

Finally, the package provides for the definition of a "Jumbo" mortgage to change such that mortgages that are the larger of $417,000 or 125% of the median home price in the area. This is significant because it will reduce the costs of homeowners who need to take out a jumbo mortgage to pay for a loan (thus helping the flagging real estate market).

All in all, this looks like a reasonable plan. I am sure some will argue that folks that don't pay income taxes should not get a rebate (fair point). The other side will argue that these folks need the help the most. Whether you like this package or not, it should help give the economy a short-term boost.

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My Prosper Portfolio Performance (CY 2007) - Ugh!

Well, my first year of Prosper lending has come to a close (actually, I began lending in on March 27, 2007, but year end is a good time to reflect). After many countless hours spent building up P2P-Loans.com and investing over $16,000 in Prosper, here are my net results for 2007:

Interest income received: $699.25
Late fee payments received: $0.39
Service fees paid: ($38.67)
Referral rewards collected: $100.00
Group Leader rewards rec’d: $307.57

Gross Income (2007): $1,107.21

Less: Loans >1 month late: ($686.88)

Net Income (2007): $420.33

Assuming an average portfolio of $13,000 (this is approximate, but close), this is a paltry 3.2% return over slightly more than 9 months. Adjusting for a 12-month period, this amounts to slightly more than a 4.0% return on investment. If I exclude the $407.57 in referral and Group Leader rewards I just about break even on the year (i.e. if I only look at the performance of the loans I invested in).

But, my experience was actually reasonably positive if you spread the numbers and look a little deeper into my loan portfolio. The primary driver of the losses I expect to take are in two loans (with a small loss from a 3rd $50 loan). It is noteworthy that I only expect to take the losses noted above as the loans mentioned are 3 months past due, hence I expect them to default. To put this into perspective, I made over 120 loans in 2007 and all of my expected losses are coming from just 3 loans (I invested $600 in two of the loans that I expect to default). Thus, if I had made a $50 investment in each and every loan I closed, I would be out a mere $150, which would put my total return up in the high single digits (which is actually pretty attractive, in my opinion, and in line with what Prosper is marketing to new lenders). I do expect that there are some loans in my portfolio that will turn bad down the road, thus I reserve the right to edit this commentary in the future.

So, given all of this data and commentary, what have I learned this year as a Prosper lender and group leader? 1) Remain disciplined and invest a consistent amount in each loan that is attractive to you (don’t double, triple or quadruple down if you really like a particular listing), 2) Don’t waste endless hours trying to be a group leader unless Prosper agrees to reinstate compensation (I earned about $1 per hour this year as a group leader) unless you are doing it out of the goodness of your heart and unless you are willing to accept that Prosper likes to change the rules without any notice from time to time; and 3) BE CAREFUL as we are facing some serious economic headwinds in 2008 – I expect defaults to rise on Prosper as they are rising in other areas of the financial services sector (link to article on rising credit card defaults).

If you simply don’t want to go through the hassle of reading listings and want to earn a certain (albeit lower) interest rate on your month, visit our Best High Interest Checking/Savings accounts page to see what is available (you can earn 5%+ in an FDIC insured account, for example).

Good luck and I wish you the best for a Prosperous New Year! And, thank you for supporting P2P-Loans.

Prosper Raises Borrower Fees

Prosper posted the following message on its blog on January 4, 2008 announcing that it has increased the fees borrowers will pay in order to close a loan on Prosper. Given the small loan amounts, Prosper had to make this move to remain financially viable, I believe. It's unfortunate that the cost of borrowing money is rising given the challenges that borrowers in the less than prime categories are facing (credit crunch, higher credit card fees, mortgage DQs, etc.), but I do understand that Prosper is running a business and needs to make these difficult decisions from time to time. It will be interesting to monitor Prosper's new loan volume going forward to determine if this change has an impact on the demand for loans in the affected borrower categories. Lendingstats is a good place to check on this data if you have an interest.

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Effective today, Prosper has increased the origination fee for borrowers. The rationale behind this increase is to enable us to better cover our administrative costs and bring our fees more in line with the market. We have endeavored to continue to keep the fees very straightforward for our borrowers.

The origination fee schedule for borrowers of first and second loans will be as follows:

AA 1.00% (no change)
A 2.00%
B 2.00%
C 3.00%
D 3.00%
E 3.00%
HR 3.00%

Therefore if you are a borrower and your loan is funded, you will be charged a percentage of the amount borrowed depending on your credit grade. This change will impact all listings created on or after January 4th, 2008.

Origination fees paid by existing borrowers and for listings that have already been created will not be impacted.

Bank of America Buys Countrywide: Good News For Countrywide Customers?

As you likely know by now, Bank of America announced plans to acquire Countrywide last week in what many have called a "rescue" deal. But, if you are a Countrywide customer, what does this mean to you? I believe it is good news for you and here's why. The price that Bank of America paid for Countrywide indicates that they are assuming a large chunk of Countrywide loans will go bad. Thus, if you are currently behind on your Countrywide mortgage, HELOC, etc. payments, this may be an historic opportunity for you to cut a deal with the new owner/servicer of your loan. The math is quite simple - BoA purchased your loan for a HUGE discount meaning they may have paid $150,000 or less for your $200,000 mortgage/HELOC. Thus, if they cut a new deal with you that gets them $150,000 or more of value (through a new payment plan, a more traditional mortgage product through a refinance, etc.), they win and you win! Countrywide could not have done this as easily because it would have required further write-downs of their assets (mortgages they hold on their balance sheet), which would have precipitated further negative press, loss of investor confidence, and potentially bankruptcy for the company. CNN Money recently published an article on this very topic, which I would encourage you to read.

If you are having trouble with your Countrywide mortgage or if your mortgage is an ARM, Option ARM, or similar, I would strongly encourage you to inquire about your options with the new Countrywide. You may not have another opportunity like this down the road!

If you would like to contact Countrywide (or any other mortgage company), you can refer to the contact information in this blog posting. You may also contact Countrywide's Loss Mitigation Department on the web at:

https://customers.countrywide.com/secure/FHAStart_login254.asp