Print

[Mark12547]

So what happens after 35 months and there's a huge balloon payment due?

Another loan modification?

Who said loan modifications, which are against the agreements, wouldn't also apply to the last payment? 

[bamalucky]

Whats next? Write down principal?

[Flying Missle]

I decided to look at the first LRA I have (as of 6/21/06) to see exactly what it says:

Servicing Standard. Prosper, as independent contractor servicer, shall service and administer the Loans in accordance with the terms and provisions of the Loans, applicable law and the terms and provisions of this Agreement. In servicing the Loans, Prosper shall use the same care, skill, prudence and diligence with which prudent lending institutions service similar assets, and Prosper shall seek to maximize the timely recovery of principal and interest on the Loans. Prosper shall have full power and authority to do or cause to be done any and all things that it may reasonably deem necessary or desirable in connection with such servicing and administration of the Loans on your behalf, and you agree to cooperate with Prosper in the performance of its servicing and other obligations under this Agreement. However, Prosper shall not permit any modification with respect to any Loan that would change the interest rate, defer or forgive the payment of principal or interest, reduce or increase the outstanding principal balance, or change the final maturity date on the Loan.

Has any lender called up to ask why they've done this without approval from lenders? (not that I would really expect an answer).

[yankeefan]

There is a comment on the blog asking that question.

[bamalucky]

There is a comment on the blog asking that question.

I changed my screen name to "Angry" & got a comment passed.. Woohooo 

[Urbi_et_Orbi]

I guess "angry" is somehow less objectionable than "bamalucky" - it's clearly not about WHAT is being said, but rather WHO is saying it.

[wftrust]

We’re not waiving interest, we’re not waiving late fees, we can’t change how the loan appears on the Prosper Site – all we’re doing is not dinging the person’s credit report. It is a carrot.

Seems to me that they are not changing the terms of the agreement. They are skirting the intent maybe, but they are not modifying the terms. Same interest rate, same late fees, same due date, etc. All they are doing is not reporting it to credit agencies, nor turning it over to collections. So if there is a beef here, it is probably with that portion of the agreement. Prosper is required to turn this over to collections after so many days of "non-payment". But since there is a partial payment I believe they can skirt around that too.

My main beef would be the short time that this is being done under. So many of the late payments appear to be for people who need to change their bank account info or whatever with Prosper. I would hate to have Prosper tell those folks it is OK to partial pay instead (or worse yet automate it, like they seem to indicate they are going to do). They are just asking for trouble and increased late payments.

Of course the problem with this is deferred payments which will all come due at the end of the term (Prosper can’t modify that). So Lenders will not be fully aware of the magnitude of the problem until the final payments become due and it gets turned over to collections then (as it should be under the terms of the agreement).

So Prosper gets the benefit of not calling these late, and gets to postpone the write off of the loans and the lender may collect a little more than they would have anyway.

A very creative solution, even if questionable, to a very thorny issue.

WFT

[112233]

what f*ck the,

I dont understand how people have problems changing banks. You simply leave the old one open with some cash in it for a few months until you have verified that all the automatic debits have been taken care of.

[bamalucky]

perhaps Experian & TU need to be made aware of the use of their credit product

[ira01]

We’re not waiving interest, we’re not waiving late fees, we can’t change how the loan appears on the Prosper Site – all we’re doing is not dinging the person’s credit report. It is a carrot.

Seems to me that they are not changing the terms of the agreement. They are skirting the intent maybe, but they are not modifying the terms. Same interest rate, same late fees, same due date, etc. All they are doing is not reporting it to credit agencies, nor turning it over to collections. So if there is a beef here, it is probably with that portion of the agreement. Prosper is required to turn this over to collections after so many days of "non-payment". But since there is a partial payment I believe they can skirt around that too.

It seems to me that by telling the borrowers that they can pay "late" but that their loan will nevertheless be reported to the CRAs as "current," Prosper is, in fact, "defer[ing] . . . the payment of principal or interest," in direct contravention of the LRA.  And, as you note, Prosper is also violating the LRA's requirement of turning 30-day lates over to the CAs -- but contrary to what you suggest, there is no exception for loans making partial payments.  I have had several loans making partial payments nevertheless get turned over to the CAs when reaching 30 days late in the past.

It seems to me that a pretty good case could be made that Prosper's actions here legally constitute conversion of our loans.  Conversion (essentially the civil version of theft) is generally the "intentional exercise of dominion and control over a chattel which so seriously interferes with the right of another to control it, that the actor may justly be required to pay the other the full value of it."  As a result, Prosper could be required to repurchase the loans from the lenders.  Just one more thing that lenders might sue Prosper over.  Of course, TINLA.

[wftrust]

We’re not waiving interest, we’re not waiving late fees, we can’t change how the loan appears on the Prosper Site – all we’re doing is not dinging the person’s credit report. It is a carrot.

Seems to me that they are not changing the terms of the agreement. They are skirting the intent maybe, but they are not modifying the terms. Same interest rate, same late fees, same due date, etc. All they are doing is not reporting it to credit agencies, nor turning it over to collections. So if there is a beef here, it is probably with that portion of the agreement. Prosper is required to turn this over to collections after so many days of "non-payment". But since there is a partial payment I believe they can skirt around that too.

It seems to me that by telling the borrowers that they can pay "late" but that their loan will nevertheless be reported to the CRAs as "current," Prosper is, in fact, "defer[ing] . . . the payment of principal or interest," in direct contravention of the LRA.  And, as you note, Prosper is also violating the LRA's requirement of turning 30-day lates over to the CAs -- but contrary to what you suggest, there is no exception for loans making partial payments.  I have had several loans making partial payments nevertheless get turned over to the CAs when reaching 30 days late in the past.

It seems to me that a pretty good case could be made that Prosper's actions here legally constitute conversion of our loans.  Conversion (essentially the civil version of theft) is generally the "intentional exercise of dominion and control over a chattel which so seriously interferes with the right of another to control it, that the actor may justly be required to pay the other the full value of it."  As a result, Prosper could be required to repurchase the loans from the lenders.  Just one more thing that lenders might sue Prosper over.  Of course, TINLA.

I am not disagreeing that the unilateral change on their part without any real notification or authorization from the existing loan holders causes them legal headaches. But the whole LRA structure as it existed then causes many problems to both sides (administration and lenders) to effectively manage the borrowers.

Would we be better served to have a collections agency attempt (or not, depending on their criteria) to collect blood from a turnip? As opposed to trying to get some further partial payments from those same borrowers before they finally default and still go to collections. Where, once there, the borrower no longer has much of anything to lose.

Prosper is still charging the late fees in our behalf, interest continues to accrue, and it is for only a short period of time 3-4 months (OK I don’t believe that one either). So this is one of those areas in my mind that Prosper is actually trying (failing in certain aspects, but trying none the less) to do the right thing by the lenders and themselves, but getting beaten up for doing so. They know that, for the great majority of the loans, the collections agencies will not spend any time on actually collecting, nor actually recover much of anything for the lenders. So is it not in our best interest to try to squeeze out a few more $'s before the inevitable default happens? Prosper also knows that to stay viable they need to reflect more recovery dollars, so this is a creative (grey area) way to try to get more dollars out for us before the borrowers inevitable default.

I think in some respects people on this forum have gotten so jaded that they actually would rather not have their money back, but just want to see Prosper fail. Can't we have both?   

I think that I would have authorized this change had Prosper actually come to me and asked. So I vote for getting 3-4 more partial payments before default rather than nothing further “in collections”. So in this particular case I would not join a lawsuit, I am glad to finally see the effort on addressing the huge gaping holes in their management of these loans. My only beef is with the timing of the offer, but I think their hands are tied; they need to take action on our behalf before the initial 30 days are up to fit under the terms of the current LRA.

WFT

[bamalucky]

I am not disagreeing that the unilateral change on their part without any real notification or authorization from the existing loan holders causes them legal headaches. But the whole LRA structure as it existed then causes many problems to both sides (administration and lenders) to effectively manage the borrowers.

Wouldn't we be better served if Prosper were held to contracts they themselves wrote & agreed too?

[ira01]

We’re not waiving interest, we’re not waiving late fees, we can’t change how the loan appears on the Prosper Site – all we’re doing is not dinging the person’s credit report. It is a carrot.

Seems to me that they are not changing the terms of the agreement. They are skirting the intent maybe, but they are not modifying the terms. Same interest rate, same late fees, same due date, etc. All they are doing is not reporting it to credit agencies, nor turning it over to collections. So if there is a beef here, it is probably with that portion of the agreement. Prosper is required to turn this over to collections after so many days of "non-payment". But since there is a partial payment I believe they can skirt around that too.

It seems to me that by telling the borrowers that they can pay "late" but that their loan will nevertheless be reported to the CRAs as "current," Prosper is, in fact, "defer[ing] . . . the payment of principal or interest," in direct contravention of the LRA.  And, as you note, Prosper is also violating the LRA's requirement of turning 30-day lates over to the CAs -- but contrary to what you suggest, there is no exception for loans making partial payments.  I have had several loans making partial payments nevertheless get turned over to the CAs when reaching 30 days late in the past.

It seems to me that a pretty good case could be made that Prosper's actions here legally constitute conversion of our loans.  Conversion (essentially the civil version of theft) is generally the "intentional exercise of dominion and control over a chattel which so seriously interferes with the right of another to control it, that the actor may justly be required to pay the other the full value of it."  As a result, Prosper could be required to repurchase the loans from the lenders.  Just one more thing that lenders might sue Prosper over.  Of course, TINLA.

I am not disagreeing that the unilateral change on their part without any real notification or authorization from the existing loan holders causes them legal headaches. But the whole LRA structure as it existed then causes many problems to both sides (administration and lenders) to effectively manage the borrowers.

I think you are missing at least three salient points.  First, while it might have made sense for Prosper to have leeway to make these sorts of determinations, under the legal agreements that it wrote and that it and each lender agreed to, it doesn't.  Prosper has no more right to ignore its legal obligations than the deadbeat borrowers do. 

Second, Prosper has proven itself -- MANY times -- wholly incapable and/or unwilling to act in lenders' best interests, or to place lenders interests (or Prosper's legal duties to lenders) above the interests of Prosper and its owners/management.  That is why, I think it is safe to say, few if any lenders here would give Prosper ANY discretion in making these determinations.  Because if Prosper thinks that there is any possible way to act in a way that benefits itself, even a little (and even at great cost to lenders), that is the path Prosper will choose.  For example, if Prosper figures that it is beneficial to Prosper's PR efforts to report more loans as "current" (even though they aren't), it will do so regardless of whether lenders pay the price. 

To facilitate that, it wouldn't surprise me at all if Prosper starts reporting these "payment plan" loans as "current" not only to the CRAs, as it is doing now, but on its performance page as well.  Similar to how Prosper used to fraudulently (IMHO) manipulate its default statistics by only counting loans that it had sold to JDBs as "defaulted" even after Prosper stopped having JDB sales (in another breach of the LRA) -- thus, there were a slew of loans that were as much as 10 or 12 months past due that Prosper still wasn't including in the default statistics (which allowed Larsen, et al. to falsely claim absurdly low default rates -- often half or less than the real rate -- to any reporter that would listen).

Third, you fail to look at the bigger picture.  Sure, properly managed payment plans might get lenders more money on THOSE loans.  But, in the aggregate it might very well still COST lenders more money overall, because borrowers that are current (and who would have remained current) will choose to take lower payments just because they can (and because there is no downside if Prosper is going to falsely report late loans as "current").  This risk is exacerbated by Prosper's admission that it doesn't do much (if anything) to verify borrower claims of hardship. 

[wftrust]

I think you are missing at least three salient points.  First, while it might have made sense for Prosper to have leeway to make these sorts of determinations, under the legal agreements that it wrote and that it and each lender agreed to, it doesn't.  Prosper has no more right to ignore its legal obligations than the deadbeat borrowers do. 

Don't disagree. Make Prosper turn the deadbeats over to collections and get nothing. Works for me... Let's continue to do what doesn't work. See my other post on the legal agreements.

Second, Prosper has proven itself -- MANY times -- wholly incapable and/or unwilling to act in lenders' best interests, or to place lenders interests (or Prosper's legal duties to lenders) above the interests of Prosper and its owners/management.  That is why, I think it is safe to say, few if any lenders here would give Prosper ANY discretion in making these determinations.  Because if Prosper thinks that there is any possible way to act in a way that benefits itself, even a little (and even at great cost to lenders), that is the path Prosper will choose.  For example, if Prosper figures that it is beneficial to Prosper's PR efforts to report more loans as "current" (even though they aren't), it will do so regardless of whether lenders pay the price. 

To facilitate that, it wouldn't surprise me at all if Prosper starts reporting these "payment plan" loans as "current" not only to the CRAs, as it is doing now, but on its performance page as well.  Similar to how Prosper used to fraudulently (IMHO) manipulate its default statistics by only counting loans that it had sold to JDBs as "defaulted" even after Prosper stopped having JDB sales (in another breach of the LRA) -- thus, there were a slew of loans that were as much as 10 or 12 months past due that Prosper still wasn't including in the default statistics (which allowed Larsen, et al. to falsely claim absurdly low default rates -- often half or less than the real rate -- to any reporter that would listen).

I would fully expect that they would reflect the results most favorably to themselves possible, and that is reflected that in my statements above. If it benefits me, even marginally, then I will take it. Most people know that most businesses in the country today will spin any results, good or bad, to make themselves look most favorable. Wouldn't you? It is a matter of survival and a paycheck for the workers there.

I will take a bird in hand today, for the hope of two later from Prosper, or worse yet the collection agency...

Third, you fail to look at the bigger picture.  Sure, properly managed payment plans might get lenders more money on THOSE loans.  But, in the aggregate it might very well still COST lenders more money overall, because borrowers that are current (and who would have remained current) will choose to take lower payments just because they can (and because there is no downside if Prosper is going to falsely report late loans as "current").  This risk is exacerbated by Prosper's admission that it doesn't do much (if anything) to verify borrower claims of hardship. 

I see that point quite clearly. However, if a borrower is not going to maintain a current status and has in fact gone to 30 days past due, the likelihood that they will not eventually default on this loan shrinks dramatically. So again, I would prefer (on each loan that is past due) that there be some flexibility on Prospers part to collect something, anything at all, when the words out of the borrowers mouth is "I am not going to pay this loan since I cannot afford the payment.".

Yes as I stated earlier this is the area I would prefer to see Prosper wait a longer period before the offer is made (say 60 days), but the LRA ties their hands in that (hard to wiggle out of that 30 day requirement).

I would also add here that stating that there is an increased likelihood of current loans taking up this option is like saying that because you know credit card companies will waive fees and reduce interest rates to those that call, it should not be offered to anyone. That is rather narrow minded, and not in our best interest, in my opinion. I think Prosper having an ability to suggest (notice I did not say accept) a payment plan on those non-performing loans is in all of our best interest.

WFT

[wftrust]

I am not disagreeing that the unilateral change on their part without any real notification or authorization from the existing loan holders causes them legal headaches. But the whole LRA structure as it existed then causes many problems to both sides (administration and lenders) to effectively manage the borrowers.

Wouldn't we be better served if Prosper were held to contracts they themselves wrote & agreed too?

No, in this case I do not think so. Remember that when these agreements were written P2P was a new concept. Could you have addressed all things that might have come up ahead of time in such an agreement? Maybe you could have done better, but you would still have missed future problems. I believe they thought they would have better responses from collection agencies than they have, better results from debt sales than they have, etc. So how can you retroactively change the agreements to help both sides now (borrowers too)? There was not a facility to even allow changes to account for these later developments.

Turning the loan over to a collection agency that will only cherry pick the loans to pursue, if any, is not an acceptable answer me as a lender. That is all Prosper is required to do, doesn't even have to be an agency that will attempt collecting anything. We can already see from those copious results how effective that has been...

Some up front collections activity on Prospers part would probably serve us better, before being turned over. No matter how the agreement was written. Can you sue them for doing so, of course everyone in this country is sue happy, so go for it. But would that be in your or other lenders best interest, probably not. I would want to leave Prosper strong enough to continue attempting collections on my behalf. Rather than hurry their demise and potentially get nothing more, but limit thier ability to sucker other people in.

WFT