Post-Prosper Days Interview In WSJ

This is the first post-Prosper Days interview I've seen with Chris Larsen (which is not to say that there havn't been others, just that I havn't seen them). He's picking up several themes that were rolled out at Prosper days and taking them around. This includes benevolent greed:

The Wall Street Journal: How would you describe your business?

Chris Larsen: An eBay for money and credit. Borrowers can make listings and any American with $50 or more are free to bid. It's combining community banking with the high finance of Wall Street -- bringing together George Bailey with a little Gordon Gekko.

And stricter enforcement on fraud (ahem):

WSJ: What steps has Prosper taken to address concerns about fraud or identity theft?

Mr. Larsen: We have a 100% fraud ID theft guarantee. If there's a fraudulent borrower who gets through our screens, we'll buy that loan back. Beyond that, we're also very aggressively prosecuting people and we did have our first conviction.

They're good themes for talking to the press, so expect to hear more of them in the future.

Prosper's February Lending Market Survey

Prosper has released their February lending market survey, and, once again, my great enjoyment is perusing Chris Larsen's take on the marketplace:

In February 2008, the percentage of prime loans funded on Prosper once again hit record levels, accounting for 43% of originations. At the same time, the percentage of prime listings on Prosper hit an all time high of just over 18% – a big jump from 9% in February 2007 and the previous high of 12% in December 2007 – while the percentage of sub prime listings hit an all time low of 33% and accounted for a mere 6% of funded loans.

Some other key metrics we watch closely include the type of listings that are created and funded in the Prosper marketplace. Very broadly, we look at listings that, based on historical Prosper loan performance data, can be made at an attractive risk-return tradeoff and those that can only be made at an unattractive risk-return tradeoff. By providing more robust information to lenders on the expected returns of listings, we have seen an increase in originations from attractive risk-return listings of over 200% and a decrease in originations from unattractive risk-return listings of 80% over the course of the last year.

As we discussed at our Prosper Days community conference, these dramatic and constructive shifts in the marketplace have been driven by three key factors: the pervasive credit crunch and sub prime mortgage meltdown; recently introduced performance data-driven tools and features; and, increasing mainstream acceptance of Prosper as an attractive funding source and asset class.

In other words, Chris Larsen is pulling an anti-Rodney Dangerfield. He thinks that Prosper is getting respect and becoming a viable alternative to banks. He also mentions that Prosper is gaining acceptance as an asset class, but this is not Prosper's primary problem - Prosper needs good borrowers.

Also of note what looks like solid indicators that the average loan rate has very poor correlation with the Fed Funds Rate. Chris was big on this concept back in September and October. The summary notes that the average "Prime" borrower rate was 10.32% in February 2008 while it was 9.23% in February 2007. Of course, the Fed Funds rate was 5.25% in February 2007 and it's floating around 3.0% now (get ready for that to change). The irony of this is that the falling Fed Funds rate will decrease Prosper's competitiveness. Banks tend to index their personal loan rates to something that derives off of the Fed Funds rate. If Prosper lenders do not follow suit, Prosper's loan rates will not drop to match the banks. Quite the sticky wicket.

Ninja Stealths Prosper, Prosper Responds

As Tom over a Prosper Lending Review has noted, a ninja has managed to spot a CSS vulnerability in Prosper's website. Prosper has provided an official reply to this:

We were contacted by this blogger about this vulnerability in Prosper’s site on February 15, 2008. Since we were contacted, we have made the code change that will eliminate this vulnerability; although it has not yet been rolled out (a release is expected this weekend). We appreciate the blogger’s help in finding these vulnerabilities.

XSS attacks can introduce significant security issues. We are investigating right now whether this kind of attack can actually do anything malicious on the Prosper site (many security mechanisms are already in place). Nonetheless, there are no known cases of hackers exploiting these vulnerabilities to date. As I mentioned, we are planning to release a fix shortly.

Discussions will probably continue on the prospers.org forum (reg required - sorry)...

Update: I'll note that it looks like the security hole is already closed, but that could be my version of Firefox.

Update 2: Revised Prosper response

Simple Receipe For 100% Funded Prosper Loan

As I had previously observed, Prosper seems to have more lenders chasing loans than there are borrowers to take the money for some classes of loans. One such class encompasses just about anything that's inside one of Prosper's standard portfolios. If a borrower wants to get funded, all they need to do is qualify for one of the portfolio slices (I count 21 slices spanning AA - D loans) and choose a starting interest rate above their appropriate slice's minimum bid rate, and they'll be 100% funded.

And this is without all the inconvenience of having to write a description, prepare a budget, have a plan for what to do with the money, or have much of an income. Someone could sign-up, verify their ID, write "I promese to paid it too u back", and they'll be fully funded. The only requirement is to have a sufficient credit score and be able to prove your income, should Prosper challenge the stated income. The second problem can be avoided by claiming 1 dollar a year in income a low income.

This is why I don't use the portfolio plans and why I think the portfolio plans will have degraded performance relative to the predicted performance. Manual bidders won't bid on the outliers who pull the slice's estimated return numbers down. Eventually, the statistics may even out, but it'll take more time, and the current portfolio users will get frustrated in the process. The size of this problem will be the guiding factor for how much of a performance delta can be expected.

Update: ZCommodore has noted that most slices have a DTI requirement, typically DTI <= 40% or DTI <= 70%. Income will have to be slightly more than $1, but $10k - $20k should do nicely. The downside to all this is that, at Prosper Days, Prosper indicated that they're less likely to verify small incomes because they find it very likely to be true.

Prosperous Land Survives One Year

Yup, it's been a year since I got started with this whole thing. I was naive then. I'm not much better now. So, crack your favorite beverage in celebration of my unwillingness to go away quietly.

Carnival Of P2P Lending #5

I'm hopping onto the Carnival of P2P Lending Bandwagon. This week it's hosted by The Amatureist Financial Journey

This week’s Carnival of Peer to Peer Lending is a little more intimate than the other super huge carnivals. Only six articles were submitted this week, and they all were ether background on lending, or lending news. Enjoy the reading, and let be sure to leave an note on the blog, letting them know how you found their article.

Introducing P2P Lending

One of the first questions you need to ask yourself is “are peer to peer loans guaranteed?” (Posted at Cash Money Life.)

Once you decide you want to lend, now what? Pinyo has the answer an in depth Lending Club and Prosper comparison (Posted at Moolanomy.)

Brip Blap discusses the specifics of Lending Club? (Posted at brip blap.)

P2P Lending News:

Mike noticed January, Prosper’s monthly loan totals have dropped to about $5.7 million., and discusses the impact of decreasing membership and Prospers new emphasis on portfolios. (Posted at Prosperous Land.)

Prosper’s decline isn’t surprising considering Lending Club loans just reached 8 figures. (Posted at Lazy Man and Money.)

Tom shares highlights from Prosper Days 2008: Keynote from CEO Chris Larsen (Posted at Prosper Lending Review.)