How I Got a $14,900 Annual Pay Raise

In my last post I mentioned that I was drafted (sort of). Well, everybody in the military gets a bump in their income when serving in a combat zone. While in Afghanistan, I qualify for an equivalent pay raise of $14,900 for my 12 months here.

The way it's broken down is:

Family separation Pay: $250/month
Imminent Danger Pay: $225/month
Hazardous Duty Pay: $150/month
Per Diem: $105/month
No Federal Income Tax: $326/month
Free Food: $187/month

Total: $1243/month or $14916/year

Of course, i'd give this all back for being back home.

I'm planning on using this extra money to help pay off two 401k loans that I took out for a down payment on our primary residence and the purchase of an AC system for a rental property.

I've Been Drafted (By Military), Well Sort Of

I've been a bit quiet lately because I've been going through a fairly turbulent process. I'm already active duty Navy, but in September of this year, I started the "individual augmentee" (IA) process. IAs are essentially piece meal replacements that go over to Iraq, Afghanistan, etc and assume Army staff jobs so that the over-worked Army can free up soldiers for actual missions.

In my title, I said drafted b/c I did not volunteer for my current assignment. Once notified, my current command and I were given 30 days notice to transfer my prior duties to others at work and for me to get ready to deploy for 12 months. In October, I finished two months of preparatory training which basically taught how to be an infantry grunt. I'm a Human Resources officer in the Navy, talk about 180 degrees out...

During my training, I was in charge of a group of 14 people. We finished the training unscathed and way ahead of schedule. Now I'm an Officer in Charge of a small unit in Afghanistan.

As for my on year tour: one month completed - eleven more to go.

As for my blog: I'm starting to settle in over here and am hoping for continued access to computers/internet. I'm still bidding on Prosper.com loans; however, i've scaled back to simply reinvesting interest income. On December 1st, I had about $5000 in Prosper loans. I'm going to watch it grow for a period of time without any new deposits. During this period, I plan on bidding predominately on loans w/ interest rates in excess of 21%. You can watch my portfolio at Erics Credit Community.

Why am I scaling back w/ Prosper.com? The main reason is to increase my liquid cash reserves, pay off two 401k loans and participate in a 10% military savings account program. I plan on working towards an eventual goal of 20% of our networth in Prosper. This goal will be reached in years not months. I intend to wait for Prosper to be in the black, financially, before I commit substantially larger sums.

As for my prosper loan portfolio performance:
- 104 loans
- 3 late (while I hate this, i'm still better than the average prosper portfolio)
- Average interest = 21.1%
- ROI = 14.96%

Hello From The Middle East

I'm almost done w/ my traveling... I'm finally in a place that doesn't block out blogger.com.

On Travel

Heading overseas for a bit. Will be in the air and/or without internet for about 2 days minimum.

Updated Prosper Lending Strategy (A Collection of Tips)

You can read my latest posting on prosper lending here... You can always come back to the below posting.

Bottom line: I've been lending money on Prosper.com since Apr 2006. Over this time, I've developed a preferred lending style that is discussed below. Some of the tips have already been discussed piece-meal on this blog; however, I feel that it's important to now summarize them in one entry.

Bidding:

(a) Bid 0% on auto funded loans. Reason: Auto-fund loan requests still have the bid-down feature that allows the last bidder (person who first gets loan to 100%) to set a lower interest rate and bump off others who set their lending rates to the borrower's requested rate. If you set your lending rate at 0%, nobody will underbid you. Of course, if everybody bids 0%, then you'll make no money. I'm assuming that at least one person will always bid the borrower's requested rate and thereby prevent the loan from getting bid down to 0%.

(b) Don't unnecessarily tie up your money in bids at the 5-9 day mark on loan requests. The lender's rate will frequently get bid down anyways. It's typically best to bid within 48hrs or less of the loan's closing. There's one exception: Borrowers have the option to accept the current market rate whenever their loan is at 100% funding, regardless of whether it's the 9th or 2nd day of the listing. In these cases, the borrower is either desperate for the money or doesn't have the sense to let the loan get bid down further. Lenders beware! You can get some sweet returns but may be incurring additional risk.

(c) Always ensure you have enough money in your account for at least one bid on the weekend. Reason: Deposits don't get credited to lender's accounts on weekends. This is the lending/borrowing dead zone. You will get less bidding competition on the weekends. Thus, you can potentially lock in some sweeter risk-reward loans if only you have the money to lend.

(d) Don't be scared to bid on loan requests that do not have the bank account verified. Prosper cannot let a loan go to funding until the account is verified. You may tie up your money a few extra days; however, you typically get higher interest rates on these loans.

(e) Don't have your Prosper sixth sense yet? Don't know how to read people. Recommend you review various lender portfolios at Eric's Credit Community. Eric scrapes data from the Prosper website and creates useful borrower and lender stats.
- Lender Stats Table (Ranks lenders by ROI and $ invested to include their bids and holdings)
- Delinquent loans (sorted by group sponsored and non-group sponsored) If you review these, you'll start to develop your Prosper lending 6th sense. You'll also find a few lenders where you favor their lending style thereby allowing you to follow their bids.

(f) Group sponsored loans have a unique feature (sometimes). I prefer to bid on loans where the group leader bids prior to me. That shows me that he/she has confidence in the borrower and feels that the borrower presents a decent risk-reward. Warning: Some group leaders (GL's) autobid on loans for their group. This has less value to me. In these cases I still view the loans favorably. However, I bid w/ narrower % rate spreads b/c I'm somewhat suspicious of the quality of the vetting. Using narrow % rate spreads also allows the lender to more easily bail out of a loan when they see that the GL is no longer bidding. By doing this you have more control and can take action when you see that the GL no longer feels that the loan market rate provides a suitable risk-reward proposition.

(g) Use the "I buy ugly houses" lending strategy to get superior risk-reward loans. Here's my post on the strategy.

(h) In my humble opinion, the following credit grades are roughly equal: AA, A, B, C, D. If you look at Prosper loan performance data, the delinquency rates on these loans all fall within a range of 3-4%. These are very narrow delinquency rates. Thus, you must ask yourself why not bid on the "D" rated individual? You only have an additional 1% (est.) credit late/default risk but roughly an 8% greater interest rate.

(i) The key to identifying and bidding on any loan is looking for what I consider an inflection point. Has the person turned the corner from a credit disaster and is well on their way to financial bliss? Or, are they an "AA" rated individual with a $7600/month mortgage note in California and have depleted their savings?

(j) Consider the implications of the pictures or the absence thereof. Also consider whether or not their decision to autofund is based on desperation or some other reason. For further comments see my postings on the subject (posting one, posting two). Warning: Postings "one" and "two" are not necessarily ground truth. They’re merely observations with an element of conjecture thrown in.

Money Management:

(a) Don't make large lump sum deposits into your Prosper account. Doing so only precludes you from collecting interest on that money in your banking account. Instead it's best to make multiple transfers each week. Keep in mind that 3pm PST is the deadline for submitting transfer requests. Requests submitted after this time incur an extra day of processing.

(b) To get an idea of the best time for bank transfers, you may want to read my post on the subject.

(c) For Small Budget Lenders: If you have a small budget, you can make deposits of as little as $25 (recently reduced from $50). Recommend making $25 deposits when your cash balance and payments in transit add up to $25. This will allow you to have a full $50 to bid in about four or five days.

Groups:

(a) Don't join a group unless you have a need to borrow money. You cannot get any of the group rewards as a lender.

Advanced Search Filters:

(a) Recommend you set up loan search filters in roughly the same manner I outline in paragraph "3" of the following tips post. I still follow the filter strategy mentioned in this post with one main exception. I now bid on loans with DTI's as high as 60% if:
1) they rent
2) their spouse or life mate contributes significantly to household expenses
3) they own or owe on a mortgage but have significant equity (50% or better) that can be tapped in an emergency.

Updated Prosper Lending Tips (A Summarized Collection of Topics)

You can read my latest posting about prosper here... You can always come to this 2006 posting later.

Bottom line: I've been lending money on Prosper.com since Apr 2006. Over this time, I've developed a preferred lending style that is discussed below. Some of the tips have already been discussed piece-meal on this blog; however, I feel that it's important to now summarize them in one entry.

Bidding:
(a) Bid 0% on auto funded loans. Reason: Auto-fund loan requests still have the bid-down feature that allows the last bidder (person who first gets loan to 100%) to set a lower interest rate and bump off others who set their lending rates to the borrower's requested rate. If you set your lending rate at 0%, nobody will underbid you. Of course, if everybody bids 0%, then you'll make no money. I'm assuming that at least one person will always bid the borrower's requested rate and thereby prevent the loan from getting bid down to 0%.

(b) Don't unnecessarily tie up your money in bids at the 5-9 day mark on loan requests. The lender's rate will frequently get bid down anyways. It's typically best to bid within 48hrs or less of the loan's closing. There's one exception: Borrowers have the option to accept the current market rate whenever their loan is at 100% funding, regardless of whether it's the 9th or 2nd day of the listing. In these cases, the borrower is either desperate for the money or doesn't have the sense to let the loan get bid down further. Lenders beware! You can get some sweet returns but may be incurring additional risk.

(c) Always ensure you have enough money in your account for at least one bid on the weekend. Reason: Deposits don't get credited to lender's accounts on weekends. This is the lending/borrowing dead zone. You will get less bidding competition on the weekends. Thus, you can potentially lock in some sweeter risk-reward loans if only you have the money to lend.

(d) Don't be scared to bid on loan requests that do not have the bank account verified. Prosper cannot let a loan go to funding until the account is verified. You may tie up your money a few extra days; however, you typically get higher interest rates on these loans.

(e) Don't have your Prosper sixth sense yet? Don't know how to read people. Recommend you review various lender portfolios at Eric's Credit Community. Eric scrapes data from the Prosper website and creates useful borrower and lender stats.
- Lender Stats Table (Ranks lenders by ROI and $ invested to include their bids and holdings)
- Delinquent loans (sorted by group sponsored and non-group sponsored)

If you review these, you'll start to develop your Prosper lending 6th sense. You'll also find a few lenders where you favor their lending style thereby allowing you to follow their bids.

(f) Group sponsored loans have a unique feature (sometimes). I prefer to bid on loans where the group leader bids prior to me. That shows me that he/she has confidence in the borrower and feels that the borrower presents a decent risk-reward. Warning: Some group leaders (GL's) autobid on loans for their group. This has less value to me. In these cases I still view the loans favorably. However, I bid w/ narrower % rate spreads b/c I'm somewhat suspicious of the quality of the vetting. Using narrow % rate spreads also allows the lender to more easily bail out of a loan when they see that the GL is no longer bidding. By doing this you have more control and can take action when you see that the GL no longer feels that the loan market rate is no longer a suitable risk-reward proposition.

(g) Use the "I buy ugly houses" lending strategy to get superior risk-reward loans. Here's my post on the strategy.

(h) In my humble opinion, the following credit grades are roughly equal: AA, A, B, C, D. If you look at each Prosper loan performance data. The delinquency rates on these loans all fall within a range of 3-4%. These are very narrow delinquency rates. Thus, you must ask yourself why not bid on the "D" rated individual. You only have a 1% (est.) credit default risk but a roughly an 8% greater interest rate.

(i) The key to identifying and bidding on any loan is looking for what I consider an inflection point. Has the person turned the corner from a credit disaster and is well on their way to financial bliss. Or, are they an "AA" rated individual with a $7600/month mortgage note in California and have depleted their savings?

(j) Consider the implications of the pictures or the absence thereof. Also consider whether or not their decision to autofund is based on desperation or some other reason. For further comments see my postings on the subject (posting one, posting two). Warning: Postings "one" and "two" are not necessarily ground truth. They’re merely observations with an element of conjecture thrown in.

Money Management:

(a) Don't make large lump sum deposits into your Prosper account. Doing so only precludes you from collecting interest on that money in your banking account. Instead it's best to making multiple transfers each week. Keep in mind that 3pm PST is the deadline for submitting transfer requests. Requests submitted after this time incurs an extra day of processing.

(b) To get an idea of the best time for bank transfers, you may want to read my post on the subject.

(c) For Small Budget Lenders: If you have a small budget, you can make deposits of as little as $25 (recently reduced from $50). Recommend making $25 deposits when your cash balance and payments in transit add up to $25. This will allow you to have a full $50 to bid in about four or five days.

Groups:

(a) Don't join a group unless you have a need to borrow money. You can get any of the group rewards as a lender.

Advanced Search Filters:

(a) Recommend you set up loan search filters in roughly the same manner I outline in paragraph "3" of the following tips post. I still follow the filter strategy mentioned in this post with one main exception. I now bid on loans with DTI's as high as 60% if:
1) they rent
2) their spouse or life mate contributes significantly to household expenses
3) they own or owe on a mortgage but have significant equity (50% or better) that can be tapped in an emergency.

A Prosper Lesson Learned: I'm Kicking Myself For Lending Money To One Person

Read my latest post on prosper here... You can always come back to this 2006 post later.

Bottom Line: I recommend against lending money to people who need to buy a car w/ a Prosper loan.

A car is a "hard asset" that can be repossessed if somebody goes delinquent on payment(s). No matter where you go, you can almost always find somebody willing to sell you a car and finance it too!

To frequently I see people w/o money buying or leasing cars they have no business with (vettes, escalades, lexus's, bmw's, etc). I know there's dealers out there that will finance a car, albeit at a high rate, for most anybody.

So, when somebody with bad credit or no credit wants to borrow money for a car, they've probably been turned down already by dealers. I suspect, their credit and/or income reliability may be much worse than what's represented (or not represented) in their Prosper loan request. Of course, there may be the case where the person may have found a good deal on a private sale, with limited financing opportunities. This is up to you... I've been burned once, and i'm staying away from them.

Ok, why am I saying this. Well, my only delinquency is a person borrowing money for a van. He's also the only "no credit" (NC) rated person that I lent to. He's retired Air Force. I guess I have a soft spot for prior military since i'm active military.

Here's my one delinquent: (Link was listed but removed on recommendation of others).

Summary of my loan portfolio:
a) 89 active loans w/ six more in review for funding
b) 20.32% return since starting in Apr 2006 (% per Prosper Performance Table)
c) One delinquent (six weeks delinquent)

Now, I'm getting to where I prefer "credit card consolidation" loans over all others. I prefer these when the tone of their application is remorseful for the situation they got themselves into, and THEY SPECIFICALLY STATE THEY'RE USING THE LOAN TO PAY OFF OLD DEBT. Of course, they could always lie to you and simply pay off the cards to continue shopping at Nordstroms.... It's one of the risks I choose to take.

Good luck!

My Annual Trip to the Movie Theater. The Movie That Gets Me Off the Netflix and Into the Theater

Joel Siegel, movie critic of Good Morning America, says this movie is the funniest thing he's seen since the Marx Brothers in Laurel and Hardy. Now this guy has seen a lot of movies. I'll go w/ his recommendation.

Joel's review.

My Biggest Pet Peeve w/ Prosper.com (Peer-to-Peer Lending)

Pet Peeve: My biggest pet peeve is not the fact that Prosper doesn't offer interest on unobligated funds. It's not the lengthy period of ACH transfers...

My biggest pet peeve are inconsiderate borrowers. Why don't borrowers who are late tell lenders why? They could change their profile to tell people up front what's going on and their own forecasted prognosis? It's the only considerate thing to do. BAD NEWS DOESN'T GET ANY BETTER WITH TIME.

Prosper member "i" hits the nail on the head with his statement:

"To Those Whom I Choose to Fund:
You have given to me your word. I am demonstrating my trust in you by allocating to you temporary control of money that I worked hard to earn. You now have an opportunity to show the strength of your character to me and to others. Please do not fail me. While I can live with some losses here, your character cannot!"

While, the borrowers may not necessarily understand that they gave their word, per se, they do a promissory note. This is virtually the same thing.

Here's a Good Policy Shift by Prosper.com

In the words of Secretary of Defense Rumsfeld, the worst things are those that you "don't know you don't know." Sounds like a Bushism to me but anyways, here's a previous unknown that I learned today while perusing the Prosper help section (I'm now wonder why Prosper didn't highlight this in a "News" email to me).

Prosper has lowered the minimum dollar amount for incoming transfers. In the past, the minimum was $50. Now, the minimum is $25. Prosper's outgoing minimum has always been $25 (at least since I joined). Perhaps this can be interpretted as a small concession to those that are fed up with Prosper not paying interest on unobligated funds.

Now a decent strategy for small timers would be to transfer $25 into their accounts as soon as their "cash balance" and "payments in transit" add up to $25. Previously, i've been pumping in increments of $50+ in order to have at least $100 (2 bids) in my account at all time.

This policy shift helps me and others who are in that end of the year crunch for maxing their 401k.

Putting Lipstick On The Pig: Prosper May Spruce Up Your Underperforming Loan Summary Section Without Your Knowledge

Whether you know it or not, your delinquent loans MA Y completely disappear from your loan summary section. Here's the details from Prosper's website:

Loans delinquent for 4 months will be sold on the open market to a debt buyer...

• After four months of delinquency for any single payment, your loan will be sold to a debt buyer and any proceeds will be distributed to lenders.
• Your delinquency will be reported to Experian, Prosper's credit reporting agency partner, and will appear in your credit history. Your credit score will be negatively impacted.
• Borrowers who have defaulted on a loan at Prosper will not be allowed to borrow again on the Prosper marketplace."

Don't believe this? Go here.

Many people probably don't realize this b/c there are so few loans that are in a delinquency status of 3+ months (81 loans, 2.35% of all funded loans).

This policy may be good for lenders and Prosper. I wonder whether or not this will be highlighted under the loan summary section. Or, will Prosper simply allow these delinquent loans to disappear from the loan summary section? Chances are that the delinquent account may just disappear and the lender may have to figure it out for themselves. If the lender is not astute, they may think that the delinquent account is now current. LENDER BEWARE!

Plea to Lenders: Don't let Prosper allow to mask these loan sales. If it's not specifically addressed in your loan summary, complain to Prosper. Have them highlight this in the loan summary section. They should include a section stating: "# Loans Sold."

I Just Learned Something New About Prosper.com "Group Rewards"

Please disregard some of my prior comments about Prosper "group rewards." Prior to yesterday's post, I previously took the liberty of interpreting prosper loan payment tables literally for what is listed in my Prosper account. On each loan payment, I'd see that each borrower would make a payment but Prosper would make deductions periodically for non sufficient funds (NSF) and "group rewards." Seeing this, I was psst off that I was paying "group rewards."

I spoke w/ a Prosper rep yesterday and he assured me that "group rewards" are paid strictly by borrowers and are included as a supplemental amount in payments borrowers make to Prosper.

That stated, I am continually unable to "check-book" balance the differences between my loan portfolio "historical performance" and "net interest and fees paid on loans to date" sections of Prosper screen displays.

- The "historical performance" is found by going to "your account," "lending," "loan summary," and finally "historical performance."
- The "net interest ..." is found at the bottom of the "loan summary" section.

The Prosper rep told me that the differences between these two reside in the fact that "historical performance" forecasts the net gains you SHOULD have in your account if all payments are current."

Even with this new knowledge, i'm still puzzled and am crunching the numbers. I'm trying to mathematically account for every penny in the difference between the two. If others out there can account for the differences in their accounts please comment below or email me. I'm exceptionally curious and annoyed w/ this.

Prosper.com "Group Rewards" Apply Only to Borrowers (Not Lenders)

I recently blogged about joining a peer-to-peer lending group on Prosper. I like PsychDoc's group and respect it; however, I had an incorrect underlying assumption.

I frequently noticed that some groups at Prosper.com have 100% shared rewards. So, I thought, i'm a lender, I bid on PsychDoc's loans anyways... Why not juice up my returns by joining his group?

I was sooo wrong. Group rewards ARE NOT 100% SHARED (no matter the group, no matter what's advertised)!! They are only shared amongst those people that have ACTIVE LOANS. If you're a borrower, you'd say NO DUH! For those w/ training in Economics, you might say NO DUH. I too know the free-rider principle from Economics. However, I took Prosper.com at their word (100% shared rewards).

Note: PsychDoc did nothing wrong in advertising 100% shared rewards, many other groups do this. It's more so a matter of understanding Prosper.com policy.

Group rewards are shared by buying down the interest rate of borrowers. Next time you look at a group sponsored loan application, pay attention to the interest rate spread between lender and borrower rates. When a loan is funded, a borrower receives NO shared rewards until after 3 months. Prosper states that this is policy to ensure that the listing is a valid. After the 3rd month, the borrower will see that their interest expense is partially paid down by shared "group rewards" (provided their group shares rewards). I'm not sure how this is displayed. The amount of reward should remain level until their last payment. At that time, any additional rewards that may have piled up will be credited in lump sum.

So now, there's no point of me being in a group, unless I need to borrow money.

Disclaimer: The extent of my knowlege on the subject above is based exclusively on one phone call to Prosper. Some borrowers may be able to better detail how group rewards work. If I made any mistakes, please address them in my comments section below.

The Best Think I Told My Wife Since Getting Married (Per Her)

I'm on vacation till Monday, and this morning I had the liberty of lounging on the couch while my wife got ready for work. I noticed that she was steadily progressing with her hair, makeup, coffee, etc. but continued to cycle between different outfits.

I followed her into our walk-in closet to give her a hug / investigate. Perhaps I felt guilty lounging around while she works, but I said:

"Maybe we should go shopping so that (insert spouse's pet name) has new clothes"

Some guys might say, so what I do that all the time. Or they may highlight that I said MAYBE, and thus can back out of it!

I'm a frugal guy and I loathe shopping and it becomes even worse if the primary shopper is indecisive. LOL. I better stop there or I might start losing the points I scored w/ her this morning.

Prosper.com Borrower Policy Trumps My New Years Resolution?

I recently decided that one of my New Years resolutions was not to bid on any NON-autofund prosper loan request unless it was within two days prior to closing. Ideally, I would manually bid snipe it with a bid time as close to closing as feasible.

Recently, I have been making initial bids on these loans 3-5 days prior to their closing. You ask, why 5 days or less? Fundamentally, I believe in just in-time bidding/funding. This strategy best helps me minimize the amount of unobligated funds in Prosper's 0% interest bearing accounts.

Recently, i've been noticing that some non-auto bid loans have been funding and closing in well less than 10 days. Here's an example:

Loan 53970.

This loan closed within about 2 days and 15hrs of opening (the typical period is 10 days). Frustrated w/ the lost bidding opportunity, I called Prosper.com. The Prosper rep notified me that borrowers have an account feature that allows them to accept a loan interest rate at any time once the loan reaches 100% funding.

Those lenders who piled in early on this loan, got a loan w/ an ROI of 14.6% (a respectable rate). Now, I'm in a quandary as to whether or not embark on my above New Years resolution. The one silver lining to the New Years resolution is that I'd avoid some borrowers who are in such a hurry for funds that they may have underlying emergent issues (hidden risks) not clearly communicated in their loan requests. Of course, this is an inherent risk that may still exist in auto-fund requests that I continue to fund.

Hmm, what will I do? I'll likely stick w/ my New Years Resolution and leave it to my readers on how they time their bids.

Prosper Lending: A Big Surge of Borrowers About to Hit the Market

I'm an avid lender on prosper.com and I was previously getting concerned that I was working a bit hard in finding suitable risk-reward lending situations. Per Eric's Credit Community, my ROI is 14.45%. Beating this ROI is starting to get difficult. But voila, I just came across a Christmas related listing.

It then dawned on me that the Christmas/New Year season will be a good period for lenders. Here's why:

(1) Who ever came up w/ "It's better to give than receive?" LOL, perhaps a retailer, i'm not sure. However, many people are going to spend more money than they have on hand. This will create more shortfalls when emergencies hit.

(2) Some of the other lenders you're competing against may get a little bit shorter on funds if they're not giving frugally, but making a splash w/ the purchase of big Christmas presents for others (perhaps a big flat screen for themselves).

(3) Other people may be making New Years resolutions that cost money.

(4) Others may be spending too much money on travel to see family this season.

(5) Others may be spending too much money on Christmas/New Years parties.

You should expect the beginning of a surge of Christmas related listings starting about 10 days prior to Thanksgiving. The one above may be one of the first ones.

I haven't yet decided if i'm bidding on the listing above. I've emailed her a couple of questions and am waiting on a response. The one challenging thing for her is that English must be her second language after I suspect Mung/Lao or Thai. I hope she doesn't think it's smart to "SAVE" at 25.48% interest. It's only saving if she would have otherwise spent the money on a 32% Bank of America or Chase credit card. If that's the case, on the one hand I applaud her for saving about 6.5% but on the other hand, she needs to work on money management.

My Prosper Loan Portfolio Performance

Bottom line: Prosper over states my loan portfolio performance by about 3%. Instead of earning a 20.28% return, I've earned an annualized yield 17.1%.

My Prosper.com loan portfolio (Portfolio display provided by Eric's Credit Community).

Details:

a) Number of loans: 85

b) Total Loaned: $4,320.23*

c) Number delinquent: 2
- Loan 314XX: 2 months late
- Loan 311XX: 7 days late

d) Effective Interest Rate = 17.1% *

*Notes:
1) Prosper states my effective interest rate is 20.28%

2) Prosper doesn't factor in the impact of group rewards and other fees. Instead, THE SITE MISREPRESENTS effective yields. YOU HAVE TO CALCULATE THIS ON YOUR OWN.

3) Meanwhile, if the delinquent accounts in paragraph "c" actually default, my effective interest rate would be reduced to 16.7% and 16.3% respectively (approximately 0.4% reduction for each default).

4) In calculating my effective interest rate, I assumed all interest income would have been reinvested at an effective 17.1% interest rate. I also ignored the 0% periods where interest income sits w/o being in an active loan.

5) When using "Eric's Credit Community," one will almost always get slight irregularities in the reporting of "Eric's Credit Community" and Prosper.com.

Can bid style (competitive bid vs. autobid) on Prosper.com help determine likelihood of late payment?

Perhaps, people with higher likelihoods of making late payments or defaulting on prosper loans are more desperate and in greater need for fast loan funding. As a result, borrowers may use the autobid feature to help ensure their loan request(s) get funded.

Like my last analysis of pictures in delinquent loans, I went back to the prosper borrower stats at "Eric's Credit Community." I looked at all of the group sponsored delinquent loans and found that there were 161 delinquent group loans with valid hyperlinks.

Of these, I found that there were only 36 competitively bid delinquent loans and a whopping 125 delinquent autobid loans. ALL OTHER THINGS EQUAL, it appears that the bidding style has some merit in determining likelihood of late payment.

Based on the above numbers, late payments occurred with 347% greater frequency when the borrower used the autobid feature.

Disclaimer: This analysis is based on ALL OTHER THINGS EQUAL (ceterus paribus for statisticians). In all likelihood, there are a number of other extenuating circumstances that also contribute to greater likelihoods of late payment.

Recommendation: Consider using this as a supplement to prosper.com credit report analysis.

Can Photos on Prosper Loan Requests Help Determine Default Risk?

Perhaps, people with higher likelihoods of making late payments or defaulting on prosper loans don't want you to know what they look like.

I did some back of the envelope math and found some possible evidence that pictures matter on Prosper loan requests.

I reviewed the prosper borrower stats at "Eric's Credit Community." Eric shows that there are 210 prosper loans that are late in payment. The accuracy of this number is limited in part due to the fact that his number of late non-group affiliated loans is based only on what is reported to him by prosper lenders.

Anyways, I looked at pictures posted (or not posted) on each one of the late loans and found that loan requests without pictures of the borrower occurred 31% more frequently than requests w/ one or more pictures of the borrower.

Pictures are only a piece of the puzzle available to lenders. I recommend continued use of credit report analysis and email dialogue w/ borrowers to determine favorable risk-reward lending cases.

A Good Listing on Prosper.com That You Should Check Out Immediately

This loan request has a fixed rate of 24.9% on a D Rated individual. It will likely get funded with less than 3 hrs of total list time.

Loan 35836

The person has a military background and is currently located at an Air Force Base (AFB). The person requesting the loan is not clear on his employment and pay. It can only be inferred that:

- If the person has been in the military for 16.5yrs, then they likely have a minimum household income of 40k with full medical benefits for his family of 5.

By the way, "USAA" is just an insurance company. He notes that he's been a member of USAA for 10 years. It's not that big of a deal; however, USAA offers alot of good financial services at decent rates.

Warning: I don't know this person any more than you. Bid at your own risk.

I Just Joined My First Group on Prosper.com

Previously, I blogged about the formation of my own group on Prosper.com. I have since changed my mind due to my work schedule w/ the Navy. Instead of leading a group, i've joined PsychDoc's group.

Unlike others, PsychDoc is also a lender. I've seen so many other group leaders manage a group and collect group rewards but do very little bidding.

Joining his group was an easy decision for me since 24% of all loans i've funded to date are sponsored by his group (a relative majority of my loan portfolio).

Ten Ideas to Make Prosper.com Better

I've made several prior posts on this topic. Here's a few more ideas.

(1) Enable lenders to have a watch list. Much like Ebay, a lender can select particular borrowers from their searches and save them for a temporary watch list. This is a useful idea in that people don't always have money in Prosper.com's ZERO PERCENT INTEREST RATE ACCOUNTS. They need a way to more easily track listings they prefer between their deposits.

(2) Add a "bid now" feature that allows bidders to bid based on a line of credit or margin account. Prosper.com would make money in margin interest between the time of the actual bid and the time that funds are deposited w/ Prosper.com.

(3) Modify the minimum $ amount required for fund transfers. Given that people are frequently getting interest payments deposited that don't add up to $50, people need a way to fund accounts with the exact amount required to supplement interest income in order to meet minimum bid requirements... For example, if somebody has $7 in interest income, then they may only want to deposit $43. At a minimum, Prosper.com should drop the minimum for incoming transfers to $25 and match their minimum requirement for outbound transfers.

(4) Allow people to set up a Prosper.com variable universal life plans. Prosper could make a little more money in fees and people could get life insurance coupled with self directed management of their tax sheltered money. Generally, variable universal life plans are bad investments; however, this might be a good medium if Prosper keeps the fees downs. Additionally, if Prosper.com doesn't go public via an IPO, they could get bought out or merge with an insurance company who wants to test out this idea and diversify their income streams.

(5) Get the bank transfer time down to 2-4 days as advertised. As it stands, Prosper is falsely advertising the observed time periods for bank transfers.

(6) Offer jobs to lenders to run "PROSPER MUTUAL FUNDS." Prosper would have to:
a) Observe over time those lenders that have the best lending track record
b) Offer a interview opportunity to the lender. If well-suited, based on interview, resume and track record, offer the person a job.
c) Prosper would then share the new income stream from Prosper Mutual Funds with the actual money manager.
d) Money manager employment would be conditional on maintaining a return track record at a predetermined rate above averages.

Some ideas from my prior posts:

(8) Add IRA options.

(9) Advertise Prosper.com on radio and TV. Right now people learn about it via word of mouth or free advertising (newspaper and magazine articles).

(10) OFFER INTEREST ON NON-OBLIGATED FUNDS IN LENDER ACCOUNTS. SOMETHING EQUIVALENT TO WHAT VANGUARD DOES (4% PLUS) WOULD BE APPROPRIATE.

MY FIRST DOUBLE BID ON PROSPER (LOOK QUICK IF YOU HAVE FUNDS FOR BIDDING)

CHECK OUT THE RISK VS. REWARD ON THIS LOAN REQUEST

LOAN #33657

The person requesting funds is willing to pay lenders a fixed rate of 18% (auto fund loan request). She's a librarian and lives in Houston, TX. Her account is not yet verified; however, i'm willing to wait for verification.

Disclaimer: I don't know this borrower any more than you... bid at your own risk.

A Freaky/Funky Quirk With Prosper.com Money Transfers

I just transferred some money into my account. I then left my computer to do something and came back to the prosper fund transfer complete screen and refreshed it.

I typically refresh different prosper screens every now and then after i've been working other applications just to check for new messages and prevent being logged out.

In this case, I found that prosper.com automatically transferred a duplicate amount of money. I found this odd b/c it did this without me ever clicking a second time on the "I agree with the authorization to debit account above."

User beware... Good luck prospering.

Adapting the "I Buy Ugly Houses" Strategy to Prosper.com Lending

Have you ever seen the sign "I Buy Ugly Houses?" The signs actually look a little funny. Anyways, there's a way to adapt this strategy to prosper lending.

Find those loan requests that match your desired lending profile (credit risk, lender rate, etc), but have very little or no loan request description.

What you then have is something similar to a house w/ good bones but a less than desirable loan request description that will get past over by others.

Once you find one of these, you've found a loan request that will probably give you a 0.5-3% (or higher) interest rate than comparable "nice looking" loan requests. What you then have to do is send one or two emails to get answers to the items you would have otherwise been looking for in the "nice looking" loan requests.

Chances are, a good portion will come back w/ decent answers... and voila, now you have a loan to bid on that has a good risk vs. reward for you, the lender.

Prosper.com Borrowers: A Good Example for Pictures to Use at the Top of Your Loan Request

Take a look at this listing. The person is requesting a moderate sum and it's now over 4 days from closing.

The person writing this add could have done a slightly better job writing the "description" section. However, he did a fabulous job with what people see first (his pictures). All of the pictures are tastefully done and include his whole family. Additionally, he added a black and white picture to the mix.

I think that his picture selection alone will get him 0.5 to 1.25% better interest rate on his loan request.

I suspect his loan will close at a rate around 16%... A pretty good rate of a "D" credit rated individual.

Ten Prosper.com Lending Tips

Here's a run down of a few tips I think the beginner should consider when bidding on loans at prosper.com

(1) Let others do the dirty work... Don't bid on non-automatic funding loans greater than 4 days from the loans closing date. You ask why? Picture yourself with your typically bidding increment (only enough for one loan). You find a loan that you like at 7 days from closing... you bid on it. But you then find an even better loan that's 2 days from closing. Unfortunately, most prosper money transfers take four or more days to complete... And thus, you won't be able to bid on the better loan. Ideally, you would have bid on the loan 2 days from closing, then transferred more money in to bid on the loan closing in 7 days if the interest rate is still to your liking.

(2) Don't keep significant amounts of money in your account. Prosper, hasn't gone out of its way to give you any interest income on your deposits. Don't let them and their partner Wells Fargo make interest off of your funds if you can avoid it. I recommend keeping a minimum of one bidding increment in your account for the weekend. The weekend is the funding dead zone. Prosper doesn't deposit money in accounts during the weekend. This creates what I believe to be one of the few periods where you get less competition bidding on loan applications.

(3) If you're not on a fixed income, don't worry about the loan applicants credit grade. In my opinion, credit grades are static and are an indication of the past, not the future. I think it's best to look at the actual credit characteristics: "debt-to-income ratio (DTI)," "current delinquencies," "delinquencies in last 7 yrs," "public records," and "number inquiries in last 6 months."

I GENERALLY stick with loan applicants with:

a) DTI less than 40%
b) Current delinquencies equal to zero, sometimes one if they have a good explanation
c) number of inquiries in last 6 months less than 7 and prefer those that have 3 or less.

(4) When searching for loans to fund, USE THE ADVANCED search feature, specifically the "auto fill" rates field. I typically use 3 searches.
a) any loan funded to 51%
b) any automatic funding loan with a 13% risk adjusted return, 33% funded and a few other settings
c) a 13.17% risk adjusted return screen, then modify the DTI to read 40%, the "current delinquencies at 0 to 0," and "o to 7 inquiries in last 6 months."

(5) I generally don't recommend bidding on business loans where you feel that the loan interest rate is greater than the owner's profit margin.

(6) I generally prefer to bid on group sponsored loans where the group leader bids on the loan. This can be a good indicator as to whether or not the person who vetted the loan applicant feels that the applicant offers a suitable risk-reward proposition for lenders. Additionally, I had once did an analysis of delinquent loans and found that roughly 75% of delinquent group sponsored loans did not receive a bid by the group's leader.

(7) I personally avoid those loan applicants that plead or ask emphatically for help, are looking for charity or asking in so many words for somebody to bail them out of a particular situation.

(8) Automatic Funding loans are my preference, they tend to be the best for people that don't like keeping their money in prosper.com's zero % interest bearing accounts. When bidding on these types of loans, recommend you put zero % interest as your minimum interest rate that you'll accept. Prosper.com applies the reverse dutch auction bidding style to these types of loans too. I know it's absurd, but i've been outbid before on an automatic funding loan (fixed interest rate loan), simply because I entered the fixed interest rate and somebody came behind me and underbid the interest rate.

(9) Check out the site called Eric's Credit Community. Some pages take a long time to load; however, you can look at current late loans and lenders portfolios and determine trends where people may have an increased likelihood of paying late and a few other interesting tidbids.

(10) If a borrower has made multiple listings, read all of the prior listings. This seems like common sense. Borrowers may completely change the reason for their loan request between listings or include only in one listing details on their income and delinquencies.

Once you've looked at all the prior postings, don't hesitate to ask questions of the borrower. Frequently, you'll get more information than what you asked for.

Finally, consider checking out the borrower's group leader's website (if they're sponsored by a group and it has a website). These sites sometimes provide even further details that can help you make an informed decision. Here's an example of some group leader commentary.

Reasons why I bid on my last HR (29%) prosper.com loan

I just bid on an instant funding loan which has one of the highest interest rates of any loan I've funded to date.

Typically, I won't touch loans that have any "current delinquencies."

Here's the one I bid on: Listing 31250

This lady is persistent and holds one of those very stable jobs (Federal Government). Additionally, the lady's group leader is both bidding on the loan and blogging about the loan applicants financial profile. Here's the group leader's posting about listing 31250.

Thunderbucks Entry

At first glance, everything appears on the up-and-up. I bid my typical cheapskate $50 increment.

Good luck on prosper. Please bid at your own risk. I neither guarantee returns on loans I blog about nor personally know this loan applicant.

If you want, you can look at my prosper portfolio here.

My first bid on a "no credit" NC rated individual on Prosper.com

Today, I made my first bid on an individual rated "NC" on prosper.com. NC stands for no credit history.

Here it is: listing #31406

Prior to bidding on this, I've filled 51 other loans. So far, none have been late, and one was paid off early.

A Potentionally Low Risk High Return Prosper Loan Request (Considering Doubling Bid Amount for 1st Time)

This will likely be the first loan I double my bidding increment on. I perceive that it has great potential as a low risk-high reward "Prosper.com" listing.

Loan Listing 28339

My reservations are:

(1) The person requesting the loan has had 10 credit inquiries in the last 6 months.
(2) The person owns California real estate.
(3) The person owns California real estate AND has negative business cash flow YET appears very confident that he'll reach positive cash flow within next 90 days.... Intriguing, perhaps crazy still.

Here's my bidding strategy:

200% of normal bid increment down to 23.25% lender rate
175% of normal bid increment between 23.25 and 21.25% lender rate
150% of normal bid increment between 21.25 and 19.25% lender rate
**normal bid increment on anything else.

So far, I have made 44 loans w/ an average rate of 20%. None of the loans are late in payments. Here's a reasonably close breakdown of my loan portfolio.

My loan portfolio

The Dumbest Thing About Prosper Peer-2-Peer Lending (Read This If You Want to Know A Lending Hack/Trick)

Ok, I'm seething mad. I just got off the phone w/ a very professional customer service rep at Prosper.com. However, it doesn't make up for the fact that Prosper is soooo stupid for applying the Reverse Dutch Auction programming code to automatic funding loans.

Don't understand what I just said? Ok, normally, a non-automatic funding loan will get the interest rate bid down by competing lenders. This is good for borrowers and is an excellent application of Reverse Dutch Auction principles.

Use of this is completely and utterly stupid for automatic funding loans. These loans have the lighting bolt symbol and end regardless of time open when the borrower has received 100% funding from the pool of bidders.

Here's the rub, I was outbid on loan 25608

I made my bid at 2:34pm as "WellVersed" when the loan was less than 50% fulfilled (I think it was around 20 or 30% fullfilled). Then, 6 other bidders successfully piled in after me.

How can you get outbid on an automatic funding loan? In this case, first-come-first serve does not necessarily apply to lenders. So long as a loan remains unfunded by just one cent, anybody can come in and bid as large an amount as they want and kick out prior bidders so long as their "minimum interest rate" is lower than enough other bidders.

From now on, I'm entering 0.00 percent for the lowest interest rate i'm willing to accept on automatic funding loans. I RECOMMEND YOU DO THE SAME if you don't want to get kicked out of an automatic funding loan bid.

Effective July 28th, Emigrant Direct Raising Savings Account Interest Rate

Just received a piece of mail from Emigrant Direct. Inside, it states that from this Friday through Monday their website will be down for upgrades.

It provides a 10 digit access code. I suspect, this is to allow you to access the website once it gets redesigned. Many people have their computer memorize their logins so providing this helps those of us who do.

On the 28th of July, Emigrant Direct will raise their savings account interest rate to 5.15%. This would move Emigrant Direct into the #2 spot on bankrate.com's listings (behind OneUnited Bank's 5.25% account).

Please note that Bankrate.com gives Emigrant Direct a 2 star financial rating. Think twice before entrusting Emigrant Direct with huge sums of money.

We'll continue to keep a small amount with them b/c of their competitive rate. However, we'll take our money out if any additional rumblings of bad credit ratings arise.

Read This If: You're Interested in How Much The Federal Government MAY Intentionally Manipulate Financial Markets

Found a great blog article that while it seems a bit of conjecture, I suspect a number of the points made are on the money... Not so certain about the Fed Reserve Hedge Fund run out of the Caribbean though.

The article states that the "The Secretary of the Treasury, Chairman of the Fed, Chairman of the SEC, and Chairman of the Commodity Futures Trading Commission are known as the 'Four Financial Dictators.' Their job is to grow and preserve the power of the state to socially and financially engineer society."

The article integrates discussion of executive order 12631 and the absurd run-up in GM lately to reinforce article validity.

Here's the Article: "General Motors, Market Engineering, and Confidence Protection"

Check Out Emigrant Directs New 5.0% Interest Rate

I was so close to opening an HSBC online savings account until this evening when I found out that Emigrant Direct had boosted their interest rate to 5.0%. This should prove convenient since we already have an account with them.

This, coupled with an NFCU 6.25% @ 18months/$15k min CD appears to be a good combination.

Testing Out the Standing Order (Auto Bid) Feature of Prosper.com (Peer-to-Peer Lending)

It's early Monday morning and I just set my first standing order on prosper.com. Here's what how I set it:

(1) amount to lend: $50
(2) maximum per loan: $50
(3) risk adjusted interest rate: 14%
(4) collection agency: AllianceOne
(5) include only those that have automatic funding feature set
(6) include only those with verified bank account
(7) only include those that are group members
(8) only support the following groups: DocProsper's Credit Community; Professors and Univeristy Grads; Ourtopia; Due Diligence; Yale Alumni; Fanafi Financial; Utopia Loans
(9) I'll add my group (Feng Shui Financing) as soon as it's activated within the next two weeks.

I'm doing this for the following reasons:
(1) I believe that as the available money for lending grows, so to will the list of those using the standing order bidding system.
(2) As this list of standing order bidding system users grows, the number of loans fully funded within 5 minutes or less will grow substantially.
(3) Many of these ultra-quick funded loans represent a superior risk vs. reward situation for lenders.

A Cheapskate's Guide to Home Security

We just got a security system installed. The whole experience prompted me to blog on some cheapskate home security ideas.

The whole point of cheapskate home security is based on deterrence. Here's my ideas:

(1) Find a friend who pays for security service and get one of their signs. Security companies usually give two or three with an installation. Perhaps, your friend has a spare. Once you get the sign, put it up in your front yard.

(2) When on travel, use some timers for your indoor lighting. Here's an Amazon search of indoor light timers.

(3) Consider using random security measures for your house so that someone planning an burglary doesn't get a good read on your routine. Here's some ideas:

(a) Cycle between your outdoor lighting scheme. Rather than have all of your outdoor lights on, cycle between using your lights for your front door, back door and/or garage
(b) If you have a garage, don't always use it.
(c) You can probably come up with a few others.

(4) If you're traveling, stop your mail or have a friend pick it up.

(5) Consider a baseball bat or other weapon near your bed. This may be suitable if you're not scared of conflict and you don't have a sophisticated alarm system (with sensors for windows, glass break sensors, etc).

(6) Plant thorny bushes near potential access points.

(7) Set up motion sensors on your exterior lighting.

(8) Get a dog. A cheapskate alternative is if your neighbor has a dog that shares your fence line. We've got this situation and their dogs always bark when I walk in my back yard.

(9) Consider getting signs such as "This house protected by Smith and Wesson" and/or "Beware of dog." Even if you don't have a dog or a handgun, it could be a deterrent.

(10) Keep your grass cut, don't let your newspapers pile up.

(11) Get dead-bolt locks.

Adopting all of these ideas is certainly not cheap. However, a homeowner or renter could probably take a few of these ideas and come up with a low cost alternative. Additionally, if you're a real cheapskate, remind yourself of the true expense of having a home intrusion/burglary occur (might be a little incentive to open the wallet/purse).

Finance Junkie Setting Up Lending Group at Prosper.com

I've taken the first steps towards setting up a lending/borrowing group at Prosper.com. The group's name is tentatively "Feng Shui Financing."

Right now, membership is set at invitation only. Email me if you desire to be associated with this group. I tentatively plan on:

(1) Finishing the group's prosper profile within the next three weeks.

I will reconsider relaxing the group's restrictive invitation only membership policy closer to the time that the group's profile page is finished. These next three weeks will allow me time to pattern Feng Shui Financing after the best bits and pieces of other prosper groups.

Please leave recommendations as necessary in my comments section.

Don't Have a Prosper Lending Account? Haven't Funded Your Account Yet? Don't Bother!

You can read my latest posting on prosper lending here... You can always come back to the below posting.

The title is a little bit misleading. It's actually my opinion that you should DELAY funding your account. Here's the reason why:

(1) Lenders and their deep pockets appear to be growing at a faster pace than borrowers willing to submit good applications. I define good as prosper borrowers appropriately setting the interest rate they're willing to pay in line with their credit grade. I'm finding TOO many cases of people with the worst two possible credit grades asking for loans at rates around 10%. Get real! Prosper.com's primary mission is not to provide a forum for charity. (Enough of my rant)

(2) This imbalance between lenders and borrowers is causing some of the good loans to get bid down to lender risk adjusted rates equivalent to a Certificate of Deposit.
- Prime example: Within the last 48hrs I watched a "D" credit graded teacher get a roughly 12.9% interest rate on her loan. Working backwards (by trial and error), prosper.com's auto fill calculator shows me that lender's bidding on this loan got a risk adjusted return of only 6.7%. On top of this, they're assessed Prosper's 0.5% annual fee to yield an APY of roughly 6.2%. These lenders are much better off buying preferred stock or going to bankdeals and finding a bank running a certificate of deposit promotion.

(3) Ok, here's the take away... If you haven't funded your account yet, consider taking a break for about two weeks and checking back. Perhaps the supply of borrowers (with good applications) will fall in line with the current demand of lenders.

(4) Alternatively, if you're patient, go ahead and fund your account. However, if you're picky like me, you may not be able to find more than one or two decent loans a week.

I'm thinking that the groups that "vett" the loan applications are not doing a sufficient job training their loan applicants in writing a loan request. If I ran a group, i'd seriously consider trying to set a minimum interest rate based on each loan applicants credit grade. While, there probably isn't an efficient mechanism for enforcing this, i'd certainly try to steer them in the right direction. Absent of opening my own group, I whole heartedly recommend the group "due diligence." It's group leader has consistently turned out quality applicants. Let's see if he keeps it up.

Additionally, I HOPE that over time, people are going to hear about the great rates that borrowers are getting on loans and that the growth rate in borrowers may eclipse that of lenders and correct this temporary supply-demand imbalance.

Finally, prosper borrowers should consider listing their loans at their state's max interest rate. Not very many people are doing this. If done, they'll get an instant rush of bids through prosper's automated fill system. On top of that, they'll get massive click traffic for their application. Their application will pass most of the lender's initial screens. In no time, they'll have a 100% bidded loan. Then, they can sit back and watch the lenders bid the rate of the loan down like starving piranas

Good Luck All (Borrowers/Lenders)!

Watching the Stock Trades of One of the Sharpest Stock Pickers (CNBC Squawk Box Maserati Competition Winner)

Thomas Ko beat out over 150,221 investors in the CNBC Squawk Box Challenge by turning a hypothetical one million dollar portfolio into over $5 million in just six weeks.

Thomas Ko is still on a hot streak. He's matched up against 5 bonafide stock market professionals and is kicking their butt too!

Go to the MSN Strategy Lab to watch Thomas Ko's trades. Thomas Ko started with a hypothetical $100k on June 16th and has already turned it into $134,548. Part of his edge is probably the fact that he's hot and everybody is piling in, more so than the Jim Cramer (BoooYAH) fanatics.

Optimizing Money Transfer Into Your Prosper.com Account

I ran a little experiment to determine what is the best day for transferring funds into Prosper.com. I'm a Prosper lender who prefers not to have hundreds or thousands of dollars sitting in Prosper.com's 0.0% interest bearing accounts. So, I routinely do 3-5 transfers a week into my account. I look at it as just-in-time financing.

This is what I found:

(1) Transfers initiated on Sunday, Monday and Tuesday had the quickest turn-around (3 days)
(2) Transfers initiated on Thursdays had the worst turn-around (6 days)

Prosper.com states that transfers should occur within 2-4 days of initial request. I have yet to see a 2 day transfer. I suspect that my results may be varying from others in that I use a regional bank vs. a national bank. In this respect, my regional bank may be slower than some of the major national banks that Prosper.com has worked with.

My recommendation to you:

(1) Use the just-in-time financing strategy (multiple transfers during the week)

(2) Establish a baseline amount equal to (1) or (2) times your normal bid. Keep this in your Prosper account at all times. This baseline amount won't collect interest, but can be immediately used to bid on those loan requests that have the "automatic funding" feature. Some of these loans are being filled in less than 3 days. I even saw a great deal yesterday (C rating @ 18% interest rate). This request was for less than $2k and actually funded in less than 4 hours after initial posting.

(3) Transfer the bulk of your funds on Tuesdays. This way the money is in your account for the weekend, a period where no new money is added to prosper lending accounts.

Summary of my results for lending transfers (your results may vary)

Transfer Initiated / Transfer Completed
Sun / Wed (3 days)
Mon / Thur (3 days)
Tue / Fri (3 days)
Wed / Mon (5 days)
Thur / Wed (6 days)
Fri / Wed (5 days)
Sat / Wed (4 days)

I have yet to see a daily deadline for balance transfers. Does anybody know whether balance transfer requests initiated after a particular time are deferred until the next business day? If so, what's the time?

GRRRR Dish Network: I Just Forfeited a $100 Rebate (#$*&^%)

I hate rebates!!! I believe I read that only 1/2 of the people out there actually file their rebates properly. Well, count me in that group of 50% who files improperly.

In April we got a Dish Network satellite system. We skimped on paying the extra $5/month for the local channels but we splurged and got two DVR receivers (our first time to have either a DVR or satellite dish).

Anyways, upon initiating our contract we got a $100 rebate good for $10 off each month's bill for 10 months. The rebate form stated that it was valid between 2/1/2006 and 6/30/2006. Knowing that I had plenty of time (like mailing taxes on April 17th), I procrastinated until today to mail it in. MY MISTAKE. The fine print on the document says that it has to be postmarked within 60 days of account activation.... We activated the account on April 8th! Having a very Homer like moment here (DOOHHHH). Well, it's already stamped, i'm sending it out anyways. We'll see if they overlook it.

Legit Way to Get $20 in Gift Cards of Your Choice Each Year

I just redeemed my account balance at mypoints.com for a $10 gasoline card. I've been a member of mypoints.com for roughly 4 or more years and have obtained $110+ in gift cards over this time (red lobster, starbucks, Exxon Mobil, etc).

What did I have to do? I provide them w/ an email account and they send email advertisements to my account. I read the advertisements and get 5-10 points for just reading them and 200-1000+ points for participating in particular sales promotions.

I've never had a problem with the site and would recommend it to others. If you want, send me an email and i'll do a referral. Mypoints.com has a current promotion where people referred by friends get 125 free points for their account while the person providing the referral gets 100 points.

Since becoming a member of the mypoints community, i've only participated in one promotion (getting a sharebuilder.com account). All the other points that i've obtained (16,900) have been via their email advertisements.

While I say you can get $20 in gift cards/year, there are others out there who could get over $100 per year based on shopping patterns. This combined with the use of rebate credit cards can provide you a way to double-dip on refunds/kick-backs.

Got A Blog? Let's Do a Link Exchange!

I've been blogging now since February and am looking to fill in the preferred links section of my blog. If you like my content send me an email, i'd be happy to review your site and do an exchange.

Here's some specs on my site:

(1) Technorati Rank: 210,838 (30 links from 16 sites)
(2) One of the highest rated blogs on pfblogs.org, currently hold a rating of "7+" clicks per article
(3) Now have 103 articles posted to site
(4) Successful interview at money blogger podcasts
(5) Strongest trait: I'm a finance geek!

Send link exchange requests to: pluggedinfinance(at)gmail.com

Goodbye ING Direct... Goodbye Online Gambling!

I just cashed out all but $1 from my ING Direct account. Additionally, I cashed out all but $3 from my online gaming account.

ING Direct has simply fallen behind the pack in offering competitive rates. Heck, my local credit union (Navy Federal) is offering as high a return on their money market accounts. Cashing out now also establishes a lower baseline account value in the event ING Direct tries another promotional period of offering a higher interest rate to new money.

As for gambling, I've kept to a budget; however, most games require a "rake" which shifts any game from equal odds to one that has a negative implied value (house always win). I feel that i'm better off using these new funds to boost my prosper.com bankroll in order to construct a real return portfolio that should net my family around a 12%+ real return.

So far, I've got 9 active loans (18.38% avg interest rate) with 4 going to funding and 2 in the bidding process. Short term, i'm considering keeping my loan bids around $50 or so. I'll probably start doubling my bids to $100 once our loan portfolio achieves $50/month in interest income.

Top Car Lease Scams That Dealerships May Pull On You

"The excitment of leasing a brand-new car can lead you to rush into a contract without reading the fine print. And, some unscrupulous car dealers can spot an over-excited and unsuspecting consumer from a mile away. So before you sign your name on the dotted line it's important for you to spot a leasing scam. Here are seven of those leasing scams (Source: military.com)"

As for my opinion on car leases, haven't done one yet (only buy them). However, if I did, I'd start with Costco (wholesale club) and use them for comparison shopping. Costco tends to have good deals, and i've heard favorable things about their car leases from a relative (relative got two hondas via Costco).

Prosper Lending Points to Ponder

I now have 8 active loans. Here's a few tips based on what I've learned to date.

(1) Check out Eric's Credit Community. This site gives a lot of good stats about Prosper lenders and borrowers. Recommend looking at his summary of delinquent loans. One limitation of this site is that some inaccuracies exist in the data that Eric presents. For example, his site lists me as having loaned out $500+ in loans. I've loaned out $377. It seems that he isn't capturing the cases where loans get bid to 100% but get pulled by the lender before Prosper transfers funds to the borrower's account. Absent of this example, much of his other data is invaluable.

If you look at the delinquent loan list, you'll find a common theme: In 79% of the late loan cases, the group leader did not participate in the bidding. If a cook doesn't eat his/her own cooking, are you confident in eating it too? I like to check for this whenever i'm bidding on loans. I typically use my own screen/filter to identify ideal loans; however, I quickly gain a little more confidence in my bid when I see that the group leader is bidding too. The group leader is typically involved in vetting loan applicants (directly or indirectly) and should have the best information to determine whether the risk vs. reward is more favorable for the lender or borrower. This approach has its limitations in that some groups state that they bid on all of their loans (watch out for this).

(2) The proper lending dead-zone occurs during the weekends. I call it a dead-zone b/c I believe that ACH transfers (money) do not occur during this time frame and there's fewer lenders able to lend when loan applications are expiring. My tip: make sure you have at least one increment of your typical bid in your account by Fridays. This way, you can participate in bidding on loan(s) when other people have less capability of bidding and competing against you.

(3) Seeing that the big money likes the same loans as me is reassuring. Right now, "L5" is the biggest lender on Prosper. After I find a loan that I like, I'm a bit more reassured when I see the big lenders, like "L5," bidding on the same loan. This third comment isn't empirically tested to determine validity. While pure conjecture, many people with wealth don't get wealthy by being dummies.

(4) It's my personal opinion that you should stay away from borrower's that are either asking for charity or have a tone similar to "help __ out," "need a break," etc.

(5) It's my personal opinion that you should not bid on business loans when the borrower's APR is greater than what you perceive is a reasoanble profit margin for them.

Feel free to scroll down to my other listings. Many of the recent ones are specific to Prosper lending.

Read This if You Take Home The Excess Toiletries From Hotels

Every time we stay in a hotel, I make sure I take any excess toiletries home. The only problem is that they've been piling up in a bathroom junk drawer. Well, I came up with the following idea for our guest bathroom. I took a small basket, rolled up some of our towels and placed some of our hotel toiletry stash in the basket.



This should work well for most households. I put the best ones (lux and casino hotel toiletries) in the basket while keeping the cheaper ones for our master bath.

An Implied Tax On Prosper Lending Portfolios: Just Realized That Prosper Pays You Less Than What You List as Your Minimum Yield on Bids

Prosper.com doesn't make money just off the "delta" between the borrowers APR and the lender's approved APR bids. There is an additional 0.5% fee charged on all loans. In addition, the group rewards don't come from the "delta" mentioned above. THEY GET DEBITED FROM PAYMENTS MADE TO THE LENDER. This is disturbing because a lender viewing the Prosper.com help section titled "FEES" (as of 3 Jun 2006) will not see anything about group rewards at all. Furthermore, Prosper.com goes to the point of saying in this specific section that "There are no other fees of any kind."

I previously inferred that they come from the "delta" between the borrower and lender's APR, now I feel a bit betrayed. However, I know realize that while Prosper should communicate this fee more effectively, it's a novel strategy to channel lenders into joining groups in order to offset this implied "group rewards" tax on loan portfolios.

I discovered all of this when I examined the performance on our first two loans. This is what I found:

(1) First loan of $50 to a "B" credit rated individual collecting 11.85%... $1.68 was paid, $0 removed as a not sufficient funds fee (NSF), $0.03 was removed as a group reward fee and $0.02 was removed as a Prosper.com fee.

(2) Second loan of $50 to an "E" credit rated individual collecting 21.50%... $1.93 paid, $0 was removed as a NSF fee and $0.05 was removed as a group reward fee and $0.02 was removed as a Prosper.com fee.

Bottom Line: $3.61 paid, $0.12 deducted (3.3% implied tax)... While the 12 cents doesn't go to federal or local governments, I view it as an implied tax. If you only look at the group reward fee, I had $0.08 removed (2.2% implied tax).

If you read the fine print in the fees section, Prosper states that the actual service fee ($0.04 of the $0.12 deducted this time) actually varies depending on the timing of the loan.

I recommend that lenders be careful and understand that your bid is actually an annual percentage rate (APR) vice an annual percentage yield (APY=what's actually deposited in your account). Your winning bid will be reduced by 0.5% or more to get your APY. Prosper.com will give you an APY in the "loan performance" section. However, I remain suspicious as to whether or not Prosper is calculating the APY correctly. It is not clear as to whether or not they are factoring in the group rewards deducted from lender disbursements to determine the actual APY. IF NOT, THEY SHOULD!!

On another note:
(1) When is PROSPER.COM going to start advertising with commercials?
(2) When is PROSPER.COM going to start offering IRA options?
(3) When is PROSPER.COM going to start paying interest on funds not invested? Come one, even brokerage firms pay a measly yield.

Please don't construe the tone of this posting as anti-PROSPER. I will continue to use it. I may have made a mistake an overlooked a disclosure that specifically addresses "group rewards" fees against disbursements. Now that I know "group rewards" get deducted from the money that is due to me (the lender), I will re-evaluate how much I value the vetting done by groups sponsoring borrowers.

Prosper is Now Easier To Use: Advanced Search Feature Introduced, New Loan Limits and Other Comments

Prosper has made major strides in improving its site. I discuss some of the improvements and provide recommendations on how Prosper can further improve the lending experience.

New advanced search options are now available. The advanced search includes ability/option for:

(1) Search by specific credit rating grade(s) and minimum interest rates you're willing to accept on loaned money.

(2) Setting lower and upper search values for debt-to-income ratios.

(3) Search by specific loan amounts For example, a search for loans greater than $1,000 but less than $10,001 (or other amounts) can be done.

(4) Search for only those loans that you've bid on.

(5) Setting lower and upper search boundaries for:
(a) no. of accounts now delinquent
(b) no. of delinquencies in last 7 yrs
(c) no. of public records in last 10 years
(d) no. of credit lines
(e) no. of credit inquiries in last 6 months
(f) credit history length

Don't want to fool w/ advanced search? Then you can now use the preset popular search tabs that include: loans ending soon, high-to-low interest rates, fully funded loans, high-to-low credit grades.

All of these advanced search options can also be applied to the creation of standing orders where Prosper will automatically bid for you.

Want better risk vs. reward options? Prosper has increased the interest rate caps. About 25% of the states now permit interest rates as high as 29%. Exact info can be found here.

Not sure how to manage your loan portfolio? Check out some of Prosper's webinars.

I think that Prosper.com has plenty of room for improvements:
(1) Add IRA account option. They already have an agreement with Wells Fargo, just extend it to include IRAs.

(2) Display lending groups current default rate on all loans sponsored. Default rate (%) = (number of loans in default/total no. loans sponsored)*100
- This way, lenders can better judge the quality of the vetting done by sponsoring groups.

(3) Display lending groups current percentage of loans that are > 15, 30, 60 days late in payment.

(4) ... More to follow... Getting back to bidding on some loans and watching some baseball.

Disclaimer: I'm not an employee of Prosper. Lending or borrowing on the Prosper site is at your own risk.

Our Updated Prosper Strategy & Four Loans We're Considering Bidding On

You can read my latest posting on prosper lending here... You can always come back to the below posting.

I have made several changes to our Prosper.com lending strategy (Prosper is a peer-2-peer lending site).

(1) We have now started to loan money to those with "E" credit ratings (10% historical default risk likelihood). Before doing so, we only bid on those with no current delinquencies and positive debt-to-income ratios. Doing this will hopefully decrease the likelihood of default to something closer to 5% or better.

(2) I'm now emailing some of the prospective borrowers. This is quite effective in that a lender can get a sense from the tone of the reply as to the sincerity of the lender. Sometimes, you'll also get bonus information that you didn't even ask for.

(3) Lenders don't necessarily need to develop a spreadsheet to track their loan portfolio performance, Prosper.com has an easy interface that does it for you.

(4) Generally, I like to fund those loans that have a funding date on or after the 1st or 15th of the month (see original strategy post for definition of funding date and reason why). I now waive this requirement if the person divulges that they get paid on a weekly basis and also pass my other forms of screening.

I've funded 3 loans so far and have an open bid on another. Our first two loan payments are due on 2nd and 3rd of Jun, others due shortly thereafter. Current effective yield on loans is 18.62% (credit ratings of B, E, and E). I've found that knowing the effective yield on your portfolio influences me in the loans that I subsequently bid on. I find that an ounce of greed is involved and influences me to bid only on those loans that improve the effective yield (increases it). I must keep this emotion in check and diversify our loan portfolio risk by adding a few more loans of B and C quality.

Here's a couple of the loans that I'm watching and considering bidding on. All loans close in greater than 4 days so those of you with Prosper accounts may have chance to transfer funds and bid on them.

Loan, Current Yield, Debt Rating, Bidding Ends (note: 4 loans originally listed, I deleted two of them as they expired or were pulled by lenders)

(a) 14587, 19.50%, "C," 29 May
(b) 14419, 22.00%, "E," 28 May

Disclaimer: I don't know anything more about the borrowers than what is already available on the Prosper website. Bid at your own risk.

A Ton of Finance-Investment Tid-Bits (I've Returned from Blogging Sabbatical)

I'm back! Items discussed: My podcast interview, Prosper.com, discussion of commodity/oil strategy and new job

Over the last two weeks we've been settling into our new house, and I've also been getting familiar with my new job. Here's a run down of what's been going on:

(1) Completed a personal finance interview (podcast) with the "Money Blogger Podcast." In this interview I stated our net worth at $217k (first time disclosing).

(2) Bid on two more Prosper.com loans (loan 12594 and 12002). Loan 12002 is still open for bidding. Loan 12594 has closed and is awaiting funding. Ignoring these loans, my current loan portfolio (2 loans) has an effective yield of 16.68%. Once these loans close, I'll have a net yield of about 17%. Between all 4 loans I've essentially bid on two "B" and two "E" rated loan requests.
My last round of bidding was a bit more difficult bids because it appears that the quality of applicants has gone down (at least in the short term).

(3) I've liquidated some of our commodity positions, basically because they were all at or new all time highs (sell into strength, buy in to weakness philosophy).
(a) Sold all of our Gold ETF (GLD) at $70/share. Price was getting a bit lofty, have a limit order set for buying at a lower price if it gets to $65/share.
(b) Sold 35% of our position in Rio Tinto (RTP) at $252.92/share. Position was up 60% from our fall entry price of $157.86/share. Have limit order set to buy more shares if it drops substantially to low $200s.
(c) Sold 45% of our total BHP Billiton position (BHP) at $48.58/share. Shares sold represent a short term position established in wife's IRA at $43.85 on the 27th of April and sold on the 8th of May (up 10% in less than two weeks). Remaining 55% bought last August at substantially lower price. Have limit order set to buy more shares at $43.85.

(4) Started new job as an analyst in a Human Resources/Manpower shop.

(5) Made trip out of town to visit Mom for Mother's Day (drove 800 miles, got 30.5 mpg in old 6 cylinder car)

Our investment philosophy (sectors) is shaping up for a change. We haven't fully decided on the new sectors. However, I'm considering cashing out of the oil stocks/commodity ETFs a little earlier than previously planned, perhaps when oil hits something closer to $75. I was previously thinking about selling out of our these stocks when oil hits around $80. Reasons for lowering cash-out price on oil stocks/etfs are:

(A) Oil is no longer moving significantly higher when terrorist acts occur in Nigeria or even when weapons grade Uranium is found in Iran (both have been happened recently).

(B) While the US dollar is weakening, the Wall Street Journal sites marginal increases in worldwide demand for oil (1.5% year-over-year)

(C) We are moving up quickly on an election year and politicians are going to do respond to complaints about oil prices. Even if their actions have no teeth, they will affect market sentiment.

(D) Ethanol is gaining to much steam as a viable alternative and will therefore diminish growth in future oil demand

Plugged-In-Finance's Top Nine Posts

My site is on its way to 100 unique posts (mid-nineties) now. Today, i'm presenting some of my best/most popular posts for your reading pleasure.

(1) Walmart's Disservice to Frugal America (My Trip to Walmart Today)

(2) Are You Wealthy Enough? Equation for Determining

(3) Free Money: My Opinion on 0% APR Credit Card Offers

(4) Getting Free Cable

(5) Our Household Savings Rate Taking a Hit
Since our move, our savings rate is roughly $1,000/month plus monthly equity gains in real estate. This is essentially a $4,000 cut from before our move. Reason, wife temporarily unemployed.

(6) Graphical Picture and Discussion of Our Household Investments
This graph is somewhat dated but still reasonably accurate

(7) Prosper Lending Strategy
We've done two loans so far, looking for a 3rd and 4th loan.

(8) Buying Real Estate: My Mortgage Lessons Learned

(9) Is an Education Worth the Expense

Enjoy!

Save $20 on Your Next Dell Order

I found a $20 Dell Coupon in an unmarked Life Cereal Box. The only thing on the outside was a curious George offer for his CD. The $20 coupon states:

A Special Offer From Dell. Take $20 off any Electronics and Accessories purchase of $150 or more!* at Dell.com. Enter coupon code QGM7T0C1C2TVVD at checkout.

*Pricing, specifications, availability and terms of offers may change without notice. Taxes, fees and shipping and handling charges are extra and vary. Offer does not apply to, and is not available with systems or items purchased through online systems configurator, refurbished or spare parts. Limit five same items per order. One coupon per customer. Dell cannot be responsible for pricing or other errors, and reserves the right to cancel orders arising from such errors.

Avian Flu: Summary of Stock Market Sectors That Stand to Gain or Lose

Here's a simple summary of those sectors that stand to gain or lose in the event an Avian Flu outbreak occurs:

POTENTIAL WINNERS
(1) Drug companies that make antiviral medicines
(2) Drug companies that make vaccines
(3) Hospital health care
(4) Cleansing product-makers
(5) Home entertainment providers
(6) Telecommunications
(7) Internet technology companies

POTENTIAL LOSERS
(1) Airlines
(2) Luxury goods
(3) Hotels
(4) Insurers
(5) Shopping malls
(6) Major oil firms
(7) Mining and metals
(8) Travel and hospitality
(9) Brewers

SOURCE: Citibank Report as Summarized in "Wall Street Placing Bets on Bird Flu Outcomes," Chicago Tribune, Bruce Japsen, April 30, 2006

Peer-2-Peer Lending: Changes I'd Like to See at PROSPER.COM

Bottom line: I make three recommendations as to what Prosper should do to improve the lending experience.

(1) Offer IRA option... It's increasingly important to offer pseudo real-return investment alternatives.

(2) Provide metrics to grade groups, such as:

(a) Red/green light indicator next to groups to indicate if group's portfolio of originated loans as a default rate below or above Prosper.com averages. This is important to identify whether those groups screen applicants sufficiently (Indicator lights recommended b/c they provide a quick indication. There are obviously other ways to accomplish the same goal).

(3) Improve "search loan" filter to include:

(a) Lender rates greater than or equal to (enter value)

(b) Specific borrower credit characteristics (now delinquent, number inquiries last 6 months, etc).

(c) Include only those loans with picture(s) and write-up, while this may not have a material impact, it has an impact on the screening process experience.

PROSPER.COM

Just Bid On My First Two Prosper Loans (Yesterday and Today)

I finished bidding one half of my monthly allotment for Prosper loans. I deviated a little bit from my entering strategy in that I chose to bid on one loan where the credit rating was "E" signifying that on average, people with this credit rating default 10.4% of the time on their loans. The loan would pay a 21.5% interest rate and appeared to be an acceptable risk vs. reward spread.

The other loan applicant had an "A" credit rating signifying that they had an approximate likelihood of default of less than 1%. The interest rate on the loan was 10%.

Again, I deviated a bit from my strategy in that I bid each loan in equal amounts of $50. I chose not to do risk-weighted bidding amounts because I was only starting with $100 and wanted to dip my feet in the lending waters as early as possible.

In the end, my gut feeling on the loans are as follows:

Loan #6654 (A credit rating): Loan will probably run for nearly full 3 year duration (gut feeling)
Listing #7958 (E credit rating): I personally feel that the borrower will pay of this loan within the next 11 months or sooner.

You may not be able to easily see one of these two loans without signing in. You can bypass signing up for an account by clicking the lend tab and navigating to find "#7958" or #6654."

The blended (average) interest rate will be approximately 15.75% between the two loans.

You can follow my bids under my Prosper handle "WellVersed."

Wife's IRA Transactions: Bought BHP Billiton Today

As mentioned in a prior post, we set a $43.88 limit order for shares of BHP. Today, the order was filled at $43.85. I'm happy about the fill, even in light of China's interest rate hike.

Do people really think that China's growth will slow materially between now and the Bejing Olympics?

Will continue to let our mining stocks run.

The Silver ETF is Here: Starts Trading Tomorrow

It's time has finally come, the silver ETF from Barclays Bank starts trading tomorrow. I'll have to do some more reading to figure out my entry point.

Here's the article. The silver ETF will trade under the "SLV" ticker symbol on the AMEX.

Just Starting to Use Prosper Lending: Here's Our Strategy

Bottom Line: The wife gave her blessing for starting Prosper lending. Our first deposit to Prosper will be credited tomorrow (4/27). I outline our initial strategy for originating loans.

Entering assumptions:

(1) The funding date is the monthly due date for loan repayment

(2) Prosper’s 120 day default definition is modified to my own default definition of 15 to 30 days for the purpose of loan portfolio management and forming blacklists of Prosper groups.

Our initial strategy:

(1) Originate loans with funding dates of roughly the 1^st, 2^nd, 3^rd or 15^th, 16^th, 17^th of the month (borrower’s payment due date just afterthe 1st or 15th, typical pay-days)

(2) $200/month cap (my way of dollar cost averaging)

(3) Loan to only group sponsored individuals (marginal benefit of screened applicants)

(4) Develop a blacklist (based on groups sponsoring people who are > 15 days delinquent)

(5) $50-$100 loans only ($50 for highest risk, $100 for lowest risk)

(6) Originate loans to achieve an 8.4% real return after taxes, inflation, defaults and zero interest limbo periods. I roughly estimate the required rate at 11.25% (with no defaults and above 15% with defaults).

(7) Cease using Prosper (or re-evaluate required rate of return) if I experience a default rate greater than 1 out of 25 loans. Realistically, default rate should be less than 1 out of 50; however, Prosper has shifted the lending paradigm

(8) Loan to those whose monthly payment is at or below what I perceive to be an equivalent monthly car note for them. Thus, i'll avoid many loans over $10k. (IMO, individuals with larger loans are more likely to refinance).

(9) I will likely focus on loans for people with credit ratings of B, C and D

(10) Focus on loans to people with positive debt to income ratios

I do not yet have any spreadsheets to track effective yields on the loan portfolio. I’ll develop one or find one later.

For those of you who are unaware about Prosper, this is a site for consumer-to-consumer loans. The site utilizes reverse Dutch auctions for borrowers and lenders to meet and originate loans. The site's mechanism is somewhat similar to Ebay, yet a bit different.

** We've Updated This Strategy on the 21st of May. Here's the updated strategy. Recommend reading comments below before cycling to updated strategy.