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[JammingJAY]

What baffles me... Why are lenders bidding down the offered interest rate on these existing loans.

What are they thinking? Who gets the difference CPS or Prosper?

CPS get the difference in additional purchase price of the note per the prospectus. The rate Purchase Price increases as the note rate is decreased. In other words - assuming a note 100% bid - if you bid $500 and the rate goes down the bidder getting bumped will not get bumped for the full $500 - he/she will get bumped for the $500 less the increase in total purchase price that make the remaining payments give the rate being bid.

Which is why the discount rate is dropping.

Soon this may become a premium rate listing....

Wow.

[mhs505]

If those loans were profitable, why are they being dumped?

I am not saying these are good loans or bad.  But the mere resale of them doesn't make them bad.   

It is very common business practice to factor accounts receivable to accelarate a business's cash in the door.

[brianguy]

If CPS's loans were profitable they wouldn't be dumping them on unsuspecting Prosper lenders.

On the terms CPS is getting, heck yes they would.

It seems like they're selling loans issued at 19% for 15%... meaning the Prosper lender assumes 100% of the risk, CPS keeps the lien on the vehicle, and CPS makes 4% off of Other People's Money.

Even if CPS knew the loan to be "close to a sure thing", they should just take the Prosper lender's money, originate another "close to a sure thing", and then keep the extra 4% made from the first loan.  If one goes south, well, sucks to be the guy who is actually risking capital.

Prosper is going to be an amazing deal for CPS -- for the Prosper lenders, not so much.  Not only that, but apparently CPS has discretion whether or not to repo the vehicle.  Well, a repo is a pain -- there is a bunch of paperwork involved, after the repo you have to store the vehicle for at least 15 days to give the "owner" a chance to redeem it by bringing the loan current, etc.  Since it won't be CPS's money at stake, why would they bother?

in the past, they've repoed them just to put back on the lot, or sell at auction at a slight discount and make a little bit of extra money.  and the original amount + interest accrued + late fees is still owed on a car the person no longer owns.  usually that's not "collectable", but whatever.  sometimes they might get lucky.

it remains to be seen if they'll try to repo these or not.  as the lienholder, I say they just might.  from what I can tell so far, they'd only owe the Prosper noteholders what was collected (but not do the actual servicing nor collecting), and not the proceeds from collateral.  so they can still have their little auction side business going for a quick sale ("gravy") on top of what they've already gotten for the pretty worthless notes from Prosper "investors"

[ira01]

If those loans were profitable, why are they being dumped?

I am not saying these are good loans or bad.  But the mere resale of them doesn't make them bad.   

It is very common business practice to factor accounts receivable to accelarate a business's cash in the door.

Sure, but that's for companies whose business is actually selling something.  If I sell widgets, I might factor my A/R in order to increase cash flow to permit me to make and sell more widgets.  But CPS appears to be a FINANCE company.  They don't sell cars -- they merely provide the financing. 

[ira01]

If CPS's loans were profitable they wouldn't be dumping them on unsuspecting Prosper lenders.

On the terms CPS is getting, heck yes they would.

It seems like they're selling loans issued at 19% for 15%... meaning the Prosper lender assumes 100% of the risk, CPS keeps the lien on the vehicle, and CPS makes 4% off of Other People's Money.

Even if CPS knew the loan to be "close to a sure thing", they should just take the Prosper lender's money, originate another "close to a sure thing", and then keep the extra 4% made from the first loan.  If one goes south, well, sucks to be the guy who is actually risking capital.

Prosper is going to be an amazing deal for CPS -- for the Prosper lenders, not so much.  Not only that, but apparently CPS has discretion whether or not to repo the vehicle.  Well, a repo is a pain -- there is a bunch of paperwork involved, after the repo you have to store the vehicle for at least 15 days to give the "owner" a chance to redeem it by bringing the loan current, etc.  Since it won't be CPS's money at stake, why would they bother?

in the past, they've repoed them just to put back on the lot, or sell at auction at a slight discount and make a little bit of extra money.  and the original amount + interest accrued + late fees is still owed on a car the person no longer owns.  usually that's not "collectable", but whatever.  sometimes they might get lucky.

CPS appears to be simply a finance company -- they don't have a "lot" and they don't sell the cars.  Moreover, the deficiency judgment has to credit the borrower with the full amount realized from the repo sale (less the costs of repo). 

it remains to be seen if they'll try to repo these or not.  as the lienholder, I say they just might.  from what I can tell so far, they'd only owe the Prosper noteholders what was collected (but not do the actual servicing nor collecting), and not the proceeds from collateral.  so they can still have their little auction side business going for a quick sale ("gravy") on top of what they've already gotten for the pretty worthless notes from Prosper "investors"

No, I don't think so -- if they do repo and sell the collateral, that money goes to the Prosper lenders, not CPS (I know I saw language to that effect here yesterday -- perhaps from the Prospectus).  So I ask again -- what is CPS's incentive for bothering?

[xraider]

Oh come on, Ira.  CPS will aggressively act in the lenders' best interests... at least as effectively as AmSher.

[ira01]

Oh come on, Ira.  CPS will aggressively act in the lenders' best interests... at least as effectively as AmSher.

Oh yeah, I forgot.     Speaking of AmSher, where's my refund of the excess (and legally unathorized) collections fee that Prosper promised to repay us?

[brianguy]

Oh come on, Ira.  CPS will aggressively act in the lenders' best interests... at least as effectively as AmSher.

I already made the joke on Tuesday it will be Amsher doing the "repossessions"     we can imagine how effective that would be... "oh yeah we drove by, the car's not there, sorry"

[God-Father]

Oh come on, Ira.  CPS will aggressively act in the lenders' best interests... at least as effectively as AmSher.

I already made the joke on Tuesday it will be Amsher doing the "repossessions"     we can imagine how effective that would be... "oh yeah we drove by, the car's not there called and the car didn't answer the phone, sorry"

Fixed

[The_Cat]

Prosper will pay a heavy price for the "Prosper Credit Rating" applied to the CPS loans.  Right now Prosper is accepting CPS's projected loss percentages as reliable.  There are horrendous "HR" ratings being listed as "Prosper AA".  This won't work.  How do I know?  Just look at CPS's last quarter results.  They are hemorrhaging losses.  If their predicted losses were accurate, they wouldn't be losing money like that.

But all those nice people wouldn't screw other nice people by not repaying the loans (HA!)

[pioneer11]

Poofed as requested
 

[alexpkeaton]

Sure, but that's for companies whose business is actually selling something.  If I sell widgets, I might factor my A/R in order to increase cash flow to permit me to make and sell more widgets.  But CPS appears to be a FINANCE company.  They don't sell cars -- they merely provide the financing. 

This point is interesting. What do financing companies need to operate? Capital. Usually, a bank would borrow money to lend. They'd have every incentive to keep their loans performing because they have to pay back their creditors. In this case they're securitizing their loans and selling them so they don't need to borrow. The only real incentive they have to keep these loans performing is whatever cut they get for servicing the loans and the risk of getting sued if they don't "commercially reasonable" efforts to collect on debts. The threat of a lawsuit didn't seem to bother Prosper too much.

[alexpkeaton]

What's ironic is that Chris Larsen is suggesting Prosper is an answer to the problems of Wall St, which was largely based on securitization. Securitization is exactly what Prosper is now pushing! I don't think securitization is necessarily bad, but it does seem to push the risk onto the buyers of the securities themselves rather than on the originator.

[mhs505]

If those loans were profitable, why are they being dumped?

I am not saying these are good loans or bad.  But the mere resale of them doesn't make them bad.   

It is very common business practice to factor accounts receivable to accelarate a business's cash in the door.

You have just submitted additional proof that you are an idiot.  CPS is clearly dumping bad accounts and not just factoring their AR to improve their cash flow situation.

 :'( oh no, you don't like me ...

[bankomatic]

If CPS's loans were profitable they wouldn't be dumping them on unsuspecting Prosper lenders.   

Well, that's not necessarily true, but probably is true in this case. Another reason to dump loans is because they can make money on origination fees etc, and by reselling the loans they get quick turn around on capital so that they can originate more loans. However, the loans seem to be made to people with bad credit.