Prosper Lender-side Dynamics

There have been some shifting dynamics going on that I've noticed as, at best, some anecdotal experiences. They've altered the lending game a little bit, but are mostly signs of a more complex financial ecosystem.

First, cloud9, the group leader for Have Money - Will Bid, has taken to putting up large some of cash for listings about 2 days before they're due to expire. For example, this one, where he bids $3100 on a $4900 loan. He's bid at the original interest rate, so his large contribution rolls off as the last minute bidders and standing orders show up. The strategy is working to get his group's loans funded (the group ranges from 3 - 9 loans funded a day over the last few weeks), but his actions could be pushing possibly marginal loans into the funded category. Either way, it has the effect of pushing down interest rates - good for borrowers, mixed bag for lenders.

Second, I'm seeing larger bids showing up on the lending side, which is driving down interest rates. I am finding that it's not unusual to have multiple >$1000 bids on a listing. This specific listing has 1 $1250, 3 $1000, and 3 $500 bids. My suspicions are that there is more money flowing into Prosper for lending as it's become more credible and that there's been a flight to quality (i.e. non-HR loans) once the pioneers realized that a poor credit rating means something.

And finally, I've been having a lot more cancellations happen for listings that got 100% funded. For my current bidding bender, I've had 7 / 36 loans that completed get canceled. That's almost 20% and a black eye on the borrowers. Since I didn't see such a high rate previously, I'm caught trying to guess at the cause. Admittedly, I've moved into the D space, but either the quality of borrower has gone down, or Prosper has tightened up their review standards.

For the first two, if you have confidence in how you model the value of the loan and your underwriting standards, these new dynamics won't change much. It does lower the interest rate that loans will fetch, however, so this will push more loans below your bid price.

As to the cancellation rate, I'm disappointed that it's so high, but I'm finding some comfort in it. Presumably Prosper is making some effort to verify information and, in failing to do so, are preventing either fraudulent (why, of course I made $75k last year) or careless (did I forget to send in last years tax return?) borrowers from having their loans issued. This improves the quality of those loans that do fund.