Thursday, May 17, 2007

DTI Uproar

There was some uproar on the lender side when Prosper changed the listings to lump all debt-to-income numbers great than 100% in a >100% category. John Witchel took to his blog to defend the decision.

There is no material difference between 2345235% DTI and 2345236%, agreed? So any variation of the statement "more granularity is always better" is simply false (except in some abstract tautological sense). What we're talking about is degrees of precision and at *some* cut off point between 20% and 2345235% it doesn't matter -- it's all the same. Our analysis led us to conclude based on Prosper's bidding history, historical underwriting criteria and the collective opinion of a whole lot of folks 'round here is that line is 100%.
Being inquisitive, I took to the spreadsheet to see if he was making sense. First, lets look at the number of loans issued and their respective DTIs. It's importing to note that these stats only work for loans where DTI was listed.

DTI RateNumber Of Loans
0% - 10%
10% - 20%
20% - 30%
30% - 40%
40% - 50%
50% - 60%
60% - 70%
70% - 80%
80% - 90%
90% - 100%
100% - Infinity

That's right. 273 loans out of 10588 (2.58%) would've had their listings affected. Slim picking to get upset about. Prosper gets a pass on this one in my book.

Tuesday, May 8, 2007

Comments On Rate Changes

Has Prosper been violating Texas law?

It clearly states in Chapter 302 that interest rates for personal loans are limited to a maximum of 10% and rates for business loans are limited to 18%. Chapter 305 addresses penalties and remedies for violations. There are some listed exceptions to the 10% rule but I'm not sure Prosper would fall under any of these.

I think Prosper is worried they have been violating the law, otherwise why have they changed the interest rate limits to match those listed in Chapter 302?

Chapter 305 states anyone being charged in excess of these rates must write to the lender and request relief before filing the case in court, where triple the damages can result.

Have I misinterpreted the statute, or are we looking at a potentially huge legal mess for Prosper?

Disclaimer: I have an outstanding Prosper loan (current in payments) at 18% and I reside in Texas.
Texas borrowers
Please contact the Texas Attorney General & if you have borrowed money at greater than 10% interest rate.You may get a rate reduction.
Hawaii Borrowers take a blow w/new rate cap, Messge from Malama Ohana (Reg required)
I've just been alerted to the impact of the new state rate cap for Hawaii that went into effect in the latest site update.

Hawaii's state cap is still 12% which means that our Borrowers have been able to list rates at 11% max in the past. But going forward, it appears that the state cap is now imposed as a max APR rate.

This means that the max rate we can offer lenders is now less than 11%. Those that are more math inclined can let me know if that rate is affected by the requested loan amount. But for illustrative purposes, a Borrower requesting 25k can only offer a max rate of 10.30% (regardless of credit grade).

Malama Ohana which is primarily a region-based Group of Island Borrowers will be challenged by this latest policy implementation. Thus, we are taking this opportunity to let our supporters be aware of this change.

Friday, May 4, 2007

More On Rate Changes

Ok, I've had time to compare the Google cached version of the state rates page versus the most recent and here's the goods

Old Rates
New Rates
$1k - $25k: 10.25%
$1k - $25k: 16%
$1k - $25k: 24%
$1k - $10k: 24%
$10k - $25k: 30%
$1k - $25k: $10.25%
$1k - $25k: 11.25% APR
$2.5k - $25k: 30%
$1k - $2.5k: 19.2%
$2.5k - $25k: 30%
$1k - $25k: 10.25%
$1k - $25k: 11.25% APR
$1k - $25k: 8.25%
$1k - $15k: 10.25% APR
$15k - $25k: 30%
$1k - $25k: 21%
$1k - $25k: 12%
$1k - $25k: 18%
$1k - $4k: 24% APR
$4k - $25k: 18% APR
$6k - $25k: 23%
$1k - $6k: 12% APR
$6k - $25k: 20% APR
$1k - $25k: 8%
$1k - $2.5k: 19.2%
$2.5k - $25k: 30%
$1k - $25k: 10%
$1k - $25k: 30%
(Business Only)
$1k - $25k: 30%
$1k - $7.5k: 30%
New Hampshire
$10k - $25k: 30%$1k - $10k: 10% APR
$10k - $25k: 30%
North Carolina
$1k - $25k: 16%

$1k - $25k: 30%
(Business Only)
North Dakota
$1k - $25k: 30%
$1k - $25k: 8%
$1k - $25k: 25% APR
$1k - $25k: 10.5%
$1k - $25k: 12.25% APR
$1k - $25k: 30%
$1k - $25k: 10% APR
(Business up to 18%)

Big winners for Lenders: Alaska, Arizona, California, Kentucky, Maine, Minnesota, Mississippi, New Hampshire, North Carolina, Ohio.

Big losers: Louisiana, Massachusetts, Missouri, North Dakota, Texas.

Texas is a big blow, but I think the increased opportunities in Ohio, California, Kentucky, and Minnesota will more than compensate. For the "business only" additions to some states, it's a net good, but an obscure one. Getting states like Mississippi and North Carolina above AA/A/B credit territory and restricting it to "business" lending is a net-gain for lenders as it allows C/D/E loans to get a fair shake at funding. Like it or not, these ratings put up a lot of volume and, for the C/D space anyway, compensate the lender for their troubles.

Wednesday, May 2, 2007

Prosper Upgrades

I just noticed on the Prosper forums that they did a system update on May 1. Several new features were announced. More of interest to me occurred on the lending side. Prosper revised their lending limits for various states. Lazy clipping below:

Alaska: the rate cap has increased from 10.25% to 16%.
Arizona: the rate cap on loans over $10,000 has increased from 24% to 30%.
Arkansas, Delaware and Tennessee: the rate cap has increased.
California: the minimum loan amount has been lowered from $2,550 to $1,000; loans of $1,000 to $2,550 have a 19.2% cap.
Kansas: the maximum loan amount has been decreased to $10,000.
Kentucky: the rate cap on loans over $15,000 has increased from 8.25% to 30%.
Maine: the rate cap on loans of $1,000 to $4,000 has increased from 18% to 24% APR.
Massachusetts: the minimum loan amount has been lowered from $6,000 to $1,000; loans of $1,000 to $6,000 have a 12% APR cap.
Minnesota: the rate cap has increased from 8% to 30%.
Mississippi: borrowing for personal use is no longer available. Borrowing for business or commercial purposes is permitted.
Missouri: the maximum loan amount has been decreased to $7,500.
New Hampshire: the minimum loan amount has been lowered from $10,001 to $1,000; loans of $1,000 to $10,000 have a 10% APR cap.
North Carolina: borrowing for personal use is no longer available. Borrowing for business or commercial purposes is permitted.
North Dakota: borrowing currently unavailable in this state although we expect to be able to offer loans again within the next couple of months (we are switching to a different type of license and need to allow time for paperwork to be filed and approved).
Ohio: the rate cap has increased from 8% to 25% APR.
Texas: Prosper has lowered the rate cap on loans for personal use from 30% to 10% APR, and has lowered the rate cap on loans for business use from 30% to 18%.
I'll chew over the details after I've had a chance to compare the deltas. I'd expect surges in borrowers from Ohio, Kentucky, and Minnesota. The big hit will be Texas, which had made up ~14.5% of Prosper's loan volume. Ouch