Tuesday, July 17, 2007

Wall Street Journal: Options grow for investors to lend online

Today's Wall Street Journal has an article about Prosper, Options Grow For Investors To Lend Online, which features several lenders and third party sites. Despite the headline and teaser "more sites join prosper.com in luring the risk-tolerant" the article is mostly about Prosper. Here are a few quotes from the article along with my comments:

The peer to peer lending market. "The market is tiny, but it appears to be growing. Prosper, a unit of Prosper Marketplace Inc., says its loans outstanding have more than doubled so far this year to $60 million currently. More firms, with names like Lending Club Corp., Loanio Inc. and Zopa Ltd. are jumping in. And in a related move, Virgin USA, the North American arm of Sir Richard Branson's Virgin Group PLC, recently bought a majority stake in CircleLending Inc., which coordinates loans and payment plans between friends and family members. About $100 million in new person-to-person loans will be issued this year, and that will increase to as much as $1 billion in new loans in 2010, according to a recent study by Online Banking Report, a research firm. "

Loanio? The Loanio website reads COMING SOON and is collecting email addresses of interested parties. I have been very curious about new Prosper competitors, especially after seeing advertisements in Rent a Coder and iFreelance for programmers to create a "working, stripped-down version of prosper.com." We will keep our eye on Loanio for you. [Update: Just wrote a post about Loanio.]

Lender featured - Andrew Balto. Andrew Balto Jr. of Churchville, Md., says he pulled some money out of certificates of deposits and money-market accounts last year to put into Prosper loans, where he is now earning returns equivalent to an average annual interest rate in the midteens. "What really attracted me were the rates people were paying for the loans," says the 39-year-old small-business owner, who has about $30,000 spread out over 350 Prosper loans. He says those loans make up only a small part of his total investment portfolio.

Lender featured - Dan Foster. Dan Foster of Mountain View, Calif., says as much as 17% of his Prosper loans -- which had been returning on average about 20% -- got "hammered" last fall with late payments and defaults. Mr. Foster has since tightened up his lending criteria and is taking a harder look at borrowers' credit histories. "Over time, I started relying less on the sob stories and relying more on the hard data," says the 31-year-old financial analyst for an Internet firm. Now, out of the 60 new loans that he's made since last fall, which are on average returning 15% to 18%, only two or three loans are late, he says.

This lending pattern fits the description Matt wrote about in his article about risk management.

Lender featured - Tim Rohner. Tim Rohner of San Diego views as a test the $15,000 that he has invested across three different portfolios at LendingClub.com, which are posting average annual returns ranging from 8% to 12%. "If it all disappears, it will be a lesson," says the 45-year-old small-business owner. "If it does what it's supposed to be doing, I'll double it."

Third party tools (ProProsper, Wiseclerk, Eric's CC) featured. Over a dozen independent Web sites, mostly geared to Prosper lenders, have emerged in recent months to help lenders make better investing decisions. ProProsper.com, for example, helps lenders determine what the market rate would be for a particular loan, while Wiseclerk.com provides a "loan aging" tool that tracks historical default rates of Prosper loans. Eric's Credit Community (www.ericscc.com) maintains a list of the 10 largest lenders on Prosper (some of whom have close to $700,000 invested) and offers tools that can help users track the moves of other lenders.

Read the full WSJ article here.


RateLadder said...

Nice find... I knew the article was coming, but they wouldn't tell me when. Here is my breif article on the same subject... http://www.rateladder.com/2007/07/18/wsj-features-proprosper-in-p2p-lending-article/

Tom said...

Kevin - Congrats on the WSJ mention. That's big time!