Print

[onthefence]

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.

[xraider]

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

[ira01]

I agree 100% with both posts before me.  This whole CPS thing really reeks of Prosper desparation -- this is clearly a last ditch effort to pump up some loan volume before the whole Prosper house of cards comes tumbling down.  I feel sorry for the newbie lenders that will get suckered (and badly burned) by this.

[AiriusTorpora]

When will the open up bidding outside of California so the rest of us can lose our shirts!?   :'(

[Urbi_et_Orbi]

Nominate for lobby.

[lenderguy]

I agree 100% with both posts before me.  This whole CPS thing really reeks of Prosper desparation -- this is clearly a last ditch effort to pump up some loan volume before the whole Prosper house of cards comes tumbling down.  I feel sorry for the newbie lenders that will get suckered (and badly burned) by this.

I just got done writing to Jane Kim (author of the WSJ article on Prosper's reopening) explaining to her exactly that.  I wrote her an initial email telling her that Prosper's return data can't be taken at face value.  She replied to that with a few questions on my experience, intentions on lending again, and Lending Club's advertised returns.  So I told her why the used car loan thing sucks.  If those loans were profitable, why are they being dumped?

[Beerbud1]

second for the lobby!

[patio11]

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.

[AiriusTorpora]

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.

I agree, they are pawning off these loans because they know that the wholesale market for cars has fallen out from under them and their expected return for these loans is less than ideal now. This is just ugly stuff.

[onthefence]

Another grave concern is the reported income of the borrower.  According to the notes, the combined income of both the borrower & the cosigner on the loan are reported.

I don't know about you, but I would want to know the income of the original signer, the person who actually has the car.  I don't feel all that comfortable with the co-signer picking up the slack.  Especially when all of the risk of the loan defaulting lays with the Prosper Lender.  CPS has very little incentive to collect on the debt.

[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?

[AiriusTorpora]

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?

They won't bother... essentially they have a collateral loan that has now become an unsecured loan. Heck if I somehow found out that my loan was sold like this and my car would probably not be repoed and I was a deadbeat, I would stop paying. Free car!

WOOT!

[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?

[ira01]

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

What are they thinking?

This is no different than Prosper 1.0, where lenders constantly bid loans down way too low.  Lenders vastly underestimate the likelihood of default, so they are willing to accept rates that look good when you fail to adjust for risk.  The amazing thing is that with Prosper 2.0 open to borrowers in every state but lenders only in CA, there should be a big shortfall in lender money right now.  Once Prosper opens to lenders in every state, the supply of money will skyrocket, all chasing the same quantity of loans.  Then rates will REALLY plummet.

Who gets the difference CPS or Prosper?

I imagine CPS.

[Capital_Finance_Group]

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.

Read the Q&A on Page 15 of the CA Prospectus.