SEC Filing By Prosper Hints At Secondary Market
October 31st, 2007 | Investing, ProsperIt appears Prosper is planning on setting up a secondary market in the near future to allow lenders to buy/sell notes. You can find the details on the S-1 registration the company filed yesterday.
“Prior to the date of this prospectus, the Notes have been non-transferable except by assignment to a collection agency upon default. As soon as practicable after the date of this prospectus, Prosper intends to establish a secondary trading market online auction platform, or the Resale Platform, on which the Notes may be resold to other Lenders after three months following the date that a selling Lender acquired the Note from Prosper (or immediately if the selling Lender acquired the Note on the Resale Platform).”
Here’s are the most important parts:
- A lender can sell a loan they have after holding it for 3 months.
- “Selling Lenders who post resale listings will be able to specify a listing duration of three, five or seven days.”
- “Prosper intends to charge all selling Lenders a nonrefundable resale listing fee of $0.25 per Note being listed for auction sale, or $0.50 per Note being listed for auction with an automatic sale feature.”
- “Prosper also intends to charge the selling Lender a resale transaction fee equal to 1.0% of the sale price, subject to a minimum fee of $0.50, which will be deducted from the sale proceeds at the time a Note is sold to a subsequent Lender.”
At first glance this is looking like a sour deal for the seller and a great deal for the buyer of a note. A seller is going to be charged 1% + $0.25 per loan sold whereas the buyer gets charged nothing. If a savvy investor can get a good estimate of the delinquency rate and default rate as well as when they are likely to occur in the life of a loan then they can make a nice profit in this market.
November 1st, 2007 at 12:03 pm
I think a seller should be able to list a group of loans for sale at one time. Group them by credit grade or rate and then list the whole group for sale that would make more sense. I just don’t see the value in sifting through a group of $50 notes for sale. I might as well go to the regular site and make my bids.
November 7th, 2007 at 9:01 pm
That’s great! Even though it is a bit of a swipe against lenders who are selling their notes - it does increase the liquidity of prosper loans for lenders and I think that will attract a lot more. Will note sellers be able to specify a price - and thereby get a premium for the sale of a good loan or discount for a shoddy loan?
November 8th, 2007 at 6:51 pm
I think the seller will be able to enter a price they are willing to sell at. To profit as a seller of a note one would have to overcome commissions. (1% + $0.25). So if your selling a $50 note you would pay 1.5% commissions. Obviously the larger the note the less commissions you pay since the fixed $0.25 would account for a smaller portion of the total.
I’m assuming the majority of notes up for sale will be for bad debt or from people who need to cash out before the 3 years. I still think it’s going to be a buyers market with the current structure.
I think Prosper should reduce the 1% sales fee on the loans or reallocate some of it to the buy side. (Think about it in terms of another investment, would you pay $100 for a $10000 stock investment?)
The fee structure needs to be competitive enough in order to draw buyers and sellers.
0.5% Seller fee.
0.5% Buyer fee.
Minimum is $0.25.
Maximum is $XX?
June 28th, 2008 at 6:06 pm
Wow sounds like a mess waiting to happen, even though it will increase liquidity. And savvy people can probably make trading profits, especially at the beginning.
Securitizations didn’t exactly work for the subprime market either :( This will probably decrease returns for lenders over time, if it actually takes off. Unless strict controls are put into place, this has the potential to implode the prosper marketplace.
Tax accounting for gains/losses, amortizing loan premiums, etc, will be an absolute nightmare as well.
October 23rd, 2008 at 12:24 pm
I disagree LendingStats. The fee should fall solely on the seller:
1.0% Seller fee
0.0% Buyer fee
Minimum is $0.25
Maximum is $XX?
The basis for this argument is the transaction is initiated by the seller. If the seller wants out, he knows there are costs associated. That’s just the cost of liquidity. If the seller cannot bare of the cost of selling the note, there are other options.
In the past, lenders have cashed out of Prosper by taking loans of there own. This option is almost certainly more expensive than the 1.0% fee of selling a note. My two cents. Thanks for the great website by the way. I check it almost daily. Keep up the good work.
November 3rd, 2008 at 1:24 pm
Hey Kevin,
I see what your saying, however the fee charged to the seller on the secondary market should be minimized to encourage sellers to post loans up for sale and increase liquidity. After all no one will post a loan for sale if the fees are too high.
I think a compromise would probably be where the initial ‘posting’ fee is free for the seller and fee will only be exacted if the loan is sold.
December 10th, 2008 at 11:04 am
one-time fee…
Can point me to other similar posts? Really appreciate it. Thanks….