Wednesday, November 14, 2007

Borrowers Allowed To Refinance Loans After all

Prosper Shira has popped up and clarified that the previous interpretations were wrong and that borrowers can refinance their loans and that the agreement will be made more clear in the future. Points to Prosper for getting this one straightened out quickly.

Prosper’s Borrower Registration Agreement (BRA) now permits additional loans under certain circumstances, but also provides that “You may not obtain a Loan from the Prosper marketplace to pay off an existing Prosper Loan.” (BRA, Section 3.) This restriction is in the BRA to clarify that Prosper will not “net out” loan proceeds to borrowers seeking an additional loan. Prosper treats each loan separately, so that, for example, a borrower with a $5,000 existing Prosper loan seeking an $8,000 second Prosper loan will receive $8,000 in loan proceeds from Prosper, rather than $3,000. If the borrower wants to pay off the existing loan, it is up to them to initiate the prepayment of the existing loan.

We now recognize that the language of this restriction unduly interferes with borrowers seeking additional loans, so we will be deleting the “You may not obtain a Loan from the Prosper marketplace to pay off an existing Prosper Loan” restriction from the BRA language in a future release. In the meantime, on currently-active listings for additional loans, Prosper will waive this restriction and allow a borrower to request and obtain a second loan, even if the borrower stated that he or she was going to use the proceeds of the loan to pay off an existing Prosper loan.

In summary, borrowers and lenders can disregard the restriction, so that all listings for additional loans will be considered valid (subject to usual pre-funding review) whether or not the borrower indicates that the loan is to be used to pay off the borrower’s existing Prosper loan.

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