Fellow Blogger Seeks P2P Loan on Prosper

P2P-Loans.com recently came accross the following listing on Prosper from a fellow blogger (Deepmarket.com) who is seeking a Prosper personal loan to consolidate some debt and begin the process of improving his finances. You can review his loan request for yourself on Prosper, but here is my quick and dirty analysis of this request:

1) The borrower has shown a strong desire to reduce his debt load, which was accumulated durning an entrepreneurial jaunt, and has returned to the "rat race" at a $100k+ salary. His company is a very strong one that focuses on government contract work (we all know that economic slowdowns don't hurt the government, so this job should be pretty safe). The borrower also provides some personal information about himself on his blog, which is comforting to a lender.

2) The borrower sought out the help of a Prosper expert, RateLadder, who is his group leader. RateLadder has been around Prosper for many moons and brings a lot of expertise to the table. While RateLadder doesn't personally know this borrower, his bid and endorsement does improve this listing on the margin.

3) Coverage - this borrower has just enough income to cover his monthly expenses with his salaried position. He also earns some extra cash through his blog (anywhere from $60 per month to $900 per month according to his listing). This income should be available to support any unexpected expenses as well as provide capital to repay revolving debt more quickly. Based on my math, this borrower should be able to cover the new Prosper payment with his salary alone and the blog income will provide a small cushion.

4) $25,000 request - this is a large loan amount to repay fully in a short 3 years (the term of a Prosper personal loan). With an interest rate of 25.45%, that equates to a $1,000 per month payment, which is large. Any bump in the road means that this borrower may choose not to repay this loan (in my experience, borrowers do not make partial payments, but rather stop paying entirely). Lenders can take some comfort in the fact that this borrower has a "public" personality via his blog, thus the public shaming he'd take by being late could be a nice incentive for him to make this loan his #1 priority.

So, what's the sum total of my analysis? The borrower is clearly an intelligent person with a great job in a high-demand area (e.g. if he does lose his job, his skills are in high demand). While the leverage is high, the risk of default of mitigated by the high interest rate being offered (25%+ at the start, but this could get bid down through the course of the auction). As part of a diversified Prosper portfolio, P2P-Loans.com does believe this is a loan worth bidding on and I will support it with a small bid once funds clear my Prosper account. If you are new to Prosper, you can get $25 of free cash for joining Prosper and winning a $50 bid on this loan. That makes it a no-brainer in my opinion.

Taxpayer/Renter Backlash Builds re: Proposed Gov't Bailout

A number of websites have popped up that provide an avenue for angry homeowners, renters, taxpayers, etc. to speak out about a government housing bailout proposal that is making its way through Congress. P2P-Loans.com generally believes that the market needs to run its course so that we can return to more normal times. While there are certainly instances where borrowers were mislead or taken advantage of in the boom times, the overwhelming majority of buyers knew what they were getting into when they bought in the boom times (they simply hoped and believed that the value of the asset they purchased would keep going up - now clearly a flawed assumption). The sites speaking on this cause are below and there is even a petition to sign if you feel strongly about this issue. You decide if it's fair for taxpayers to cushion the blow that is currently being felt by lenders, homebuilders and borrowers alike. Hey, my stock portfolio is down this year, will the gov't please consider covering some of my losses, too? When do people start to take responsibility for their own decisions and not rely on the government to bail them out when they get into trouble? I welcome a likely dialogue on this topic.

Visit:
http://www.angryrenter.com/
or
http://www.nationalbubble.com/stopthebailout/

Tax Payer ALERT! The Gov't Wants To Bail Out Troubled Homeowners

Is there a tax-payer funded (err... "government sponsored") bailout coming for honeowners? Momentum appears to be building for a broad-based program to bail out folks that bought homes in the boom times and can no longer afford to make their payments (e.g. are approaching or are already in foreclosure proceedings). This has been a topic of much debate. For those that made smart, sound financial decisions (e.g. didn't borrow more than they could afford to pay back, and read the fine print on their mortgage documents, etc.), this seems like it might be unfair since the taxpayers will potentially be bailing out these folks. But, as the outline below reflects, the current debate in Congress revolves around structuring a compromise that enables any eventual program to pay for itself. P2P-Loans.com is encouraged by some of the provisions being discussed (especially the payment of insurance premiums to the FHA and a sharing in any equity gains to homeowners upon a sale). We would hope that the equity gain sharing is substantial and not a pittance given any gain will be made entirely on the backs of tax payers (errr...the "government-sponsored" program). Generally speaking, the government has a terrible track record on projects like this (they underestimate the total costs, botch the execution and mess up a market-based system that works pretty well in the long run).

Here is a summary (from an article at Money.com) of what's being debated (P2P-Loans.com will report back on this issue once a program is passed):

While critics worry that an FHA rescue plan could amount to a bailout, supporters say it's not since everyone involved - lenders, borrowers and mortgage investors - would make a sacrifice.

Lenders get 100% backing from the FHA if a loan goes south. In exchange, the lender takes a "haircut" - reducing the principal owed and converting adjustable-rate loans to fixed-rate mortgages.

Borrowers get to keep their homes, but they would pay a premium to the FHA for the mortgage insurance and they would have to give a small portion of their equity to the FHA when the house is sold. They would also have to show they can afford the newly refinanced loan.

Mortgage investors - while they would sacrifice some future income from loans that have been reduced - would have more confidence investing in the new loans since the refinanced loans will be affordable and the borrower therefore will be more likely to pay them back.

Rebate for the Rich? Stimulus Plan Has Something For the Wealthy, Too!

P2P-Loans.com came accross this Fortune magazine article and thought our readers might like to know more about the stimulus plan (even if you don't qualify for the rebate check, READ ON). In a previous blog post, we wrote about the tentative stimulus plan (at the time of our posting it was not a done deal) and what it might mean to taxpayers. But, we didn't know about the details (and impact) of the change in the conforming mortgage amounts (discussed in the article below). The bottom line is that if you are an owner of an expensive home, but do not qualify for the tax rebate, this could be a huge money saver for you!

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A gift from the Beltway

High-income folks like me don't qualify for rebate checks. But we're getting so much more.

By Allan Sloan, senior editor at large
(Fortune Magazine) -- I won't be getting an economic-stimulus tax rebate check, but I'm not complaining about it. Not only am I fortunate to make too much money to qualify for a rebate, but I'm getting something far more valuable than the maximum $1,200 my wife and I could have gotten. Thanks to a relatively little-noticed portion of the stimulus package, we'll be able to refinance our house more cheaply than we otherwise could, or presumably sell it for more.

This means that higher-income couples like us who don't qualify for rebates because we have adjusted gross income of more than $174,000 ($87,000 for singles) are arguably getting a better stimulus deal than the 130 million taxpayers to whom Uncle Sam is sending payments.

Let me take you through it. The stimulus package raises the maximum size of a "conforming" mortgage to $729,750 from the previous cap of $417,000. A conforming mortgage is a mortgage that can be sold to Fannie Mae (FNM) or Freddie Mac (FRE, Fortune 500), and it carries a lower interest rate than "jumbo" loans that exceed those limits. Similarly, the maximum mortgage that can be insured by the Federal Housing Administration has also risen to $729,750. For people in high-home-price areas, including mine, these maximum mortgages are now high enough to matter.

Doing the math
Being able to borrow $417,000 on the cheap doesn't help much when you're hoping to sell or refinance your house for, say, $750,000. But a $729,750 limit works out just fine. This higher limit translates into cheaper refinancing or a higher sales price, because the lower interest rate means buyers can presumably afford to pay a higher price.

If we assume a 5% down payment, we're talking about houses in the $450,000 to $765,000 range becoming eligible for these loans. The range rises if people make larger down payments or put second mortgages on top of these loans.

We're talking major money here, folks. In today's market, the interest difference between a conforming loan and a non-conforming loan for a 30-year fixed-rate mortgage is a whopping 1.27% a year, according to Keith Gumbinger, a vice president at HSH Associates, a mortgage research firm. So a $700,000 conforming loan at 6.01% would carry almost $9,000 less annual interest than a nonconforming loan (at 7.28%).

Gumbinger says that's an artificially high difference caused by the current freeze-up in credit markets. "The spread was about 20 basis points [20-hundredths of a percent] before things got ugly in June," he says. So even if normalcy returns - alas, that doesn't seem imminent - having a $700,000 conforming mortgage would cut a borrower's interest costs by $1,400 a year. Call it $1,000 a year after taxes if you itemize. That's worth much more than a one-time $1,200 nontaxable rebate payment.

READ THE REST OF THIS ARTICLE ON FORTUNE.COM...

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Free Checking Account & $75 Cash for Signing Up: Bank of America!

P2P-Loans.com is always looking to bring you, our loyal readers, the best deals available. Today, we wanted to offer you a free $75 cash gift (ok, so we aren't giving you any money, but information is power!). All you have to do is open up a free checking account from Bank of America and you will receive $75 cash. That's it! So, sign up for the account through the link below and enjoy your cash. At a minimum it will help you lower you rapidly rising gasoline bill (visit our blog post on how you can lower the cost of gas by over $1 per gallon). I signed up for this account and received the credit without any hastle at all. To receive your $75 in free cash, apply online or go to your nearest banking center. Use offer code AOU260408, and open a personal checking account before June 30, 2008.

Enjoy your free cash!

Foreign Bank CDs - Higher Yield, But Is It Too Risky?

I've been very interested in some of the high yield offers that some of the foreign banks (particularly Caribbean-based banks) have been offering. With rates in the US so much lower (Countrywide Bank is at 4.05%, E*Trade is at 3.01%, Capital One is at 3.2%, etc. - BankRate says the average 6-month CD is 2.76%). But, with some foreign banks such as a whopping 8.0% yield being offered by Millennium Bank, should you trust your hard-earned money in these instruments. Well, I found an interesting article below (Ask the Expert on Money.com) that talks a little bit about this idea. The P2P-Loans.com take on this is simple: don't forget that higher yields almost always (defined as 100% of the time) come with higher risk. Thus, if you are looking for a superior return, you will likely need to take incrementally more risk. If you are looking for safer options, P2P-Loans.com has done some of the homerwork for you on our Best High Interest Savings page. Enjoy the article.

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April 1, 2008
Are foreign bank CDs worth the risk?

With different banking regulations and no FDIC protection, foreign banks bring additional risk that might outweigh the relative safety of CDs.

Question: My wife and I are both unable to work and live on a fixed income. We supplement our income with interest from a 5.5% CD which matures this month. If we let the CD renew, the interest rate will be around 3.5%. I found a 6% CD at a bank in St. Vincent and the Grenadines, but I am somewhat leery of a foreign bank. What are your thoughts? –Alan Brady, Greensboro, North Carolina

Answer: My first thought is of the movie version of “A Man for All Seasons,” which depicts the life of St. Thomas More, the scholar and author of “Utopia” who was beheaded for treason in 1535 for refusing to recognize Henry VIII as the supreme head of the Church of England. I’m thinking specifically of a scene at More’s trial in which More, played by the late actor Paul Scofield, confronts Richard Rich, who has perjured himself and betrayed More to secure the position of Attorney General of Wales. “Why Richard,” says More, “It profiteth not a man to gain the whole world and lose his soul. But for Wales?”

What does this have to do with buying a CD from a bank in the Caribbean island nation of St. Vincent and the Grenadines?

Well, it seems to me that you and your wife could be jeopardizing your financial security by taking extra risk with money that you clearly depend on. And for what? A couple of percentage points of annual return?

I suppose it could all work out fine. But do you really want to subject this money to foreign banking rules and regulations? Do you even know what those regulations are? (I noticed that one bank in St. Vincent and the Grenadines that advertises U.S. dollar-denominated deposits won’t allow early withdrawals from some of its CDs.)

Visit Money.com to read the rest of this article... (here's the link).