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Author Topic: Prosper debt sale crashes and burns  (Read 43307 times)

HollowOak

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Prosper debt sale crashes and burns
« on: May 30, 2008, 10:19:38 pm »

Doug Fuller just blogged on the Prosper.com blog as follows:

Quote
I know that many people have been anxiously waiting for an update on the debt sale.  We’ve been working very hard toward finding a more favorable bid, as well as considering alternatives, but we’ve met with some severe obstacles.

Once bids with unacceptable contract conditions were eliminated 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.  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.

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.

My comment I submitted to the blog:

Quote
Mr. Fuller, Please clarify something for me.

On May 2nd you blogged that the then-offered prices were unacceptable. In response to a query on how much lenders were offered, you mentioned roughly 1/3rd of the debt sale prices in December 2007.

According to my calculations, that would have meant that in April lenders were offered somewhere between 1.7 cents on the dollar for the worst class of loans (loans in Texas) and 4.9 cents on the dollar for loans in the homeowner category.

For some reason, Prosper decided that that was not enough and did not sell the debt. Now we’re told the best follow-up offer was 1.5 cents on the dollar and Prosper will not sell the debt at all.

Do I have my facts straight?

Can you please refer me to the clause in my lender agreement that provides Prosper with discretionary powers to make these decisions?

ETA: If you posted a comment on the blog, post it on this thread. And I urge you to keep it civil. I will remove comments that are gratuitous and insulting.
« Last Edit: May 30, 2008, 10:35:55 pm by HollowOak »
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HollowOak

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Re: Prosper debt sale crashes and burns
« Reply #1 on: May 30, 2008, 10:22:06 pm »

Here is the spreadsheet I used to calculate the debt sale prices as per the May 2nd blog post from Mr. Fuller.
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cubbiesnextyr

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Re: Prosper debt sale crashes and burns
« Reply #2 on: May 30, 2008, 10:28:18 pm »

reading his response, it at least sounds like they're going to start accounting for the 4+'ers as defaults, so that should help with the guidance...
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HollowOak

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Re: Prosper debt sale crashes and burns
« Reply #3 on: May 30, 2008, 10:31:38 pm »

reading his response, it at least sounds like they're going to start accounting for the 4+'ers as defaults, so that should help with the guidance...

This is not about "guidance." This is that Prosper's delayed debt sale just cost lenders collectively the last $232,000 that might have been recoverable on the $6,000,000 bad debt that was out there.
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cubbiesnextyr

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Re: Prosper debt sale crashes and burns
« Reply #4 on: May 30, 2008, 11:06:38 pm »

reading his response, it at least sounds like they're going to start accounting for the 4+'ers as defaults, so that should help with the guidance...

This is not about "guidance." This is that Prosper's delayed debt sale just cost lenders collectively the last $232,000 that might have been recoverable on the $6,000,000 bad debt that was out there.

I didn't mean to sound like I approved this development... prosper stepped in a pile of shit by turning down the last debt sale.  I only meant that this might result in a little better guidance...
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Xenon481

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Re: Prosper debt sale crashes and burns
« Reply #5 on: May 30, 2008, 11:07:25 pm »

As I stated in the other thread, I asked this question on the blog:

Quote from: Xenon481's Blog Comment Attempt
What are the tax implications of a "Charged Off" loan?  Can I deduct it on my taxes just like a sold/defaulted loan?  If I can, how do I have to then later account for payments received in the next tax year?  What about if it ever actually sells in a different tax year from the charge off date?

ferengi31337

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Re: Prosper debt sale crashes and burns
« Reply #6 on: May 30, 2008, 11:09:31 pm »

I bet some discovery would nail down pretty precisely how much we lenders have been damaged by these breaches of the lender agreement....

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cubbiesnextyr

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Re: Prosper debt sale crashes and burns
« Reply #7 on: May 30, 2008, 11:13:40 pm »

I bet some discovery would nail down pretty precisely how much we lenders have been damaged by these breaches of the lender agreement....



patients young skywalker...
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Xenon481

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Re: Prosper debt sale crashes and burns
« Reply #8 on: May 30, 2008, 11:14:56 pm »

I bet some discovery would nail down pretty precisely how much we lenders have been damaged by these breaches of the lender agreement....



patients young skywalker...

Doctors' patients??  ???

hoosier500

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Re: Prosper debt sale crashes and burns
« Reply #9 on: May 30, 2008, 11:18:01 pm »

OOOhhhh he meant Patience...

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cubbiesnextyr

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Re: Prosper debt sale crashes and burns
« Reply #10 on: May 30, 2008, 11:21:37 pm »

I bet some discovery would nail down pretty precisely how much we lenders have been damaged by these breaches of the lender agreement....



patients young skywalker...

Doctors' patients??  ???

3 bottles of wine effect my spelling...
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mothandrust

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Re: Prosper debt sale crashes and burns
« Reply #11 on: May 30, 2008, 11:59:07 pm »

My blog reply to DF:

Quote
Please sell the 4+ late loans at the best offered price, and please do it now.

I don’t want promises that I’ll get a higher return in the future–I want Prosper to honor its agreements and follow the process for discharging defaulted loans.

Prosper has no incentive to apply any "post charge off collection techniques" except to put all the defaulted loans in a cardboard box in the corner. 

Prosper management may be stupid, but they surely know not to waste man-hours on activities that don't produce revenue.
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Urbi_et_Orbi

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Re: Prosper debt sale crashes and burns
« Reply #12 on: May 31, 2008, 12:11:59 am »

I guess the ebay analogy has finally come full circle.  Now they're trying to sell the loans with a "reserve" auction.

 :)
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xraider

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Re: Prosper debt sale crashes and burns
« Reply #13 on: May 31, 2008, 12:17:15 am »

There are no words.

How DARE Prosper do this?  Prosper is well aware that it's breached the LRA, and has been aware since December that its paper is declining in value just because.  How DARE Prosper delay things further, with diminishing value by the month? 

I guess there are words, but I'll keep it clean.  Here, at least.
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112233

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Re: Prosper debt sale crashes and burns
« Reply #14 on: May 31, 2008, 01:23:32 am »

Quote
We are working to create a new loan status of “charged off”.

is it safe to assume that this will be quick? prosper is a loan servicing provider so Im sure they had the foresight to know they might need to charge off loans at some point... if they didn t have this planned out when the company was founded, Im sure they took steps to have this in place a few months ago when they realized they werent getting the kinds of bids they wanted and that charging off these loans may be the best course of action.
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