Credit Crunch Hurts Prosper
Prosper, a lender that allows users to make micro-loans to one another, is facing default rates of up to 10% or more during these troubling months. Once a source of easy money for those seeking to accomplish some form of Mortgage acceleration, the service is now causing concern to some investors.
Prosper’s performance statistics report that as of April 21, 2007, 636 of 6570 (9.68%) active loans over three months in age, are “1+ months late”.Over 400 (over 6%) of these are “three plus” months late, and Prosper’s best collection agency has historically cured only a small fraction of those.
As a group, E and HR borrowers have resulted in negative return on investment for loan buyers. Lenders and group leaders who contact late borrowers requesting payment will be banned from the site, as most lack the necessary knowledge of collections law to make appropriate collections contact.
As of November 8, 2007, the median estimated return on investment (”ROI”) for Prosper lenders with more than 20 loans and an average loan age greater than 6 months is 4.89%.– after taking into account Prosper’s servicing fee charged to lenders (1% annual fee on A-HR loans)
As traditional banks are currently struggling to handle the mortgage collapse, it will be truly interesting to see how Prosper weathers this storm.
Paying for college may get tougher
Debt Consolidation to Pay For College?
As reported by CNNMoney, paying for college may get tougher for both students and parents as lenders crunch down on higher rates. Student loans are now being affected by the credit crisis, which happened last year with mortgages and is now affecting other areas. In addition to the rising interest rates, lenders are scrutinizing their procedure to applicants, which now makes it even harder to apply. This will force some to boost interest rates on private loans by up to 1 percentage point, raise minimum credit scores to 650 and require parents to co-sign the loans.
“If lenders are not able to securitize, they are not getting the capital to make new loans,” said Mark Kantrowitz, who runs FinAid.org, a college funding Website based in Cranberry Township, Pa. “It’s an issue of liquidity and cost of capital.”
With little incentive for small private lenders in the federal loan arena, many are exiting the business.
San Diego-based College Loan Corp., the eighth largest federal loan originator in 2006, recently announced it would stop making these loans as of March 1, though it will continue originating private loans. Lincoln, Neb.-based Nelnet Inc. (NNI) last month issued a statement saying it would “be more selective” in the loans it originates as it lays off 300 people, or 10 percent of its workforce. And on Tuesday, the Michigan Higher Education Student Loan Authority said it would stop making private loans, known as MI-LOAN.
As college costs skyrocket, a growing number of parents and students rely on private loans to cover the gap between tuition and federal loans, which are limited to between $3,500 and $5,500 a year. Private loans made up 24% of education borrowing in 2006-07, up from 6% a decade earlier, according to the College Board, a New York City-based nonprofit higher education access group.
These loans, however, are much more expensive than their government-backed peers and will become even more so. For 2008-09, students will pay a fixed 6.0% on a subsidized federal loan, while the rates on private loans are as high as 13%, depending on the borrower’s credit profile, and are inching upward, according to Kantrowitz. Rates on private loans change quarterly or annually, and two-thirds of borrowers pay the highest rate, he said.
“Most students will be able to get them, but they will have to be careful,” said Sandy Baum, senior policy analyst at the College Board. “There will be an even greater risk of high interest rates and unfavorable terms.”
Students and Parents alike are in for a rude awakening come spring as many are now applying for the new semester or quarter loan credit. As lenders are crunching down on their return, students and parents may find it harder to enter the loan arena and will find paying back the higher interest rates unpleasantly difficult. Debt consolidation will likely be necessary.
Homeowners may benefit from reformed tax code
The IRS may actually cut taxpayers a break this year, assuming they own a home. Mortgagenewsdaily writes:
’There are two small changes in the tax code this year that may benefit some homeowners. If you think you qualify for these changes, research the guidelines at www.irs.gov or contact your tax advisor. ‘
Probably worth checking for these when filing your taxes, as it may mean a few hundred extra dollars to put towards mortgage acceleration.
US Senate Moves to Block Bids On Foreclosures
HudAuctionwatch, a Hud foreclosure site, has an interesting bit regarding the future of hud auctions.
According to the article:
U.S. Senator Charles Schumer is seeking to stop HUD foreclosure home sales to investors. He says that the investor “loophole” is causing communities such as Rochester to deteriorate.
Should investors be blocked from HUD bidding, housing prices would likely increase as investors moved to other low priced inventory. This may benefit those with equity build from bi weekly mortgage payments.
BMW dealer issues loan to Low Income Disabled Woman
According to Mortgage News, a BMW dealer falsified the loan documents necessary to give a woman a $100k BMW she couldn’t afford. From the article:
Vivian Snyder has strong credit and is not classified as subprime, but she is one of many consumers who can’t afford the car she leased. Snyder drives a brand new convertible BMW with a MSRP listed at approximately $100,000.
Most consumers can’t afford it, and neither can Vivian. That’s because the monthly lease payment is $1,300. It eats up half her income which is a $2,500 disability check.
Yet, she got it at BMW of Fremont without showing a drivers license, pay stub, or any proof of income.
How did this happen? Apparently, her income was inflated by nearly 150%.
According to consumer advocate Rosemary Shahan with Consumers for Auto Reliability and Safety the practice is common.
Unfortunately for her, she stands to lose her life savings if the car is repossessed. It’s no surprise that this nation has problems with debt consolidation, when one considers instances such as this.
Banks Stop Issuing Credit
The current housing disaster is not fed by the lack of home sales. Rather, it’s due to the lack of funding banks are issuing to potential buyers. Denying such buyers the opportunity to purchase a home is causing prices to plummet, and doing some heavy damage to our economy.
‘Banks are not lending for one of two reasons 1. They are unable (Bank balance sheets are too impaired with non performing loans). 2. They are unwilling (Banks do not see any risks worth taking). ‘
Those in need of a loan should consider building equity by use of a bi weekly mortgage program.
The Candidates Cannot Save the Economy
Sadly, it would appear that none of the leading Presidential candidates offer a clear solution for the housing disaster:
Let us not be fooled. The candidates thus far have nothing substantial to offer us. The problems we face are huge, and the candidates not only seem to have no clue, but no real plan. It is a shame our nation lacks real leaders who will say plainly and forcefully: “This is what we ought to do, this is what we are going to do, and this is how we are going to get it done.” It’s a greater shame that we lack the intellectual and moral fortitude to vote for such a plain-speaking person. We are about to get the government we deserve.
Those facing adjustable rate mortgage disaster may be considering services such as home ownership accelerators in order to escape rising debt. Such action should be carefully reviewed prior to being pursued.
Fitch Makes Rating Cut
The economy continues to slide downward today, with the Primary results showing an economic beating. Fitch has further modified it’s ratings:
“Fitch placed MBIA’s ‘AAA’ Insurer Financial Strength (IFS) on Rating Watch Negative following Fitch’s announcement that it will be updating certain modeling assumptions in its ongoing analysis of the financial guaranty industry.”
With MBIA being cut to rating watch negative, it’s likely that the housing market will continue to suffer. This means it will be harder to get a loan, so those in need may wish to pursue mortgage acceleration.