Groups on Prosper are in theory meant to help borrowers through education and lenders through lower default rates. I have explored these aspects of groups before: Why Would a Borrower Join a Group? and Why Would a Lender Join a Group?. In this post we will examine the group Two Millionaires.
Two Millionaires is actually two different groups, with the group leader of each being one of the original two millionaires. They claim completely altruistic motives including that they will bid on your loan to help get you funded. Their main claim is
Two Millionaires have been where you are - will help!
They are one of the largest groups on Prosper and so far have obtained over 2.25 million in loans for borrowers. As, group leaders they earn rewards. Fair enough.
They have a 5 star group rating which means, by definition, that their loans are less likely to default. (Personally, I am skeptical of what true meaning can be derived from a star rating, but …)
Prosper has a community payment feature. It allows any lender on a loan or a group leader (or member) to make a community payment on behalf of a borrower. The groups leaders (the two millionaires) use this feature to prop up their group rating. That is, they make community payments on behalf of their borrowers to keep them from technically defaulting.
The borrower still has their credit affected as the lates appear on their credit report, but the borrower never technically defaults. Since the borrower never technically defaults, Two Millionaires maintains a 5 star rating.
There are a lot of people on the forum that are upset at this behavior. I can’t figure out why. The practise of maintaining a 5 star group rating through community payments is not a winning (monetarily) strategy. In effect, Two Millionaires are paying for their star rating. So What? The lenders, should be happy with them as the lenders are getting their return. Of the money that Two Millionaires have in loans as lenders 93% is in loans from their own group.
SO what is the problem? I think it is because there are 3 possible options and most Prosper Lenders can’t see themselves ever doing any of them.
Option one, Two Millionaires doesn’t know what they are doing, but they want to maintain a 5 star rating so that when they figure it out they are in the best position. Option two, Two Millionaires is shooting an angle that no one else sees or understands. Option three, Two Millionaires is using their own money to try and help people in the best way they can think of — giving it to needed people. My vote is 1 or 3.
Personally, I don’t know what they are doing. I don’t think they should be vilified. If they put forth a loan that meets my lending criteria I will bid.
Here is their group page…
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I appreciate your interest in our Two Millionaires groups on Prosper.com.
Please feel free to email or private message your questions if you have any. As you know I cannot respond on the Prosper forums because every time I post a message there the whole thread is quickly hijacked by the small group of people (probably less than a dozen) who dominate the forums with thousands of messages and seem to have unitedly decided that it’s great entertainment to ridicule my wife and I and to try to damage our and our groups’ reputation.
I have never before seen such behavior in a business setting, and that from people who are supposedly gathered for the purpose of helping themselves and others prosper financially…
Please do not publish my email address, I have already received threatening emails from people who were emboldened by the ceaseless enmity evident in the writings of a few fellow group leaders and lenders.
A widely held view is that their group similar to a Ponzi scheme. One day, sooner or later, the revenues they derive from group fees will be less than the amount required to keep all their loans current via CPs. When that happens, there will be a huge implosion, because the people who bid on their listings because of their star rating will be screwed. At least something like that seems to be the prevailing wisdom on the Lender Forum.
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