This blog entry raises numerous questions in my mind:
UPdate tonight
Debt Sale Update
05/30/08 posted by Doug Fuller
Once bids with unacceptable contract conditions were eliminated
Like what? "Unacceptable" from a lender's perspective, or only from prosper's perspective?
the highest bid we received was only 1.5 cents on the dollar. To put this in context, “Out of Statute” paper - consumer debt that is time-barred by the statute of limitations, where the debt holder has not received a payment in 3 to 15 years - gets prices in the range of 0.5 to 0.75 cents.
The problem is that there is so much credit card paper available in the market, that no one is interested in a “novel” asset such as Prosper loans. More than one bidder had told me that in this market, they’re only spending their money on consumer debt paper they’ve had experience with.
We believe the prudent course of business is to not sell at this time.
I agree with this decision. I know that will put me in a minority here.
Instead, we are going to consider the loans as charged off, and keep them and continue to try to collect them as charged off debts. You will continue to own the loans as we apply post charge off collection techniques to these accounts. We recognize that this is different than our normal process, but firmly believe that it will result in a higher return for our lenders.
One of the key arguments for selling bad debt quickly and without applying “post charge off” collection techniques, is that it reduces the value of accounts that don’t respond. However, given the very low price we’re currently faced with, that’s not really a concern.
I think this is a good idea, but what, exactly, are "post charge off collection techniques"? Do they include loan modifications? Under the legal agreements, Prosper is not authorized to modify loan terms, but prosper is only a stickler for the legal agreements when it is seeking to enforce them against lenders, not when it would be the party bound.
Several people have expressed concern regarding how 121+ dpd loans are reported. We are working to create a new loan status of “charged off”. Loans in this status will not have their balance “zeroed” out (so that they can still accrue interest), but they will not be eligible to revert to a “current” or “delinquent” status even if a payment is received.
I have no idea what all this means (which, I suspect, may be the point). Will "charged off" loans with their non-zeroed out balances continue to distort the data displayed in lenders' account pages and in the performance tab? Will we see pending payments on these "charged off" loans on our account pages? Or will Prosper distribute the money collected at some future date when it gets around to it (like it is apparently doing (or not doing) with the excess collections fees refunds it promised us months ago)? And in the rare case that a charged off loan manages to get current (or even down to a <=3 months late status), why, exactly, shouldn't they be taken out of charged off status? And what does it mean if they aren't? A borrower could bring his/her loan current, and still have it sold off for pennies on the dollar at a JDB sale when the junk climate improves such that Prosper decides to have a sale again?
Someone needs to ask Doug these (and probably other) questions.