P2P-Loans.com

Prosper's SEC Registration Declared Effective

2009-07-14T12:53:00.002-04:00

SAN FRANCISCO, July 13, 2009 – Prosper, a leading online destination for borrowing money and investing in personal loans, today announced the successful completion of its registration process with the Securities & Exchange Commission (SEC). As a result, America's largest peer-to-peer (P2P) loans marketplace has resumed for borrowers nationwide and lenders in 14 states with others soon to follow1. Prosper is the first Internet auction-based P2P loans platform to have its registration statement declared effective by the SEC — a move that marks a significant breakthrough for the P2P lending industry.

Prosper's SEC registration statement also covers the first Internet auction-based trading platform (sometimes referred to in financial circles as a "secondary market"), which makes it possible for Prosper lender members to sell their Prosper Notes to other individual and institutional investors. The note trading service is provided by Foliofn Investments, Inc., through their Folio Investing Note Trader platform.2

Prosper first introduced the concept of people-to-people lending in the U.S. when it launched in 2006. The goal was to create a platform where people could invest in each other in a way that was socially and financially rewarding. The concept quickly caught on. From the time Prosper launched up until the time it entered an SEC registration quiet period in October 2008, Prosper had grown to more than 800,000 members and facilitated approximately $180 million in personal loans, making Prosper the largest peer-to-peer loans marketplace in the world.

"With the financial system in crisis, P2P lending — Americans investing in fellow Americans and small businesses — is needed now more than ever," said Chris Larsen, CEO and co-founder of Prosper. "It has been extremely frustrating to be on the sidelines in the teeth of a credit crunch. Nevertheless, we believe that completion of the SEC registration process for our auction-based model — a model that we believe is an extraordinarily powerful tool for fair price discovery for everyone involved in the transaction — is a major watershed for the industry."

A competitive auction marketplace, combined with loan-level transparency and extensive credit and social data, allows Prosper lenders to fine-tune their bidding decisions. Prosper has enhanced its auction model to include a hard bid floor for each listing, which helps lenders appropriately price for risk while investing online. The bid floor for each listing is calculated by adding the national average certificate of deposit rate that matches the term of the borrower loan to the minimum estimated loss rate assigned to each listing.3 For example, an A-rated listing with a minimum estimated loss rate of 2.0% is added to a national average certificate of deposit rate of 2.27%, resulting in a bid floor of 4.27%.

In addition to the new bid floor, more layers of safety and vigilance have been added to the marketplace. Prosper has lowered its minimum bid requirement to $25 (previously $50), which should make it easier for smaller lenders in particular to diversify. Prosper has introduced Prosper Ratings — an improved credit grading system for loan listings — and now requires borrowers to meet the new minimum credit score requirement of 640 (previously 520). Prosper Ratings are based on the historical loan performance of 29,000 Prosper loans and are designed to better convey risk.

Prosper believes the new Prosper Rating system, combined with the new minimum 640 credit score requirement and enhanced auction model, will make analyzing risk simpler and more robust than ever. A review of historical returns since inception based on the improved risk rating and credit segmentation system determined Prosper lenders' return on investment ranges from 7.19% for loans with a AA Prosper Rating to 4.59% for loans with an E Prosper Rating.4

About Prosper
Prosper Marketplace Inc. is a leading online destination for borrowing money and investing in loans. It pioneered direct peer-to-peer loans, which allow people to invest in each other in a way that is socially and financially rewarding. Additionally, Prosper's auction model provides an open and transparent way to borrow or invest in consumer loans on terms that are favorable to everyone involved in the transaction. More than 800,000 people from across the country are part of the Prosper peer-to-peer lending community. Since launching in February 2006, approximately $180 million in loans have been funded in the marketplace.

Prosper was co-founded by Chris Larsen, co-founder of E-LOAN. Backed by Accel Partners, Benchmark Capital, DAG Ventures, Fidelity Ventures, Meritech Capital, and Omidyar Network, Prosper has raised approximately $40 million in venture capital.

About Folio Investing
Folio Investing is an online brokerage that enables investors to manage stocks, ETFs, and mutual funds as integrated investment portfolios ("Folios") that deliver better control, greater transparency, and lower cost. Investors can create their own Folios, much like creating personalized ETFs or mutual funds, or invest in over 100 Ready-to-Go Folios representing market indices, sectors, geographical regions, target dates, and more. The Folio Unlimited Plan features unlimited commission-free trading in twice-daily windows for one low monthly fee. Ready-to-Go Folios can be managed or unmanaged and are offered by FOLIOfn Investments, Inc., a registered broker dealer, and are not registered investment companies. FOLIOfn Investments, Inc. does not provide investment, tax, or legal advice. FOLIOfn Investments, Inc., is a member of FINRA/SIPC. For more information, please visit www.folioinvesting.com
Press Contact: Tiffany Fox Prosper Communications Director 415 593 5416 tiffany@prosper.com

Forward-Looking Statements:
This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "would" and similar expressions may identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements may include, among other things expected rates of return and interest rates; the anticipated success and attractiveness of Prosper's lending platform; and the benefits of Prosper's lending platform as compared to other existing alternatives in the marketplace. Although Prosper believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected and the past performance of Prosper loans is no guarantee of future results. For example, Prosper may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. Prosper has included important factors in the cautionary statements included in the prospectus, particularly in the "Risk Factors" section, that could cause actual results or events to differ materially from forward-looking statements. Prosper does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

1Prosper is currently available to lenders in California, Colorado, Delaware, Georgia, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Wisconsin, and Wyoming. Borrowing is permitted in the District of Columbia and all states except Iowa, Kansas, Maine, and North Dakota.

2Folio Investing is registered trademark of Foliofn, Inc. Securities products and services offered through FOLIOfn Investments, Inc. Member FINRA/SIPC.

3The national average certificate of deposit rate is a proxy for a risk free consumer rate and is published daily by BankRate.com. The national average certificate of deposit rate that matches the term of the borrower loan will be used. For a listing that results in a three year loan the three year national average certificate of deposit rate will be used. The risk free rate will be updated on the third business day of each month based on the certificate of deposit rate published on BankRate.com on the first business day of each month.

4Return on investment as of June 30, 2009. Not FDIC-insured; Investments may lose value; No Prosper or bank guarantee. Prosper Notes are offered by prospectus.

The Economy is Even Worse Than You Think (from WSJ.com)

2009-07-14T11:44:00.003-04:00

I read with great interest a recent opinion piece from Mortimer Zuckerman (what a great name) of the US News and World Reports. The title of this piece is "The Economy is Worse Than You Think" and is on WSJ.com if you want to read the whole article.

In a nut shell, he makes a number of important points that are often overlooked by the media and politicians (mainly because the news is NOT good). Here are a couple of excerpts:

"...reasons we are in even more trouble than the 9.5% unemployment rate indicates:

- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

- The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period."

In summary, the news is not very good. Government, businesses and individuals would be wise to take head of this data and evidence and make any necessary budgetary now. I would like to see the Obama administration start by focusing more attention (and tax dollars) on economic policies rather than healthcare and the environment, among other secondary objectives. While these issues are very important, the success of any reforms in these areas is ONLY possible if we have a strong economy. Thank you, Mr. Zuckerman, for your great analysis.

Porkulous or Stimulus (Update)

2009-07-08T15:01:00.009-04:00

Earlier this year (February to be exact), I wrote a piece (check it out here) about the "stimulous" plan that the newly inaugurated Obama administration crammed...er...passed into law. Needless to say, I cast a skeptical eye on the bill as it simply had way too much government waste included in it AND the money did not flow fast enough to give the economy the jolt it desparately needed. It is now becoming even more clear that the Obama administration did not pass the best bill possible as the economy remains in the tank, unemployement continues to increase (and the rate of unemployment is rapidly approaching double digits) and there is some loose talk of yet another "stimulous" plan (seriously, this is no joke)! Check out the recent interview on CNBC with Art Cashin of UBS ("stimulous is part Hoax..." WOW!):

To shed a bit more light on this, Joe Biden recently admitted that he and Obama "mis-read" how bad the economy was (here is one of the many news stories on the topic). It's somewhat laughable that he can suggest this and get away with it! Don't you recall all of the speeches about how this was the worst economy since the Great Depression (hard to say they mis-read it, eh)? Here's one example from a January 2009 speech from Obama (read the entire speech via the link):

"Throughout America’s history, there have been some years that simply rolled into the next without much notice or fanfare. Then there are the years that come along once in a generation – the kind that mark a clean break from a troubled past, and set a new course for our nation. This is one of those years. We start 2009 in the midst of a crisis unlike any we have seen in our lifetime..."

That sounds pretty dire! Well, the economy IS pretty bad (it's at least as bad as the early 80's and maybe worse than that) and I just don't buy that they "mis-read" it when, speech after speech, Obama talked about the "worst economy since the Great Depression." I think it's more likely that Biden and the Obama administration continue to try convince the American people that none of this is their fault even after they've ramped up government spending and passed an enormous spending bill with a "Stimulous" title on it. To be fair, they did inherit a pretty lousy situation and things were clearly getting worse when he took office. But, the American people are tiring of the blame game (Obama's approval rating is down to the low 50% range when it was in the mid to upper 60% range when he took office) and the ineffectual nature of Obama's economic proposals to date (trends in his approval rating prove this out - click here for Rasmussen data).

We were sold this "stimulous" package on the promise that it was necessary to turn things around and that it would bring us out of a tailspin. Unfortunately, it now appears that we were sold a bill of goods (don't say I didn't warn you in the February 2009 blog post).

I sincerely hope that Obama will refocus on what really matters right now (HINT: "IT'S THE ECONOMY, STUPID!!!") and drop plans for massive spending on healthcare and taxes green house gases (aka Cap and Trade). Making the case that we can't fix the economy unless we fix healthcare and the environment just doesn't make any sense. Let's get this economy going BEFORE dealing with these other issues. After all, if the economy (aka current and future tax base) continues to shrink, we definitely won't be able to afford any of these other initiatives.

That’s Fuzzy Math: Why Obama’s Budget Doesn’t Add Up for Future Generations

2009-04-06T16:14:00.000-04:00

Michael Boskin, a well-respected professor of economics at Stanford University and a senior fellow at the Hoover Institution recently wrote an eye-opening piece on the future debt and taxation implications on President Obama’s 2010 budget plan. For anyone that’s been paying attention, it’s no surprise that the President’s budget calls for running substantial deficits indefinitely. It’s completely fair to note that President Obama inherited a bad economy and an already mind-popping budget deficit. But, what I found so interesting about Mr. Boskin’s analysis is that he sheds some light on Obama’s contribution to our future debt problems. Mr. Boskin asks the simple question, “What would happen to budget deficits and the national debt if Obama did not institute his new government programs?”

Well, the result of Mr. Boskin’s analysis are staggering. Yes, Mr. Boskin was an advisor to President George H.W. Bush (aka Bush 42). However, let’s say for a second that Mr. Boskin is off by 25%. You are still talking about a tax burden of over $120,000 per taxpayer. I don’t know about you, but I don’t have that kind of money laying around. Below is a summary of the implications of this study. Check out the entire article via the link below at WSJ.com. No matter who you voted for in November 2008 and no matter who you support today, it is critical that ALL AMERICANS understand what the government is signing us up for in terms of future debts and taxes.

“What does $6.5 trillion of additional debt imply for the typical family? If spread evenly over all those paying income taxes (which under Mr. Obama's plan would shrink to a little over 50% of the population), every income-tax paying family would get a tax bill for $163,000. (In ten years, interest would bring the total to well over $200,000, if paid all at once. If paid annually over the succeeding ten years, the tax hike per year would average almost $26,000.) That's in addition to his explicit tax hikes. While the future tax time-bomb is pushed beyond Mr. Obama's budget horizon, and future presidents and Congresses will decide how it will be paid, it is likely to be paid by future income tax hikes as these are general fund deficits.”

Read the entire article at WSJ.com.

Porkulous or Stimulous (or a little of both)?

2009-02-12T17:10:00.003-05:00

As everyone is no doubt aware, Congress announced an agreement on the nearly $800 billion spending bill that is intended to try to kick-start the economy. There has been much debate about this bill, specifically around whether it is true stimulous or is porked up good with lots of pet projects. I think it's fair to say that there is a lot of both in the bill - after all, it is $800 billion!!! Just to put this into context, that's approximately $2,700 per US resident or about $7,200 per family! WOW. Or, put another way, that's enough money to buy the following companies at current market caps:

IBM - $127B,
Microsoft - $171B,
General Electric - $122B,
WalMart - $189B,
McDonalds - $63B,
Wells Fargo - $71B, AND
Intel - $78B.

That's a lot of coin! So, the bigger question is "Will it help?" Unfortunately, this answer is about as clear the TARP 2 as outlined earlier this week by our new Treasury secretary.

Well, just for fun, I thought I would include a snippet from a recent FoxNews.com article that outlined some of the items in the report. I'm not so sure this is all "stimulous" but I will let you be the judge. Of course, there are some good things in this bill including allowing small business to deduct capital expenditures more quickly, tax credits for purchasing cars and houses, spending on roads, bridges and other infrastructure, and other truly stimulative things. But, it's laughable to say that $100 million for the Lead-Based Paint Hazard Control Grant Program is meant to stimulate anything (except for the lobbiest that won this concession).

- a provision to provide up to $198 million in pensions for Filipinos who fought alongside the U.S. during WWII. U.S. citizens would get $15,000 a year, but even non-citizens would still get $9,000 a year

- NASA is set to receive $450 million for "Science" and another $200 million for "Aeronautics"

- More than $28 billion is being provided to put kids in special education, Head Start and child care and development programs for disadvantaged children.

- $100 million for the Lead-Based Paint Hazard Control Grant Program

- $200 million to the Leaking Underground Storage Tank Trust Fund Program
- $300 million for "Violence Against Women Prevention and Prosecution Programs"
- $900 million for the IRS for the "Limitation on Administrative Expenses"
- $1 million for the Railroad Retirement Board for administrative costs
- $2 billion for the Drinking Water State Revolving Act
- $50 million for Health and Human Services to carry out injury prevention programs
- $1.1 billion for studies on the effectiveness of different medical treatments
- $200 million to upgrade labs and facilities for the Department of Agriculture "to improve workplace safety and mission-area efficiencies"
- $10 million for urban canal inspection
- $16 billion to pay for student financial aid
- $1 billion to pay for the U.S. Census
- $600 million to pay for a fuel-efficient federal auto fleet
- $650 million for the Digital Converter Box Program to help the constantly delayed transition from analog television
- $485 million to the Forest Service for "hazardous fuels reduction and hazard mitigation activities in areas at high risk of catastrophic wildfire"
- Up to $1 billion for "summer activities" for youths as old as 24
- $40 million for the occupational research agenda
- $3 billion for the Centers for Disease Control wellness programs and vaccinations
- $410 million for Indian health facilities
- $2.4 billion for carbon-capture demonstrations

So, what do you think - is that true stimulous? You may like Obama or not and you make like this bill or not. BUT, at least you should know what's in it. After all, YOU are going to have to pay for it...eventually!

SHOCKING MORTGAGE REVELATION!!!

2008-12-08T15:51:00.012-05:00

In news that will SHOCK the country, people that made poor financial decisions over the last 24 months continue to make poor financial decisions (and they are still not paying bills on things they still can't afford). In a Reuters article whose conclusion is just entirely too predictable, the government is reporting that borrowers that stopped paying their mortgages once, are doing so again!!! Shocking, I know.

OK, so that's my poor attempt at blogging sarcasm, but you get the point. Why would anyone expect "loan modifications" to be successful? Sure, they may help some fraction of the folks that are having a tough time and were legitimately scammed by predatory lenders, but the simple fact is that there were WAY TOO MANY people buying homes that should have never bought a home in the first place (most of them are not bad people, they just were not ready to take on the responsibility of owning a home). So, as I've predicted many times in the past, loan mods just won't work for most loans because the people that should have never bought a home in the first place still own a house they still can't really afford!!!

Since when did renting gain such a stigma? There is nothing wrong with renting a place and making it your home. We (the politicians especially) got a little caught up in this whole home ownership/american dream thing and we are now paying for it in the financial, real estate, business and every other market you can name. In what many of you may see as a bit of a stretch (but, I honestly believe it), Americans forgot that the American Dream revolves around EARNING things and not being given things (that whole sense of entitlement thing). What happened to saving for a 20% down payment before buying a house? If someone can work hard and save 20% (or even 10-15% fo that matter), they're not only putting a lot of "skin in the game" but they've also demonstrated financial management skills (i.e. they are likely to be very good credits). If we'd adhered to this very basic standard alone, we would not be in the mess that we are in! It sounded great that you could buy a house with only your good name and your word (stated income or "liar's" loans as they're now called), but it was all too obvious what would happen (people would stretch the truth...or simply lie to get what they wanted - a house they could not afford). Now, since we have not learned our lesson, let's give people something for nothing yet again - e.g. freebies to show them that defaulting on a loan ACTUALLY HAS A REWARD!!!!

So, let me summarize why this is such a silly policy:

1) people that should have never bought a house still own houses
2) the resultant homeowners STILL have no skin in the game (formerly known as a down payment); and, most importantly,
3) defaulting borrowers ARE BEING REWARDED for defaulting!

It's quite easy to see that people are going to continue to default until they stop getting freebies. I have several friends who are thinking of defaulting on their mortgages just so they can renegotiate with the bank! If this kind of silly policy continues, the downward cycle we are now in will only last longer and be more painful than it has already been. I really hope that does not happen. Wake up, Washington!!!

Let's wise up!

Early Christmas Present from the Fed: Refinance NOW!

2008-11-26T13:16:00.004-05:00

As you may or may not know, mortgage rates have plummeted over the last couple of days on the news that the Fed is going to be buying $500 billion (about 10% of the entire market) worth of mortgage backed securities. So, now could be the best chance you will have in the next couple of years to refinance your mortgage. PLEASE consider locking yourself into a fixed-rate mortgage. You will sleep better, I assure you.

Here is a run down of what's happening from our friends at Bankrate.com.

Fed will buy $500 billion in securitized home loans
By Holden Lewis• Bankrate.com

Mortgage rates plunged after the Federal Reserve announced that it would buy up to $500 billion of securitized home loans.

Rates on 30-year, fixed-rate, conforming mortgages fell well below 6 percent after the Fed announced Tuesday morning that it would buy up to a half-trillion dollars' worth of mortgage-backed securities over the next year to year-and-a-half. Bankers and brokers say rates fell as far as 5.25 percent, at least for a while. Last week, the 30-year fixed averaged 6.33 percent in Bankrate's weekly survey.

The rate reduction is exactly what the Fed intended: "This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally," the central bank said in its announcement.

"It's pandemonium around here right now," says Bob Walters, chief economist for Quicken Loans. "This is going to have a major effect on refinancing opportunities and it should absolutely translate into increased home buying."

Walters offers a hypothetical example of a California house that has lost $175,000 in value over the last couple of years. In 2006, a borrower would need a $500,000 mortgage to buy the house; today, a borrower would need $325,000.

Two years ago, the average rate on a 30-year fixed was about 6.5 percent. At that rate, the principal and interest on a half-million-dollar loan was $3,160 a month. Now, if someone borrowed $325,000 at 5.5 percent, the monthly principal and interest would be a more affordable $1,845.

The Fed's action helps not only buyers, but also homeowners with adjustable-rate mortgages who want to refinance into fixed-rate loans.

Government gift
The mortgage and real estate industries look upon the announcement as a gift from Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson.

"Wow," says Jim Sahnger, mortgage broker with Palm Beach Financial Network, in Stuart, Fla. "I don't know who invited Bernanke and Paulson to Thanksgiving, but I'm glad they did! They showed up with the equivalent of a 50-pound bird and all the fixin's today, ready for the table."
He suggests that borrowers apply for loans and lock rates quickly, in case rates rise again or home values continue to fall. Declining home values can endanger owners' ability to refinance. Sahnger advises homebuyers to talk to mortgage brokers or loan officers early in the process, to identify "any issues you need to deal with prior to writing a contract," such as errors on credit reports.

Ryan Kennelly, a mortgage banker for Residential Mortgage Services, Inc., of Bedford, N.H., says the Fed's action is huge, for two reasons. "First, with lending institutions getting the much-needed support of the U.S. government, they (lenders) will ease some of their most restrictive lending rules -- opening the door to more consumers to get loans," he says, adding that more qualified borrowers means more home sales.

Second, Kennelly says, "this news also couldn't be better for current homeowners who want to stay in their homes but can no longer afford the payments due to their adjustable-rate mortgage increasing. By interest rates coming down, combined with lenders easing some of their qualification requirements, more and more homeowners in this situation will be able to refinance."

Dan Green, a mortgage broker for Mobium Mortgage in Cincinnati, calls the Fed's purchase plan "an explicit safety net for lenders, and that should encourage more lending."

The Fed's decision to cut mortgage rates won't help people who can't refinance because they owe more than their houses are worth. And people who already are two or three months' behind on their home loans probably won't get much out of it, either, says Dean Baker, economist for the Center for Economic and Policy Research, a Washington think tank.

Lack of transparencyBaker worries about lack of accountability or transparency: The Fed and the Treasury have not disclosed details about their purchases under the Troubled Asset Relief Program, setting a precedent for secrecy about the Fed's purchases of mortgage debt under the plan announced Tuesday. "We don't know who they're going to be buying bonds from, or how much they'll pay -- or if they'll overpay," Baker says, adding that if the Fed pays a dollar for a security that's worth 20 cents, "that's the same as handing (the seller) 80 cents." Baker adds: "I think it takes a lot of gall to do something like this."

Green says that there is an element of moral hazard in the Fed's action: In the future, borrowers might expect a bailout from the unintended consequences of this action. Nevertheless, the Fed's buying binge might be the best way out of a dilemma. "On moral hazard, some say it led to the bubble. It may now lead the economy back," Green says, koan-like.

Yields fall, mortgage rates do too
By buying mortgage-backed securities, the Fed will be taking direct action to reduce mortgage rates. That's because mortgage-backed securities behave like bonds. When bond prices rise, their yields fall. A wonkish detour into the behavior of bonds will illustrate this point.

A bond is an IOU. Let's say you lend someone $100 and the borrower gives you a piece of paper, promising to give you $105 a year from now. That paper is a $100 bond with a 5 percent yield. The yield is equivalent to an interest rate. Now assume that the government stepped in and offered to give the borrower a better deal: $102 now in exchange for $105 a year from now. The bond's yield would be roughly 3 percent. That's how the bond's yield gets lower as the price gets higher.

The Fed says it's going to be that buyer who pays a higher price for the bond, causing the yield to drop. As the yields on mortgage-backed securities fall, consumers generally see mortgage rates fall, too.

By pledging to buy up to $500 billion in mortgage-backed securities over the next 12 to 18 months, the Fed is signaling that it's ready to buy a big share of the conforming mortgages underwritten during that period. That could keep bond yields and mortgage rates down. So far this year, Fannie and Freddie have issued about $857 billion in mortgage-backed securities, and the issuance pace has slowed dramatically in recent months.

What happened to personal accountability?

2008-09-30T16:35:00.011-04:00

The $700 billion bailout package has raised a lot of eyebrows on Main Street. After all, isn't it Wall Street's fault for making all these risky investments that went bad? If so, why on earth would the government want to use taxpayer money to bail them out? Well, I've listened to a lot of radio commentary and read a whole host of opinons and articles on the topic and I am disheartened by one key thing that is missing in all of these pieces; where is the personal accountability in all of this?

Let me make this a bit more clear for you if you are having trouble following me. If you were walking down the street and a drug dealer popped out and offered you some drugs for free, would you take them? You know it's bad for you even if it is free. You know this decision is not likely to have a good outcome for you, but you decide to give it a shot anyway because everyone else is doing it and the dealer tells you it's good for you and you can handle it.

Is it the dealer's fault that you decided to take something you knew was bad for you? Now we all know that the dealer is a bad guy and should be punished for breaking the law and dealing drugs. But, aren't you also somehwat responsible for your bad choice? Shouldn't you shoulder some of the blame?

By now, you know where I am going with this. Sketchy mortgage brokers and slick Wall Street types told you that you could afford that $500,000 house even though you had not saved for your down payment and you only made $50,000 per year. After all, all your friends and neighbors were doing it, right? Even though it was available to you, you knew it did not make sense that you could get such a loan. But, you took it anyway. Then, when your house rose to $700,000 in value, another slick mortgage broker told you take take a second mortgage for $200,000 so you could put in a pool, go on that nice vacation and buy that expensive car. Or maybe you could just refinance your first mortgage and "Pick Your Payment" so that you could cover the new GIGANTIC mortgage (at least for 12-24 months until the payment adjusted). Hey, you deserve it and everyone else is doing it. Never mind that you couldn't affored the first mortgage payment much less the second mortgage payment.

Now that all of these loans are going bad (not really a shocker, by the way), banks and mortgage companies are going under and the securities issued to allow these silly loans are defaulting, people are trying to blame everyone but themselves. Greedy CEOs, lying mortgage brokers, etc. are the only ones to blame. It's not my fault that my payments are TWICE AS MUCH as my income!!

Why don't people start to take a little responsibility for their decisions and actions. Sure, there are plenty of cases of legitimate fraud, lying, cheating and stealing and the corporations that profited from all of this mess should also be severely punished. But, if that were the only problem, we would not be in this mess. The bottom line is that Americans have spent more than we make for over a decade now (think negative savings rate) and it is catching up to us. So, here is who I blame (in my opinion):

1) Individuals: if you are not diligent enough to read your own loan documents and understand them, then you probably shouldn't be taking on the debt required to buy a house, car, etc. While the small print is mind numbing for sure, the Truth in Lending Disclosure is actually pretty easy to read (shows the costs of the loan and your payments over time). If your paycheck was only $2,000 per month, you can't afford a $4,000 per month payment (now or 24 months from now)! It really is that simple! Spend less than you make (that's called saving, by the way) and don't get duped into believing it's OK to do otherwise.

2) Congress/Federal Reserve: The knuckleheads in Congress and the Fed have promoted easy money for so long now that we all believe we are entitled to it. When a number of Congressmen raised the issue that Fannie and Freddie might be a disaster in the making (in 2004 and 2005), most folks in Congress buried their heads in the sand. "We are meeting our housing objectives" (this is code for people that can't afford homes are getting loans for them - this is also known as "subprime" and the initial shoe to drop in this mess). Even Alan Greenspan (who shoulders a good chunk of the blame for his easy money and 1% interest rates) noted that Fannie and Freddie were a potential ticking time bomb. No one in DC listened and now they want to spend $700+ billion to try to fix the problem (I'm skeptical this will work, by the way).

3) Wall Street/Ratings Agencies: We were all convinced that the smart guys on Wall Street had invented a way to make risky borrowers less risky. Somehow, through financial alchemy, Lehman Brothers, Bear Stearns, UBS, etc. all convinced us that you could take a bunch of risky loans, wrap them up into a nice little bow, slap some insurance on them and call them AAA quality. Then, the ratings agencies, who were being paid to provide ratings on these securities (no conflict there), called them "Investment Grade" which allowed pension funds, retail investors and others to buy them up. As if that weren't bad enough, the investment banks et al decided to borrow 30 TIMES their equity capital to buy these toxic securities (for every $1 of capital they had, they would borrow $30 and buy these bad securities). When it came time to borrow more money as loans came do, the investment banks imploded.

So, what can we learn from all of this? First of all, people need to take responsibility for their own decisions and the consequences for those decisions. If you bought more house than you could afford, you have to live with the consequences of that decision. If you are spending more than you make on your credit cards, that too has a consequence for you. Just because you got a great 0% APR offer (think free drugs - see above) that doesn't mean it's a good decision to load that card up. I fear that the government bailout only reaffirms the dangerous and increasingly pervasive cultural phenomenon that individuals are not responsible for their own decisions. If there is always someone to bail you out when you make a bad choice, then is it really all that bad a choice to make in the future? The corollary to this is that good decisions are not rewarded, but rather penalized (think higher taxes). Until we return to the basic economic principals of freedom, individualism and true capitalism, I fear there is going to be a lot of economic pain in our great country.

$500 oil coming?

2008-09-22T14:37:00.003-04:00

A recent Money.com article points out some reasons to be concered about the future of oil prices (actually, prices are up some $25 today along, as I write this article). While I am the last person on earth that should be predicting oil prices, I thought P2P-Loans.com readers might appreciate the analysis presented in the article below from Fortune Magazine.

---------------------------------

Here comes $500 oil

(Fortune Magazine) -- Matt Simmons is as perplexed as anyone that it has fallen to him to take on OPEC, Exxon, the Saudis, and all the other misguided defenders of conventional wisdom in the oil patch. Why should one investment banker with a penchant for research be required to point out what he regards as the obvious - that from here on out, oil supplies can't meet demand, and if we don't act soon to solve this crisis, World War III could be looming?

Why should a man who scorns most environmentalists have to argue that locally grown produce and wind power are the way of the future? Why should a lifelong Republican need to be the one to point out that his party's new mantra - "Drill, baby, drill!" - won't really fix anything and that his party's presidential candidate is clueless about energy? That the spike in oil prices earlier this year wasn't a temporary market anomaly and the recent retreat in prices is just a misleading calm before a calamitous storm? That we're headed toward $500-a-barrel oil?

Read the rest of this article online at Fortune.com (click here).

Make Saving a Habit: Like Washing Your Hands After #2...

2008-08-15T12:30:00.003-04:00

Why do people habitually do certain things? I stumbled upon a great article on consumer habits (or lack thereof when it comes to saving and financial planning) that I wanted to share with my readers. The simple reality is that we need to not only make saving (I also call it "paying yourself first") not only a habit, but a top priority. With pensions receding at a rapid clip and continued US government deficits (don't count on Social Security to take care of you younger folks), it is more important than ever to save and save now. It doesn't take much if you do it everyday and don't think about it (e.g. make it a habit). Dropping a couple of bucks in your savings kitty everyday is all it takes.

Buy This: Save More, Spend Less
By ROBERT POWELL
MarketWatch
August 14, 2008 4:31 p.m.

Many American companies are adept at getting people to start habits. Firms such as Procter & Gamble, Colgate-Palmolive and Unilever "have perfected the art of creating automatic behaviors," said Charles Duhigg of the New York Times. They get consumers to chew gum, spray perfumed water on their furniture, and whiten their teeth "almost without thinking, often in response to a carefully designed set of daily cues."

By contrast, companies in the financial-services sector -- specifically banks, insurers, mutual fund firms and the like -- have failed to create the cues to get Americans to develop the saving habit or break the spending habit. So the question arises: What lessons, if any, can financial firms learn from those firms so skilled at manufacturing habits? What are the cues needed to create the savings habit?

READ THE REST OF THIS EXCELLENT ARTICLE HERE...

Get Paid to Save (And Have Fun While You Are At It?)!!

2008-06-24T12:34:00.004-04:00

I know it sounds too good to be true, but this is the real deal and I would encourage you all to take a look. The "Pay Yourself First Challenge" is a savings contest sponsored by FNBO Direct (yes, that's a bank) that gives you the opportunity to earn free cash, learn to be a habitual saver AND offers a great, HIGH interest rate on your savings. This contest was recently written up in the Wall Street Journal and is gaining in popularity (they are relying on folks like yours truly and other Bloggers to spread the word). Here's the rundown per the contest website:

Create a one-minute video about what you're saving for (visit PYF's YouTube Channel to see what your competition is doing). Maybe you're a savings superstar — or a little savings challenged. Compel us with your original and creative video. You may be selected to join us on a six-month savings journey as a challenger in the FNBO Direct Pay Yourself First Challenge!

What's up for grabs:

$10 Gift Card for each of the first 500 YouTube Submissions*
$500 Cash Prizes for each of the Top 20 YouTube Submissions*
$7,500 Luxury Spa Vacation Grand Prize*
$25,000 in Matched Savings for the Top 5 Contestants*
Upload your video by July 31. Start shooting today!
What is PYF?

Pay Yourself First (PYF) before you pay your mortgage, credit cards or any other monthly bills. It starts with a direct deposit into your Online Savings Account, transferring only what you need for monthly bills into your checking or BillPay account. This small change maximizes your earned interest and grows your savings faster.

*See Official Rules for complete details.

P2P-Loans.com is sketching out a possible submission and I will post a link to my video assuming I ever get my production act together. Good luck and spread the word on this great program!

$140 Oil, $4.00+ Gas - Here's How to Save Some Bucks!

2008-06-19T13:15:00.003-04:00

Wow, oil prices continue to soar and there is not much we average consumers can do about it. I used to spend $30 every week to fill my car up and now it's running me more like $65 each time (that's over $140 more per month and about $1,700 per year!). I don't know about you, but this is taking a serious dent out of my pocketbook and I don't like it. Well, there are lots of ways you can help reduce the impact high gas prices on your wallet.

For example, I recently signed up for the Chase PerfectCard (APPLY NOW), which offers 6% cash back on ALL GAS PURCHASES for the first 3 months and then 3% cash back thereafter (that's nearly $0.24 per gallon). For me, that's nearly $200 in free gas every year (and it is free since there is no annual fee). As a bonus, you 1% cash back on ALL OTHER Purchases and a 0% APR for 6 months as well.

In addition to financial tools like the one above (it's first on the list since it's the easiest one to do, by far), here are some tips for reducing the impact of high gas prices on your wallet:

Observe the Speed Limit: In addition to avoiding a nasty speeding ticket and the risk of getting into an accident, driving the speed limite can also save you big bucks on gas. As a general rule, for every 5 MPH you drive over 60 MPH, it is costing you about $0.25 per gallon! If you have a lead foot like me (like I used to have - $4 gas has cured this problem), it could save you $0.60 or more per gallon.

Don't Drive Aggressively: While it might make you feel good to stomp on the gas pedal to fly by the one car ahead of you in town or on the Interstate, it won't really get you to your distination all that much faster, but it will cost you a pretty penny. Lots of accelerating, speeding, and braking will cost you BIG MONEY when it comes time to fill up. One estimate puts the increased cost at up to 33% (or more than $1.20 per gallon!). Since most of us are not THAT crazy on the road, the cost is more likely $0.30 per gallon, but that adds up, trust me.

Maintain Your Car: Keeping your tires properly inflated, changing your air filter regularly and using the right grade of motor oil can save you over $0.25 per gallon. These are things you should be doing anyway as they will extend the life of your tires and your car thereby saving you a ton of money anyway.

I know this stuff can be kind of boring, but by signing up for the Chase PerfectCard (Click here to APPLY NOW), observing the speed limit, driving more carefully, and maintaining your car, you can reduce your gas bill by over $1.00 per gallon or over $450 per year (much more for you power drivers out there).

Of course, you could always buy a Prius...

Consumers Pile on $15 Billion More Debt in March 2008!

2008-05-07T15:40:00.005-04:00

Americans are piling on the debt at an alarming pace while one of our most valuable assets (our homes) is plummeting in value. A recent article from Bloomberg points out that consumer debt levels increased by a whopping $15.3 billion in March 2008, which was substantially more than economists had projected. According to the article:

"Consumers are turning to credit cards after banks tightened standards for home-equity loans and other borrowing. The March figures brought U.S. consumer borrowing in the first quarter to $34 billion, the most since the first three months of 2001, when the economy entered its last official recession."

This is scary for those of you (like P2P-Loans.com) that are invested in Prosper loans. As banks turn away more people, they are likely to pursue alternative financing on sites like Prosper, LendingClub, etc..

America's debt problem has only gotten worse over the years and the current credit crisis may end up being a healthy event in that it will constrict American's ability to keep borrowing (at least for a short time). But, with the weak economy and fewer sources of capital, Prosper lenders beware...

Here's an interesting site that provides a lot of interesting debt-related information. Enjoy! http://mwhodges.home.att.net/nat-debt/debt-nat-a.htm

Housing Crisis Over? Mixed Data Suggests....

2008-05-07T09:45:00.008-04:00

P2P-Loans.com has recently noticed a number of smart folks writing about the end of the housing crisis. In two separate articles in the WSJ ("Opinion: The Housing Crisis is Over" and "Is Housing Slump at a Bottom?"). These articles make very valid points with regard to housing starts, low interest rates, etc. What these articles fail to debate in any material fashion is that housing prices relative to disposable income are still extremely high!

This chart from Ned Davis Research (the line graph at the bottom of this page is most relevant) demonstrates that we remain at very high price levels relative to historical data. Ultimately, the value of housing is a function of affordability. When it's all said and done, this is the single most important factor that drives demand for new housing and the price of such housing. For example, the data in the chart suggest that in 2001 (yes, interest rates were in the sub 7% range for 30-year fixed mortgages then as well) the Median New Home Price / Disposable Income ratio was near its 30-year average, which is where it had been for the better part of 15 years. In fact, the ratio had been even lower before that, however this is likely due to the artificially high interest rates of the 1970's and early 1980's.

This dynamic has served to dramatically reduce demand for housing in conjunction with tougher lending standards (fewer buyer approved for new mortgages) and skitish buyers (when will prices stop falling). As a result, housing inventories have spiked to record highs. Accross the US, housing inventories are more than double typical levels, and are as high as 4-5 years worth of inventory (versus a long-term average of 5-6 months) in formerly hot markets such as Florida and California.
According to a recent post at Seeking Alpha, housing inventories are beginning to come down, but remain well above historical averages. Seeking Alpha points out that, at the current sales pace, inventories of new homes will be "back to normal" by the end of 2009. Simply put, we will be in a supply/demand imbalance for the next two years (and this is assuming that the market doesn't overshoot to the downside, which it's been known to do in prior busts - think about when many tech stocks were trading at less than cash value in 2003). The data is similar on the inventories of resales as well. In my estimation, this means we still have a ways to go before calling the end of the housing crisis. I hope I am wrong.

On a side note, the government is trying to push through a MASSIVE bailout program. Generally, when the government makes a move like this, they are too late to the party. Thus, this single fact alone could lead one to believe we are at the end of the housing crisis.

Save More, People! Why is the US savings rate so low?

2008-05-02T09:30:00.010-04:00

Just the other day, the government quietly reported (only because the media didn't really give it any play - maybe it has something to do with their retailer advertisers) that the savings rate in the United States hit a new ALL TIME LOW! American's are saving a whopping $2 for every $1,000 of disposable income that they earn. TWO DOLLARS! That's a savings rate of about 0.2%. In no uncertain terms, America has become a spend and consume nation that relies on credit to finance our lavish lifestyles (a special thanks goes out to our kids for agreeing to pay back the $9+ trillion national debt for us). Well, in the spirit of returning back to our roots as a country of savers and investors (just look at the above chart to see that we did used to be a nation of savers), I'm offering a few tips and suggestions on how you might increase your savings rate just a tad:

1) Use your rebate check (thanks again to our kids who are paying for this) to pay down your credit cards - AND DON'T RUN THEM BACK UP. If you pay down $600 or $900 of your credit card debt that is probably costing you 20% in interest, you'll save as much as $200 per year in interest costs! It may even improve your credit score, which could lower your interest rate on other loans you have or need in the future! That'll help cover the increased cost of gas, at least.

2) Let your money work for you by putting your newfound savings in a money market account or a CD. For example, Countrywide is offering a FDIC insured 12-month CD at 4.10%. Of course, only do this if you can't use the cash to pay down your high interest rate credit cards (after all, 20% is much bigger than 4.10%). There are some other high yield ideas at P2P-Loans.com's High Interest site.

3) Refinance your credit card debt. If you have decent credit, why not seek out a low APR (or no APR) credit card to lower your borrowing cost. If you are paying a high credit card rate, take a look at some great credit card options on our Best Credit Card site. Using the 20% interest example, you could open a new account with a 0% APR for 12 months, transfer your balances to this new card (for a fee that is usually 3% up front) and save a whopping 17%! Here's a great offer from American Express that gives you 15 months of 0% APR on purchases and a 4.99% APR on balance transfers. There are a lot of other good offer out there as well. But, don't use this low rate as an excuse to spend more (this is key!). Stay disciplined! If you want to explore other great offers, use P2P-Loans.com's Credit Card Search to find other great offers.

4) Make saving automatic. There are a lot of programs that make saving easy. For example, open a Bank of America checking and savings account and sign up for their "Keep the Change" promotion. You not only get free checking and savings, but you also get $75 of free cash to kick-start your savings plan! Then, whenever you use your Bank of America debit card, they round your purchase up to the next dollar and put the change in your savings account. The interest rate on the savings account is lousy (less than 1%), but you will be saving some money with minimal pain and effort. If you make 30 purchases per month and save an average of $0.50 per purchase from this program, that's $15 per month and $180 per year. BoA will match 5% of that AND you get the $75 sign-up bonus, so that brings you to nearly $265 in savings (plus interest). It's an easy way to get started and it's automatic.

In summary, Americans are not saving enough and it's our responsibility to take care of our own futures. At the current deficit level, our government will not be in a position to bail us out when we run out of money, so SAVE MORE, PEOPLE! Please Digg it up!

Fellow Blogger Seeks P2P Loan on Prosper

2008-04-25T11:47:00.008-04:00

P2P-Loans.com recently came accross the following listing on Prosper from a fellow blogger (Deepmarket.com) who is seeking a Prosper personal loan to consolidate some debt and begin the process of improving his finances. You can review his loan request for yourself on Prosper, but here is my quick and dirty analysis of this request:

1) The borrower has shown a strong desire to reduce his debt load, which was accumulated durning an entrepreneurial jaunt, and has returned to the "rat race" at a $100k+ salary. His company is a very strong one that focuses on government contract work (we all know that economic slowdowns don't hurt the government, so this job should be pretty safe). The borrower also provides some personal information about himself on his blog, which is comforting to a lender.

2) The borrower sought out the help of a Prosper expert, RateLadder, who is his group leader. RateLadder has been around Prosper for many moons and brings a lot of expertise to the table. While RateLadder doesn't personally know this borrower, his bid and endorsement does improve this listing on the margin.

3) Coverage - this borrower has just enough income to cover his monthly expenses with his salaried position. He also earns some extra cash through his blog (anywhere from $60 per month to $900 per month according to his listing). This income should be available to support any unexpected expenses as well as provide capital to repay revolving debt more quickly. Based on my math, this borrower should be able to cover the new Prosper payment with his salary alone and the blog income will provide a small cushion.

4) $25,000 request - this is a large loan amount to repay fully in a short 3 years (the term of a Prosper personal loan). With an interest rate of 25.45%, that equates to a $1,000 per month payment, which is large. Any bump in the road means that this borrower may choose not to repay this loan (in my experience, borrowers do not make partial payments, but rather stop paying entirely). Lenders can take some comfort in the fact that this borrower has a "public" personality via his blog, thus the public shaming he'd take by being late could be a nice incentive for him to make this loan his #1 priority.

So, what's the sum total of my analysis? The borrower is clearly an intelligent person with a great job in a high-demand area (e.g. if he does lose his job, his skills are in high demand). While the leverage is high, the risk of default of mitigated by the high interest rate being offered (25%+ at the start, but this could get bid down through the course of the auction). As part of a diversified Prosper portfolio, P2P-Loans.com does believe this is a loan worth bidding on and I will support it with a small bid once funds clear my Prosper account. If you are new to Prosper, you can get $25 of free cash for joining Prosper and winning a $50 bid on this loan. That makes it a no-brainer in my opinion.

Taxpayer/Renter Backlash Builds re: Proposed Gov't Bailout

2008-04-23T12:04:00.004-04:00

A number of websites have popped up that provide an avenue for angry homeowners, renters, taxpayers, etc. to speak out about a government housing bailout proposal that is making its way through Congress. P2P-Loans.com generally believes that the market needs to run its course so that we can return to more normal times. While there are certainly instances where borrowers were mislead or taken advantage of in the boom times, the overwhelming majority of buyers knew what they were getting into when they bought in the boom times (they simply hoped and believed that the value of the asset they purchased would keep going up - now clearly a flawed assumption). The sites speaking on this cause are below and there is even a petition to sign if you feel strongly about this issue. You decide if it's fair for taxpayers to cushion the blow that is currently being felt by lenders, homebuilders and borrowers alike. Hey, my stock portfolio is down this year, will the gov't please consider covering some of my losses, too? When do people start to take responsibility for their own decisions and not rely on the government to bail them out when they get into trouble? I welcome a likely dialogue on this topic.

Visit:
http://www.angryrenter.com/
or
http://www.nationalbubble.com/stopthebailout/

Tax Payer ALERT! The Gov't Wants To Bail Out Troubled Homeowners

2008-04-18T11:58:00.006-04:00

Is there a tax-payer funded (err... "government sponsored") bailout coming for honeowners? Momentum appears to be building for a broad-based program to bail out folks that bought homes in the boom times and can no longer afford to make their payments (e.g. are approaching or are already in foreclosure proceedings). This has been a topic of much debate. For those that made smart, sound financial decisions (e.g. didn't borrow more than they could afford to pay back, and read the fine print on their mortgage documents, etc.), this seems like it might be unfair since the taxpayers will potentially be bailing out these folks. But, as the outline below reflects, the current debate in Congress revolves around structuring a compromise that enables any eventual program to pay for itself. P2P-Loans.com is encouraged by some of the provisions being discussed (especially the payment of insurance premiums to the FHA and a sharing in any equity gains to homeowners upon a sale). We would hope that the equity gain sharing is substantial and not a pittance given any gain will be made entirely on the backs of tax payers (errr...the "government-sponsored" program). Generally speaking, the government has a terrible track record on projects like this (they underestimate the total costs, botch the execution and mess up a market-based system that works pretty well in the long run).

Here is a summary (from an article at Money.com) of what's being debated (P2P-Loans.com will report back on this issue once a program is passed):

While critics worry that an FHA rescue plan could amount to a bailout, supporters say it's not since everyone involved - lenders, borrowers and mortgage investors - would make a sacrifice.

Lenders get 100% backing from the FHA if a loan goes south. In exchange, the lender takes a "haircut" - reducing the principal owed and converting adjustable-rate loans to fixed-rate mortgages.

Borrowers get to keep their homes, but they would pay a premium to the FHA for the mortgage insurance and they would have to give a small portion of their equity to the FHA when the house is sold. They would also have to show they can afford the newly refinanced loan.

Mortgage investors - while they would sacrifice some future income from loans that have been reduced - would have more confidence investing in the new loans since the refinanced loans will be affordable and the borrower therefore will be more likely to pay them back.

Rebate for the Rich? Stimulus Plan Has Something For the Wealthy, Too!

2008-04-14T09:28:00.004-04:00

P2P-Loans.com came accross this Fortune magazine article and thought our readers might like to know more about the stimulus plan (even if you don't qualify for the rebate check, READ ON). In a previous blog post, we wrote about the tentative stimulus plan (at the time of our posting it was not a done deal) and what it might mean to taxpayers. But, we didn't know about the details (and impact) of the change in the conforming mortgage amounts (discussed in the article below). The bottom line is that if you are an owner of an expensive home, but do not qualify for the tax rebate, this could be a huge money saver for you!

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A gift from the Beltway

High-income folks like me don't qualify for rebate checks. But we're getting so much more.

By Allan Sloan, senior editor at large
(Fortune Magazine) -- I won't be getting an economic-stimulus tax rebate check, but I'm not complaining about it. Not only am I fortunate to make too much money to qualify for a rebate, but I'm getting something far more valuable than the maximum $1,200 my wife and I could have gotten. Thanks to a relatively little-noticed portion of the stimulus package, we'll be able to refinance our house more cheaply than we otherwise could, or presumably sell it for more.

This means that higher-income couples like us who don't qualify for rebates because we have adjusted gross income of more than $174,000 ($87,000 for singles) are arguably getting a better stimulus deal than the 130 million taxpayers to whom Uncle Sam is sending payments.

Let me take you through it. The stimulus package raises the maximum size of a "conforming" mortgage to $729,750 from the previous cap of $417,000. A conforming mortgage is a mortgage that can be sold to Fannie Mae (FNM) or Freddie Mac (FRE, Fortune 500), and it carries a lower interest rate than "jumbo" loans that exceed those limits. Similarly, the maximum mortgage that can be insured by the Federal Housing Administration has also risen to $729,750. For people in high-home-price areas, including mine, these maximum mortgages are now high enough to matter.

Doing the math
Being able to borrow $417,000 on the cheap doesn't help much when you're hoping to sell or refinance your house for, say, $750,000. But a $729,750 limit works out just fine. This higher limit translates into cheaper refinancing or a higher sales price, because the lower interest rate means buyers can presumably afford to pay a higher price.

If we assume a 5% down payment, we're talking about houses in the $450,000 to $765,000 range becoming eligible for these loans. The range rises if people make larger down payments or put second mortgages on top of these loans.

We're talking major money here, folks. In today's market, the interest difference between a conforming loan and a non-conforming loan for a 30-year fixed-rate mortgage is a whopping 1.27% a year, according to Keith Gumbinger, a vice president at HSH Associates, a mortgage research firm. So a $700,000 conforming loan at 6.01% would carry almost $9,000 less annual interest than a nonconforming loan (at 7.28%).

Gumbinger says that's an artificially high difference caused by the current freeze-up in credit markets. "The spread was about 20 basis points [20-hundredths of a percent] before things got ugly in June," he says. So even if normalcy returns - alas, that doesn't seem imminent - having a $700,000 conforming mortgage would cut a borrower's interest costs by $1,400 a year. Call it $1,000 a year after taxes if you itemize. That's worth much more than a one-time $1,200 nontaxable rebate payment.

READ THE REST OF THIS ARTICLE ON FORTUNE.COM...

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Free Checking Account & $75 Cash for Signing Up: Bank of America!

2008-04-10T11:59:00.004-04:00

P2P-Loans.com is always looking to bring you, our loyal readers, the best deals available. Today, we wanted to offer you a free $75 cash gift (ok, so we aren't giving you any money, but information is power!). All you have to do is open up a free checking account from Bank of America and you will receive $75 cash. That's it! So, sign up for the account through the link below and enjoy your cash. At a minimum it will help you lower you rapidly rising gasoline bill (visit our blog post on how you can lower the cost of gas by over $1 per gallon). I signed up for this account and received the credit without any hastle at all. To receive your $75 in free cash, apply online or go to your nearest banking center. Use offer code AOU260408, and open a personal checking account before June 30, 2008.

Enjoy your free cash!

Foreign Bank CDs - Higher Yield, But Is It Too Risky?

2008-04-01T10:37:00.002-04:00

I've been very interested in some of the high yield offers that some of the foreign banks (particularly Caribbean-based banks) have been offering. With rates in the US so much lower (Countrywide Bank is at 4.05%, E*Trade is at 3.01%, Capital One is at 3.2%, etc. - BankRate says the average 6-month CD is 2.76%). But, with some foreign banks such as a whopping 8.0% yield being offered by Millennium Bank, should you trust your hard-earned money in these instruments. Well, I found an interesting article below (Ask the Expert on Money.com) that talks a little bit about this idea. The P2P-Loans.com take on this is simple: don't forget that higher yields almost always (defined as 100% of the time) come with higher risk. Thus, if you are looking for a superior return, you will likely need to take incrementally more risk. If you are looking for safer options, P2P-Loans.com has done some of the homerwork for you on our Best High Interest Savings page. Enjoy the article.

--------------------

April 1, 2008
Are foreign bank CDs worth the risk?

With different banking regulations and no FDIC protection, foreign banks bring additional risk that might outweigh the relative safety of CDs.

Question: My wife and I are both unable to work and live on a fixed income. We supplement our income with interest from a 5.5% CD which matures this month. If we let the CD renew, the interest rate will be around 3.5%. I found a 6% CD at a bank in St. Vincent and the Grenadines, but I am somewhat leery of a foreign bank. What are your thoughts? –Alan Brady, Greensboro, North Carolina

Answer: My first thought is of the movie version of “A Man for All Seasons,” which depicts the life of St. Thomas More, the scholar and author of “Utopia” who was beheaded for treason in 1535 for refusing to recognize Henry VIII as the supreme head of the Church of England. I’m thinking specifically of a scene at More’s trial in which More, played by the late actor Paul Scofield, confronts Richard Rich, who has perjured himself and betrayed More to secure the position of Attorney General of Wales. “Why Richard,” says More, “It profiteth not a man to gain the whole world and lose his soul. But for Wales?”

What does this have to do with buying a CD from a bank in the Caribbean island nation of St. Vincent and the Grenadines?

Well, it seems to me that you and your wife could be jeopardizing your financial security by taking extra risk with money that you clearly depend on. And for what? A couple of percentage points of annual return?

I suppose it could all work out fine. But do you really want to subject this money to foreign banking rules and regulations? Do you even know what those regulations are? (I noticed that one bank in St. Vincent and the Grenadines that advertises U.S. dollar-denominated deposits won’t allow early withdrawals from some of its CDs.)

Visit Money.com to read the rest of this article... (here's the link).

Free Software & Other Stuff - No Need To Pay Anymore (PhotoShop, Google, Tax Prep, Coupons and More)!

2008-03-28T09:53:00.009-04:00

There is nothing like free to get my blood flowing. There is a reason that this single word is one of the highest cost words on Google AdWords since I don't know of anyone in this world that doesn't like free stuff. So, I thought I would try to summarize some of the coolest free stuff I've found on the web (mostly software, but there is tons of free stuff that everyone should know about). Please feel free to add cool, free stuff you've found in the comments section.

Free PhotoShop Software
Adobe USA (the parent company of Photoshop) just announced a free version of its famous Photoshop software online, Photoshop Express! I've used Photoshop for years and can tell you it is a truly excellent program. In fact, they are also throwing in 2GB of free online storage so you can upload your pictures and use the free software.

Google Apps
It seems like Google is adding something new to its free online applications on a daily basis. Google offers some of the coolest applications on the web. From the more boring stuff like Google Docs and Spreadsheets to really cool stuff like Google Picasa, Google SketchUp (really cool 3D software), and, of course, the best of all, Google Earth (WARNING, if you download Google Earth, I can promise you endless hours of lost productivity).

Free Tax Prep Software
I wrote about this in an earlier blog post, but wanted to touch on it again since we are rapidly approaching the dreaded April 15th. Why pay for this service when you can get it for free (if you meet certain income levels). If you can't get it for free because of your income, check out the tons of low cost online options (that's what I use). P2P-Loans.com has also created a quick and dirty webpage to give you a few good options on the Tax Prep software side of things.

Coupons (online and offline)
You have to be careful when searching the billions of free coupon sites on the web because it's very easy to get lost. But, never buy anything online without a coupon. It's as simple as searching Google for "Name of Store/website Here" + "coupon code". For example, I recently bought something at Dick's Sports at their local store. I found a great printable $10 off any $25 purchase coupon. I've used this coupon 10 times already saving me $100 in total! I bought my wife a present from Nordstrom's the other day (online) and saved 25%! This is free money, people, so don't miss out. It only takes 2 minutes to find a legit coupon.

Other: Endless Hours of Searching for Free Stuff
There is no shortage of websites that offer free stuff, so I would encourage you to search for this stuff online (Click Here to get started). I've actually found some pretty neat things online, so I would encourage you to check it out. Good luck, happy hunting and thanks for checking us out.

Help, My Credit Score Just Fell Off A Cliff (and I didn't even do anything)!

2008-03-25T11:16:00.006-04:00

As you may not know, Fair Isaac (what's so fair about them, I don't know) recently updated its FICO score formula and it is being rolled out by the three primary credit agencies. While there are many views on whether these changes are good or bad, the one certainty about all of this is that your credit score is probably going to change. Here's our quick and dirty on how this might affect you:

If your credit is currently being bolstered because you are an authorized user on your parents credit card account, you are probably going to get HAMMERED! One of the largest (and most negative) changes to the formula is the removal of the benefit you get from being on someone elses account as an authorized user. Some credit analysts belive as many of 25% of all Americans with credit could be negatively affected by this one change (that's about 40 million people whose credit score could fall). The good news is that it may take a number of months before all the credit card companies, banks, etc. begin to use this new score (so, get some new credit while you can - P2P-Loans.com has some great credit card offers if you are interested). Getting credit now (while you can still piggyback with daddy's good credit) will allow you to start building your own on-time credit file.

However, there are some positive changes to the scoring methodology as well. For example, the system treats a single large slip up (even as much as 90 days) as an “isolated delinquency” to individuals with a 10-year credit history. Routine late payments of less than 90 days will still damage your report but at least now a legitimate mistake won’t haunt you so severely.

Also under the new system, multiple credit inquiries in a short period of time won’t be so damaging to your credit score, as now they will be weighted less heavily in calculating the overall number.

Finally, the new system rewards borrowers who demonstrate the ability to stay on top of both revolving debt (credit cards, home equity lines of credit) and installment loans (Prosper Loans, student, auto or boat loans, mortgages). Even if you show a wide range of loans but a solid history of paying them on time, expect your score to jump up as well. Go figure, if you pay on time, you have a good score!

Just as a helpful refresher, here is what we do know about the FICO system (even though the exact numbers are closely guarded by Fair Isaac) and what the rough weighting is for certain types of credit data used:

- 35% — punctuality of payment in the past (only includes payments later than 30 days past due)
- 30% — the amount of debt, expressed as the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits)
- 15% — length of credit history
- 10% — types of credit used (installment, revolving, consumer finance)
- 10% — recent search for credit and/or amount of credit obtained recently

GOOD NEWS - Your Home's Value is Falling! (huh?)

2008-03-24T14:42:00.005-04:00

The rapid decline in housing values has been a bit shocking for many folks and has resulted in a lot of lost wealth (did we ever really have that money to begin with)? According to Standard and Poor's Case-Shiller index, home prices have dropped an average of 14% since March 2007 and more than 30-40% from the peak in some areas (viva Las Vegas condo living). But, there is a silver lining in all of this morass - your property taxes should be falling, too! In Florida, for example, property taxes have soared along with home prices. A $500,000 home in Tampa, Orlando or Miami, which is a 3-4 bedroom home in a reasonably nice area (hardly a mansion) will set you back some $10,000 in taxes per year (yes, you are renting your home from the government despite being told you are a "homeowner" - but that's another posting)! That same house would have cost you $200,000 and $4,000 per year in taxes a recently as 2002 and is now worth $400,000 or less (if you can find a buyer).

But, there is a catch! It's not the "true value" of your home that matters when it comes to taxes, it's the assessed value. This is where it gets tricky - places like California have wierd laws such as Proposition 13 and Proposition 8, which serve to confuse the heck out of homeowners. I have a friend that had to take his local property appraiser to court TWICE! in order to get his property taxes reduced. He won on both occasions, but it was not without a fight. In this time of strapped municipal budgets and a slowing economy, I would encourage you to do your homework and be sure that your property is assessed at the proper value since your government is more likely to leave your values too high. With prices expected to continue to fall over the next 1-2 years (especially in once hot markets like Florida, Las Vegas, California, etc.), now is a good time to make sure you aren't paying your local government too much of your hard-earned money.

If you'd like to learn more about your state's property tax system, go grab a six-pack and get hammered because you must be crazy...just kidding. You can visit http://www.assessor.com, which offers quite a bit of information on this topic as well as links to many local property appraiser offices. If your office is not on this page, head to www.P2P-Loans.com and use the Google search box at the bottom of the page. Enter "'your county name' property appraiser website" and you will most likely see your local site pop up.

I Need Money (Don't We All) - Read On To Learn How to Get Some...

2008-03-20T14:49:00.006-04:00

As you probably know by now, I tend to blog about things that I find curious, interesting or about P2P lending, Prosper, etc. Well, I recently came upon what I felt was a pretty useful collection of some of the best financial sites and tools on the web. So, naturally, I wanted to share it with my loyal fan base (thanks for reading, Mom!). Seriously, I've found that the best way to accumulate savings (and ultimately wealth) is to focus on living within your means and cutting a mean bargain when you make large purchases or other financial decisions (cars, homes, jobs, etc.). That's what I found so cool about these sites/tools.

The source of these links was CNN Money, but I added my own color commentary for your enjoyment.

Your financial life: Track it. Improve it.
New ways to keep tabs on your inflows and outflows can make a big difference to your bottom line. Did you know that saving $0.99 per day beginning when you are 25 years old will get you over $187,000 in cash when you retire (10% annual return assumed)!

Buying a new ride will never be the same
The new resources put you on more equal footing with car dealers. If you buy a car every 5 years (about average) and save $1,000 each time by using these tools, you will save over $100,000 between the ages of 25 and retirement (same 10% assumption)!

Where you can go for advice you can trust (really)
Before betting the farm on some hot new investment, head to these Web communities. Make sure you don't lose the nearly $300,000 I saved you above...=)

Create your own "network effect"
When searching for a new job, it's easier than ever to get on the inside track. Few things will be as important to your financial future as your job. Make sure you are paid what you are worth!

Get the lowest price on anything
Before you plunk down hard-earned cash, you can quickly see which stores are offering the best deals. Remember how much $0.99 per day is worth...?

Know your home's future
Is a neighborhood you're interested caught up in the housing bust? How do the schools rate? This information is a few clicks away.

Click your way to the right school
Get the latest stats and even take a virtual tour to find the college of your dreams. Don't waste your money on an average school. Do your homework (before and during school).