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[acecapital]

It seems that prosper must pool these small loans and sell them in some sort of auction format, and since some loans don't sell there must be some type of reserve price for each pool.  Therefore

I don't see any evidence of pooling.  In fact, I have some evidence pointing the other way.  I've had 38 loans sold so far, and no two ever sold for the same fraction of outstanding principal.  Therefore, none of these were ever in the same pool.

Evidence of pooling would be that they are all sold at the same time, if they were sold individually, there should be an ongoing sale.  Prosper could have some way of splitting up the proceedes of each pool that results in unequal payments among different loans.  And as I stated above, even the management at prosper couldn't be so incompetent not to pool tiny loans for a sale.

See edit in my previous post

If you think prosper is not getting as much as they could for these loans, your first step should be to find out how they sell them, 

They keep this secret.

Also as stated above, that's BS on prospers part

See edit in my previous post

and get involved in that process from the position of  a potential buyer. 

Several lenders have tried, and have been rebuffed every time.  

If lenders have tried to buy individual loans, I can see why prosper would not listen (though they should give a reason why that is not possible), but if a lender showed interest in purchasing a basket/pool of loans and was rejected, that could get them in some trouble.

Though, given that these are pools of significantly past due usecured consumer debt from mostly sub-prime (to say the least) borrowers, $0.08 on the dollar seems pretty fair to me.

Why do you say "subprime to say the least"?  Some were AA credit grade.  Some were A.

The credit grade is much less significant once the loan goes 4+ months late.  The credit grade only shows us the best guess as to if this person will pay the loan back or not, once they have proven that they are unable or unwilling to pay it back, it's still crap, even with a AA grade.  For example; which would you rather have in your portfolio, a AA that has not made a payment in 4 months or an HR which has been paying on time? 

Once these unsecured small loans don't pay for months, go through collections and finally get to a sale, they are garbage, and no one pays much for garbage.

[ira01]

I know most everyone on these forums has a low opinion of prosper, and my opinion of prosper is getting lower and lower every day as well.  But for any company trying to sell tiny, unsecured, low-quality debt not to pool the loans for a sale and instead sell them individually would be unrealistically inefficient and very expensive.

It might be inefficient and expensive if Prosper were to solicit bids on individual loans.  But that's not what anyone as asking for here.  Traveler sent an unsolicited firm offer to Prosper to purchase a loan for around double the price the JDB paid (unless Prosper took out a huge chunk of the sales price as its costs, which would be a different outrage).  There would have been extremely little work for Prosper.  They email Traveler to accept his offer, he sends them a check, and they send him the promissory notes and an assignment of rights.  Since they obviously already have an assignment drafted for the JDB, this would be practically free (and prosper could take its costs out of the proceeds from Traveler anyway).  A win-win for everyone.  I think Prosper is on very shaky legal ground here.

[traveler505]

My offer was made a month before the cut-off date for this sale.  Based on past experience (and Doug Fuller's self-proclaimed expertise), Prosper had to have known before it offered the loans for sale that it would not get more than the 20% that I offered.

In one of the Q&A posts, Dohira noted that one option for conducting debt sales would be to offer the loans one by one on an eBay-style website set up for that purpose (CreditMax, I think it was).  The only downside of that approach which he mentioned was the likelihood that some loans would not get any bids.  Obviously, that was not the case for the loan that I made an offer on.

[acecapital]

I think Prosper is on very shaky legal ground here.

I dissagree

-Prosper is selling these notes in a manner consistant with industry standards

-Prosper seems to be getting the going rate for these types of bad loans

-There are a number of risks that prosper would assume by selling a loan to an individual they don't know.  There is a higher likelyhood that the individual won't pay, and the deal falls through, then the loan has to sit untill the next debt sale, lowering the value further.  The risk that the individual would come back and sue prosper for any number of reasons, even if the individual was unlikely to win.

Think about it this way.  Traditional Banks sell bad debts in a very similar fashion.  If you happened to know that Citibank was selling Joe Smiths defaulted student loan in a note sale, and you sent an offer to purchase this note at a rate of 2 times what they could expect to get from the note sale, do you really think that offer would be accepted?

[traveler505]

Think about it this way.  Traditional Banks sell bad debts in a very similar fashion.  If you happened to know that Citibank was selling Joe Smiths defaulted student loan in a note sale, and you sent an offer to purchase this note at a rate of 2 times what they could expect to get from the note sale, do you really think that offer would be accepted?

Citibank can do whatever it pleases.  It owns the loans that it is selling.

Prosper is selling loans that belong to other people. 

[Fred93]

-There are a number of risks that prosper would assume by selling a loan to an individual they don't know.  There is a higher likelyhood that the individual won't pay, and the deal falls through, then the loan has to sit untill the next debt sale, lowering the value further.  ...

    Balderdash.  They know Trav.  They have his bank account number, and all his personal information, and have verified his identity.  They have an ongoing business relationship with him.  They have his money in their account right now.  They have his money in hand.  He is not a stranger.

[Risk_Reward]

Think about it this way.  Traditional Banks sell bad debts in a very similar fashion.  If you happened to know that Citibank was selling Joe Smiths defaulted student loan in a note sale, and you sent an offer to purchase this note at a rate of 2 times what they could expect to get from the note sale, do you really think that offer would be accepted?

Citibank can do whatever it pleases.  It owns the loans that it is selling.

Prosper is selling loans that belong to other people. 

Most banks carry both their own loans and loans of others.  They perform as servicers of the loans, just like Prosper does for the loans we own. 

[lenderguy]

I think Prosper is on very shaky legal ground here.

I dissagree

-Prosper is selling these notes in a manner consistant with industry standards

-Prosper seems to be getting the going rate for these types of bad loans

-There are a number of risks that prosper would assume by selling a loan to an individual they don't know.  There is a higher likelyhood that the individual won't pay, and the deal falls through, then the loan has to sit untill the next debt sale, lowering the value further.  The risk that the individual would come back and sue prosper for any number of reasons, even if the individual was unlikely to win.

Think about it this way.  Traditional Banks sell bad debts in a very similar fashion.  If you happened to know that Citibank was selling Joe Smiths defaulted student loan in a note sale, and you sent an offer to purchase this note at a rate of 2 times what they could expect to get from the note sale, do you really think that offer would be accepted?

It's also industry standard to have debtors pay collection costs, not lenders.  But you don't see Prosper doing that, do you?  One can't pick and choose what they will justify with "industry standard."  If that's the excuse, than do everything by the standard, or come up with a logical reason for what you do.  "Industry standard" is just grown up talk for the excuse "Everbody else is doing it."

I heard of a guy who bought his daughter's bad debt so the CA would stop harassing her.  Is that ethical?  Sure, why not?  It's the daughter's debt to pay, not the dad's.

[bamalucky]

You won't get anywhere until you make a formal offer for ALL4+ loans.

[ira01]

You won't get anywhere until you make a formal offer for ALL4+ loans.

Why?  Prosper didn't roll out the "new agency test" on all 4+ lates; they picked a subset for that purpose.  There is no good reason that Prosper should have sold the loan Traveler bid on for half the price of his bid.  If I was on that loan and I lived in San Francisco, I would absolutely sue Prosper in small claims court for my loss from that decision.  I hope some lenders do.

[Tokyo Joe]

Maybe the collective lenders at .org could band together and make an offer for all 4+ loans...  It could be a new business for us, and get Prosper's bacon out of the fire.

That, however, creates the rather amusing spectacle of lenders buying back their own bad loans at pennies on the dollar... 

I also don't think I want to go into the bad debt business, except as unseen partner.  I hate asking people for stuff...

[cubbiesnextyr]

To anyone who cares:

I sent an email to CS asking how much they were reimbursing themselves for expenses incurred for the debt sale.  This was their response:

Dear [cubbies],

To date, we have not reimbursed ourselves from proceeds for expenses. Please let us know if you have any further questions.

For future reference, your Prosper support case number is 0023XXXXX.

Sincerely,
Prosper Customer Support

[ira01]

To anyone who cares:

I sent an email to CS asking how much they were reimbursing themselves for expenses incurred for the debt sale.  This was their response:

Dear [cubbies],

To date, we have not reimbursed ourselves from proceeds for expenses. Please let us know if you have any further questions.

For future reference, your Prosper support case number is 0023XXXXX.

Sincerely,
Prosper Customer Support

Well that's interesting.  Since Prosper is clearly entitled to have done so, I guess they figured it would be better to forego the expenses in order to prop up ROI a little by making the defaults a little less costly.  At least we now know exactly how much Prosper cost lenders by blowing off Traveler's offer to purchase the loan at a migh higher price than that actually obtained by Prosper.

[acecapital]

Think about it this way.  Traditional Banks sell bad debts in a very similar fashion.  If you happened to know that Citibank was selling Joe Smiths defaulted student loan in a note sale, and you sent an offer to purchase this note at a rate of 2 times what they could expect to get from the note sale, do you really think that offer would be accepted?

Citibank can do whatever it pleases.  It owns the loans that it is selling.

Prosper is selling loans that belong to other people. 

Citibank has the same fiduciary responsibility to it's shareholders as Prosper has to it's lenders

[acecapital]

I think Prosper is on very shaky legal ground here.

I dissagree

-Prosper is selling these notes in a manner consistant with industry standards

-Prosper seems to be getting the going rate for these types of bad loans

-There are a number of risks that prosper would assume by selling a loan to an individual they don't know.  There is a higher likelyhood that the individual won't pay, and the deal falls through, then the loan has to sit untill the next debt sale, lowering the value further.  The risk that the individual would come back and sue prosper for any number of reasons, even if the individual was unlikely to win.

Think about it this way.  Traditional Banks sell bad debts in a very similar fashion.  If you happened to know that Citibank was selling Joe Smiths defaulted student loan in a note sale, and you sent an offer to purchase this note at a rate of 2 times what they could expect to get from the note sale, do you really think that offer would be accepted?

It's also industry standard to have debtors pay collection costs, not lenders.  But you don't see Prosper doing that, do you?  One can't pick and choose what they will justify with "industry standard."  If that's the excuse, than do everything by the standard, or come up with a logical reason for what you do.  "Industry standard" is just grown up talk for the excuse "Everbody else is doing it."

I heard of a guy who bought his daughter's bad debt so the CA would stop harassing her.  Is that ethical?  Sure, why not?  It's the daughter's debt to pay, not the dad's.

My response was originally to a comment stating that Prosper was doing something wrong legally, not morally.  And industry standard is a common legal defense.