I keep watching the housing market and sub-prime mess because it's an indicator of states that will be distressed and have higher odds default for loan issued to homeowners in those markets (and folks employed in home-related industries). If you're not content to just work with statistics, the Consumerist published a heatmap of the unfun housing situation. Look at all those states dressing up in a festive red for Christmas.
112233 over on prospers.org forums has noticed that the new Prosper forums are using Community Server 2007 as the technology base for the forums. I suspect that the moderation features were part of the considerations.
| Feature | Description |
| Moderated Discussions | All forum discussions support full moderation workflow. Forums can be individually configured for moderation or no moderation and, individual users can be configured for moderation or no moderation (a member with no moderation requirement in a moderated forum does not have his/her posts approved before they are published live). |
| Moderation tools | Moderators are given a number of tools from approval: deleting, editing, splitting topics into multiple discussions, joining multiple discussions into a single topic, and more. |
| Delegated Moderation | Moderation rights can be granted on a forum-by-forum basis so rights for moderation can be delegated to sets of community members. |
| Auditing | All moderation actions are stored with a moderation audit trail that allows community managers to review moderation actions. |
Remember those new features that Prosper unveiled at the Finvoate but didn't want to talk about? Well, the Finovate folks have finally published the video. Almost everything talked about has already been implemented (except the custom portfolios), so it's mostly interesting for historical purposes.
Yesterday I mentioned that I don't like the new Prosper forums but I hesitated to list my reasons. With just a day of mulling, it wasn't enough time to be thoughtful. After sleeping on it, I do not like it and find that the change is a big step backward, with the possibility of Prosper re-establishing parity over time if they stop acting authoritarian.
I will start with the good. I like that Prosper has linked the forum ID to the Prosper lender/borrower ID. I'm not a fan of sock puppets and prefer that someone stand behind their comments. Having accountability improves the quality of discourse. I also like having one login for the forums and Prosper proper, but the trade-off is that Prosper logs you out after 20 minutes. Unfortunately, my good list ends here.
Esthetically, I do not like the new forums. The font sizes are disproportionate, with really tiny text for the most important portions (I'm younger and work on a 21" monitor - if I'm complaining about text size, some folks are really having issues). The breadcrumb menus disappeared and it's no longer possible to tell who started a thread. I can gripe, but all of these are implementation details. Prosper bought or developed a new platform and it's technically feasible to clean it up if the desire is there.
Philosophically, I do not like the new forums. They have created a walled and heavily guarded city where unapproved conversation receives a swift cracked down much like a miniature version of China's internet. The new platform appears to have more advanced filtering and moderating features than the old forum. All postings currently require approval before they go live, although that requirement seems to go in fits and bursts, and has greatly reduced forum posting traffic. There is the implication that if posts are denied in moderation, the poster will be e-mailed. I doubt this is active since I, like many others, have submitted several posts over the last 24 hrs that seem silently killed. Prosper has also taken to squashing or rewriting URLs for non-Prosper links and text. Try to write a message or refer to prospers.org, for example, and it gets rewritten or squashed. This can be tested by composing a message and checking the preview as shown in the screen captures below first showing the composition view:
And the preview view:
With this level of monitoring and oversight, it should not be surprising that discussion of the forum's methods of preventing open dialog have been quickly and quietly deleted.
When caught in a Chinese finger trap, you will not get out by pulling harder. Prosper is attempting to build a community out of it's lenders and borrowers and yet, when battling against the flexibility and openness of the internet, try harder to control the content on their forums using increasingly aggressive techniques. They only get stuck further and their community suffers.
And this is why I do not like the new forums. I think the community has lost something tangible. If Prosper has gained something, they're not saying what it is, but I believe that when the collective community loses, so does Prosper. There is always the possibility that Prosper's philosophy toward the forums will change, but every indicator is that their attitude has been toward increasing control and increasing restrictions on conversations. And it is here where we're at an impasse.
Update: Fixed a few typos.
The "When Will Ads Appear Competition" is running and I'm still taking guesses.
I think it's likely that Prosper will place ads for some well meaning financial institution along with the Low Estimated Return warning (probably for CDs or high interest savings accounts). The reader whose guess is closest to the date the ads go live will get a copy of Banker To The Poor: Micro-lending and the Battle Against World Poverty.
So, here are the rules (for you legal-types).
Prosper has unveiled their new forums (see zcommodore here and here, or RateLadder here) and they've not been well received. It's very nice that they tied the forum IDs to the Prosper lender/borrower ID. Unfortunately, that's the best I can say. My overall opinion is that it has become a forum in name only. It has become a walled city - guards at every corner making sure folks don't run with scissors or talk about unmentionables.
In this, I think Tokyo Joe said it pretty well:
As long as the community here was organic, Prosper had a shot at being the eBay of loans (notice how nobody ever says that anymore). An open marketplace requires on open forum (which ought to jibe with Prosper's repeated insistences that they respect 'transparency')
By making the forums insular, they have pretty much removed the last vestige of the community Prosper has always pitched. They already had been removing the "community" part when they,(for better or worse but probably better) gutted groups.
The thing is, Prosper seems to have gone too far in the other direction, and all the angst spent by Prosper in dealing with the angst spent by lenders really never had to happen. Now that it has, I guess this is what's needed in order to present a fresh new face at PD2008. If I were boss, I probably would have done the same thing. Except that my boards would be way more stylin' (and functional) than these...
At any rate, I see this move as another step away from being a unique marketplace, and one step closer to simply being one P2P broker out of what eventually will be many.
I mourn the loss of the old forums, even if they hadn't been really good since the Sprring. I don't begrudge Prosper for doing this (I had even suggested it many times-- but not deleting the old forum)
One thing Prosper has never understood is that you can't force community; it either happens or it doesn't. They had one of the most devoted communites I've ever seen, and they let them get away...
Maybe they'll make this company work. But it's really just a company now.
Calculated Risk is one of my regular reading blogs for watching the sub-prime housing implosion. In the process, however, there's some commentary on lending that is relevant for Prosper lenders. Tanta had a long missive on what defines sub-prime, and I find it to be a good read for anyone lending on Prosper.
That said, what it’s about is just working through the complexity of the variations on three things that have been the core of mortgage underwriting since roughly the dawn of time: the three Cs, or Credit, Capacity, and Collateral. Does the borrower’s history establish creditworthiness, or the willingness to repay debt? Does the borrower’s current income and expense situation (and likely future prospects) establish the capacity or ability to repay the debt? Does the house itself, the collateral for the loan, have sufficient value and marketability to protect the lender in the event that the debt is not repaid?
There is no New Paradigm, there was no New Paradigm, there is not going to be a New Paradigm. The Cs are the Cs. What we “innovated” was our willingness to believe that we had established the Cs with indirect or superficial measures (that are, not coincidentally, cheap and fast compared to direct measures).
Tastes just like linkfest but with half the calories [*]
zcommodore: Loan size going up
I noticed that, while the number of loans being made had appeared to be going down, the size of loans is up significantly this month. (Note this graph shows only the first half of November.)I suspect the reasons for this are that people with very good credit, like the ones I pointed out yesterday that were getting funded more now, usually ask for and receive much larger loan sizes. Also, if you have good credit, it is not common for you to ask for a small loan like $1-3K. You would simply use an existing short-term line of credit rather than pay the 1% origination fee to Prosper unless you are simply "trying out the borrowing side".
These portfolio plans are based on the slices of data… Which brings me to the ugly. There are almost certainly thin data issues . Readjustments can help, but Heisenberg rules this arena.
With the ugly out of the way on to the 1st good. Newbie small lenders. Over and over again I have watched newbie lenders come and go. They come in bid on 29% HR, get killed in defaults and leave. I would imagine that newbies will now come in and signup up for a portfolio plan. Viola! No more instant HR burnout.
As I browsed Prosper loans, I was surprised at the number of community members who would like to use their good credit score to borrow money in order to reinvest the money in other P2P loans. This is called leverage and by definition it does increase risk. Is it a strategy that is likely to payoff?
As the credit crunch worsens, some financial planners say more people are turning to their families for help. That is spurring further growth of a small group of person-to-person lending websites, which make it possible to borrow money or lend to family members, friends, or strangers without having to manage the uncomfortable details of setting terms and collecting loan payments. The most popular of these are Virgin Money, Prosper.com, and Lending Club, but other such lending sites are on the way - most notably Zopa.com, a successful UK lending marketplace that for some time has promised to launch in the United States this year, and soon-to-be launched sites such as GlobeFunder.com, Loanio, and Community Lend (in Canada).
My family and I have safely returned to
I return from a peaceful Thanksgiving vacation all psyched up to see what new calamities have struck Prosper, and the forums are down:
This forum has been taken off line in anticipation of the launch of a new forum next week. We apologize for any inconvenience this may cause.
We look forward to seeing you on the new forums.
Sincerely,
Prosper
In the spirit of Thanksgiving, it's time for a warm fuzzy and someone giving thanks. It's good to remember that there are real people borrowing on Prosper and they are trying to better themselves. Here's one borrower's story:
I would like to give a little update on what happened in the past few months since I am not that much around in the forums anymore.
Naturally my credit score has improved immensely and I’m still paying off my remaining debts as best as I can.
I also received more available credit on my remaining credit cards which I am not using and this improved my score as well.
I did have some major expenses in the meantime, which depleted most of my savings, but I did not need to accumulate new debts !
To explain this a little further: due to my Prosper loan and the debt consolidation with it, I was able to save enough money
to pay for a new computer I needed, a new printer which broke, and I was also able to pay for
my daughter’s vacation with my family in Germany for the long summer break.
After she came back she needed new clothes for school, school supply and also a birthday present.
Guess the expenses never end, but this too was paid from money I had put away, without incurring new debt.
I was approved for a decent mortgage rate (6.5% from Wells Fargo) with a 100% financing and was on my way to purchase my first own house through a bankruptcy short sale, but after 3 months of waiting for the bank to finish their paperwork I withdrew my offer.
I changed my mind about the house purchase for now because of the still too unstable real estate market.
Some of you may remember that I took on a second job to improve my monthly income, and I am still working at both jobs!
Now, with all the miles I’m driving to commute between those 2 jobs, I actually needed to make the decision of purchasing
a new (used) car.
I think I got a great deal on a 7 months old car and was able to get this 100% financed through Riverside International Bank at 11.5%.
For the car interested readers: I found a 2007 Ford Fusion with 14.000 miles for $13.500 and still under fully factory warranty.
Some of you may think this is not such a great deal, but regarding my situation and where I was standing when I was relisting
and relisting here for a loan a few months back, I think I did a pretty good job at improving my financial standings.
As stated above, this is just another little update and a BIG THANK YOU to all my lenders
and the few friends I actually made here on this side!
For those vindictive lenders, this is a chance to savor the schadenfreude (not that there are any in the Prosper lending community who would be vindictive. No, none at all). For borrowers, this is another indicator that bad debt can haunt you for a long time to come.
In a financial version of Night of the Living Dead, debts forgiven by bankruptcy courts are springing back to life to haunt consumers. Fueling these miniature horror stories is an unlikely market in which seemingly extinguished debts are avidly bought and sold.
The case of Van Rathavongsa illustrates how canceled debts regain vitality. The Raleigh (N.C.) factory worker pulled himself out from beneath a mountain of bills by means of a bankruptcy proceeding that wrapped up in 2002. One of the debts the judge canceled, or "discharged," was $9,523 Rathavongsa owed to Capital One Financial, the big credit-card company. But Capital One continued to report the factory worker's discharged debt to credit bureaus as a live balance, according to documents filed in U.S. Bankruptcy Court in Raleigh.
I'm going to be taking what I think is a well earned vacation over the next several days. The downside is that the relatives we're staying with are not quite so tech savvy so my internet access may be quite spotty. All that translates into slow motion on Prosperous Land if I'm truly staying at an internet deficient household.
If you're missing your Prosper fix, try some of these folks out:
RateLadder beat me to this (that'll teach me to being Thanksgiving sloth-hood early), but you're missing the rest of the story.
Mr Deluxe posted to the forums that while late on his loan, he had received a letter from Prosper:
OK- I will tell. My loan was recently under 30 days late (now current) I received several emails from Prosper, but the letter I got in today’s mail was very effective.
It was a letter from Prosper reminding me that 155 people contributed to my loan and they are not ‘big banks’ or ‘Warren Buffett’. The letter went on to say that lenders are people too, with jobs, families, bills, etc. and asked ‘how do you think they feel now that you are late.'
It was very well written and should open the eyes of borrowers that intentionally are late or default.
However, it was an important lesson for me to realize that many of these people really do want to make good on their loans. Many are hard-working, good people like you and me, who have simply been backed into a corner by unfortunate circumstances.
The Prosper TOS says we can't aggressively try to collect on these loans. But there's nothing that says we can't make friends with a few late borrowers. So why not reach out to a few late borrowers and introduce yourself? Tell them about your work, family, etc. and show that you are a real person. Explain why you loan money on Prosper. Offer to answer questions about Prosper and remind them about the points I mentioned above (i.e. ability to make a small payment directly through the Prosper site, most of which will flow through to the lenders).
2. When you talk about transparency, how transparent are you willing to go? When will the collections process be more transparent? How will we know when the collections process is more transparent? (This is not a trick question, or a joke. While your stated goal is to make collections more transparent, what I've seen in my nine months as a lender has been a move away from transparency. Will you or Prosper post changes in collection procedures, and what they mean in terms of lenders' bottom lines?)
...
Here are the things I am working on right now:
A. Increased agency oversight – I have already visited both locations of PennCro and have implemented a bi-monthly strategy call. I’m expecting an increase in collections simply from the increased focus on our current agency.
B. I plan to implement a “pilot” legal program during the month of October (meaning first law suits should be filed in November).
C. I am looking to augment current phone channel collection efforts with some off-line collection letters.
D. I have been interviewing agencies as potential replacements to our current agencies, focusing on smaller agencies that I believe will give us more attention.
E. I am evaluating the pros and cons of bringing the collections activities in house. I expect to reach a decision on this by the end of November.
...
16. What's Doug Fuller going to do about collections at Prosper? As far as I can tell, these are the items (after sifting through the hyperbole etc): widen the time span of collection calls, stop calling disconnected numbers, call more often, tell callers they're hurting "average Joes", scare late borrowers with lawsuits, find a different collection agency or bring the operation in-house if the above items aren't accomplished.
That’s a pretty good summary of my plan.
Don't forget your hat!
Finance Is Personal tries to figure out if Prosper is competitive with other investments:
Prosper.com might not be able to beat out a typical mutual fund in terms of investment, but it is several steps ahead of a savings account at an online bank such as ING Direct or HSBC Direct. You’ll only earn around 4.5% APY on your money at these places, but you know that your money is guaranteed. If you invest in conservative loans on Propser.com, you can still almost get twice that after factoring in fees and lost funds due to non-payment and have a relatively secure investment.
The only problem with that is that the money you put in Prosper.com is not liquid.
I've noticed a lot of the requests for 2nd loans don't seem to be going anywhere. Many of the borrowers are people who only received their first loan due to "pump & dump" support from their group leaders. Now they may be current on their existing loan and want to come back for more but can't seem to get funded since group leaders have no incentive to pump & dump anymore. I wonder if many of these borrowers even understand what is going on such that they are having trouble getting funded.
In concluding, Prosper has proposed something new for the capital markets. If the SEC approves the structure, it could prove to be the leading edge in a new approach to syndicating debt, even if it’s not part of a peer-to-peer process like Prosper.
High inquiries can push your late rate up more than low inquiry E and HR loans!
My theory on this is that when Prosper used to show the historical Experian default rates, they stated that the default rates are for borrowers of bank loan products. That means that all of the borrowers in the default rate table must have been approved by a Bank. Prosper borrowers may or may not be approved by a Bank. Therefore, as a group, they are higher risk than the Experian default rates.
I’ve been fascinated with Prosper.com since its inception. I wanted to get in and lend money to borrowers but I decided that a wait and see approach would be best. In that time, I’ve kept an eye on Prosper statistics, PF Bloggers results and the general commenting about it.
I’m beginning to wonder if Prosper will be around 18 months from now in its current form and ownership. A few items of concern can be visually seen at LendingStats. The growth has fallen off the cliff - literally!
Spotted on the forums and via RateLadder. This a continuation of the new collections agency saga where Prosper might've been violating the lender agreement. A mere trifle, really, and hardly worth mentioning.
Prosper has followed up on criticisms and notified lenders that their loans had become test cases. I've always been a fan of doing the Right Thing (TM) even if the average lender wouldn't have been bothered, and I'm quite pleased with Prosper for sending out the e-mail.
Prosper is committed to improving our collections on delinquent loans. To do this, we plan to test collection alternatives to provide lenders with better collections rates across all loan categories.
As a result, we have engaged a new collection agency and we are running a limited test of loans through this agency. One or more loans you own have been selected to be included in this test. To execute the test, we had to move the selected loans from your designated collection agency to the new test agency. We believe this test will ultimately yield better recoveries and we would appreciate your cooperation. The new agency will take steps at least as forceful as your original collection agency. There is no additional cost to lenders whose loans are included in the test.
Tests of this nature are not specifically mentioned in the Lender Registration Agreement, but we hope you will afford us the flexibility and opportunity to innovate in the collection area, to conduct a test that we believe will result in better collection results. If you object to your loan being included in the collection improvement test, please let us know by Tuesday, November 20, 2007, by sending an email to support@prosper.com. We will remove the loan from the test if there are serious objections, and return it to the original collection agency for normal collection.
Thank you very much.
Sincerely,
Prosper
What good is having a blog if I can't use it to remember stuff. I ran across Yoram Bauman about 6 months ago. It popped up again on Get Rich Slowly this week right when I needed a good (though nerdy) laugh. So, go laugh:
I know what you're thinking. "That's great and all Mike, but this is a Prosper blog". Fine. Be that way.
Prosper passed $100M in loans. They need a cake, and you get to go read about it:
RateLadder beat me to the punch, but why waste those precious electrons...
Prosper Days 2008 is Prosper's lender conference happening in late February (yes, in 2008). Prosper Shira just made a quick posting to the forums that Freakonomics co-author Stephen Dubner will be doing Tuesday's keynote speech.
We are pleased to announce that Stephen Dubner, co-Author of Freakonomics, will be our keynote speaker at Prosper Days..
For an updated Prosper Days schedule, please click here.
Following up on last month's post documenting how Prosper makes money, I plan to keep looking at their monthly income monthly to see how they're progressing as a business. This will be the last time I can use my simplified method for accounting for servicing income. Prosper adjusted the servicing charge for A and AA loans in their latest large feature upgrade (1% and 0%, respectively), so I'll be getting more sophisticated in my analysis for December. Since this occurred at the very end of October (30th to be exact), I'm punting on thinking hard until the December update.
Onto October, then. First, origination income:
| Credit Grade | Loans Originated | Borrower Fee | Income |
| AA | $984,695 | 1.0% | $9,847 |
| A | $1,374,538 | 1.0% | $13,745 |
| B | $1,137,145 | 1.0% | $11,371 |
| C | $1,647,101 | 1.0% | $16,471 |
| D | $796,758 | 1.0% | $7,968 |
| E | $235,999 | 2.0% | $4,720 |
| HR | $198,252 | 2.0% | $3,965 |
| Total | $68,087 |
| Credit Grade | Outstanding Loans | Lender Fee | Income |
| AA | $9,843,853 | 0.5%* | $4,102 |
| A | $10,878,195 | 0.5%* | $4,533 |
| B | $13,877,583 | 1.0% | $11,565 |
| C | $15,328,463 | 1.0% | $12,774 |
| D | $12,046,296 | 1.0% | $10,039 |
| E | $5,967,380 | 1.0% | $4,973 |
| HR | $4,122,801 | 1.0% | $3,436 |
| Total | $46,317 |
| October | September | Delta | |
| Origination Income | $68,088 | $58,463 | +16.5% |
| Servicing Income | $51,419 | $49,137 | +4.6% |
| Total | $119,507 | $107,601 | +11.1% |
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.
As had been previously noted, Prosper is testing out a new collections agency. The fly in the ointment is that HollowOak spotted that it's kinda, sorta, maybe against the lender registration agreement.
I know this is a touchy subject area, but are Prosper (again) violating the lender agreement? Lenders signed up on a loan on condition that it be handed over to a named agency as laid down in the site policies and T&Cs. can Prosper now unilaterally assign the loan to a different agency?
When a payment becomes thirty (30) days past due, Prosper will assign the loan account to the collection agency you selected at the time of registration. If there are multiple Lenders on a loan to a borrower, and one or more of the other Lenders selects a collection agency different from the one you selected, you agree that Prosper will use the selected collection agency common to the Lender or Lenders who have the greatest ownership interest in the loan. In the event of a tie among the Lenders as to their choice of a collection agency, the agency will be selected at random by Prosper.
Prosper has released their October market survey. This one has produced a great wealth of topics to explore, and I find that I have some contrasting opinions as well as insights with Chris Larson's market commentary. Now, where to begin.
While Prosper continues to remain on a rapid growth trajectory as indicated by year-to-date funded loan volume, which is up $48 million or 233% compared to year-to-date loan volume at this time last year, the percentage of loans going to subprime borrowers continues to decline.
The bad news is that some subprime borrowers, such as young members of the American military who have not had an opportunity to build up a credit history or are caught in payday loan circles, may not be receiving a worthy chance of funding. Perhaps demand for these types of subprime loans will increase as a result of raising the rate cap on Prosper from 29% to 36%.
Although borrower rates and lender rates of return on Prosper are not formally tied to moves by the Fed, the dynamics of the broader credit markets, which have led to a string of rate cuts, clearly seem to be having an impact on the Prosper marketplace. For example, in October average borrower rates for all Prosper prime loans and Prosper Prime Select loans were 12.27% and 9.50%, respectively; down 0.39% and 0.65%, respectively, since the Fed rate cuts.
I have no confirmation other than an individual forum post, but it sounds like Prosper's trying out some new collections technique. Is this the legal field test that Doug Fuller referred to in his Q & A? Ahh, endless, unconfirmed speculation. From the forums:
I decided to look at some of my 4+ lates and I see where it says
Collection agency:"NEW AGENCY TEST".
Then it says something like 0.00 collected after 5 days on a 4+ late.
So does that mean The new Director of Operations is trying different collections agencies?
What I’m doing at this point is putting together a pilot legal program. I have identified a group of loans which have already defaulted or are on the verge of default. These loans will be included in our next debt sale. In order to gain the legal standing needed, I’m proposing that Prosper buy these loans for the same amount that the debt buyer would and use these as an initial test.
My thought is to do this with a group of loans from borrowers who are all in California, so we only have to deal with one state’s court system. I have a meeting scheduled for Wednesday with the managing partner of what I consider to be the best collections law firm in California. My hope is that we can formally place these loans with the law firm this month and have the first suits filed in November.
About two weeks ago, traveler505 noticed that Prosper hasn't distributing funds from borrower payments properly (or in compliance with their loan handling agreement). Prosper Shira has followed up with the explanation.
Thank you for unearthing this error: a classic example of how the Prosper community helps us improve the site and our operations on an ongoing basis. You are correct: there is a discrepancy between our legal agreements and the way we collect servicing fees.
As compensation for its loan servicing activities, Prosper currently charges Lenders a servicing fee. Prosper’s servicing fee is deducted from monthly payments as they are received. Prosper collects its servicing fee on all payments received on loans, regardless of when the payments are received, and regardless of the amount of the payment received. This is the way loan servicing fees are customarily charged on consumer credit transactions, and it is the way Prosper has always collected its servicing fee.
You brought to our attention that certain language in the Lender Registration Agreement (LRA) was inconsistent with the manner in which Prosper has been collecting its servicing fee on loans. The following language appeared in the Servicing Compensation paragraph of Section 5 of the LRA:
“With respect to each Note you purchase from Prosper, the Servicing Fee is payable only upon Prosper’s receipt of the full monthly payment from the borrower on such loan no later than thirty (30) days after the due date of the payment.”
This language does not reflect Prosper’s actual method of charging loan servicing fees, because Prosper collects its servicing fee on payments without regard to the amount and timing of the payment received. For example, servicing fees are charged on a full or partial loan payment received more than 30 days following the due date of a payment.
The discrepancy between this language in the LRA and Prosper’s actual practice was an unintended drafting error on Prosper’s part, and is being corrected in the LRA. Going forward, loan servicing fees will continue to be charged on all payments received on promissory notes, regardless of the amount and timing of the payment received. However, we will give appropriate credits to lenders who are impacted by this error.
Lenders who were charged servicing fees in a manner inconsistent with the language quoted above will receive an appropriate credit in their funding account. Prosper is reviewing its loan records in order to determine which lenders are affected by the error, and the amount of the credit. We apologize for this inadvertent error and appreciate your patience in allowing us to rectify it.
Thank you again for helping us improve operations, Traveler505, we appreciate your diligence.
The Prosper forums can turn into an echo chamber with some very angry folks returning to the same arguments again and again. I want to add a difference perspective on the forum wars from one of my favorite forum posters, rgf.
Just another whining poster that thinks because they weren't successful, no one can be, and the reason they weren't successful was prosper's fault, and not their own. And thinks they can run the business better than Prosper.
Then, like a bunch of the other whiners here, many posting above, they think their mission now is to warn everyone else not to be a lender here. They all have that same arrogant way of thinking; basically, "I'm REAL smart, and if can't succeed here, it's impossible! And it's not my fault, it's prosper's fault. So no one else should try, if I can't do it, it can't be done." Such arrogance.
Unfortunately, that's what these forums have become. Whining ex-lenders that weren't successful, who I assume will stay here ranting their vitriol until they're able to withraw their last dollar.
Unfortunately, successful lenders don't seem to come here, perhaps because they don't feel the need or feel it's not in their best interest to help others.
Well, I started out slow, like anyone should when venturing their capital into a new endeavor. I tried as hard as I could to make intelligent decisions, and not to underestimate how difficult it may be to make this work. Now, after doing this over a year, and 44 loans, I have zero defaults, and zero delinquencies. I don't have a huge amount invested (around $2k) but there is no way I was going to dump a bunch of cash here until I'm sure this can work. I'm still not convinced, if I'm still around 10% after 2.5-3 years I'll be confident. Not 100% convinced, but confident. I admit I have the advantage of being an real life lender at a bank, so I do this for a living.
But I'm earning 12%. It is possible, I think. It just didn't turn out to be easy.
Right after buying linkfest the t-shirt and linkfest the flame thrower, check out the latest from around the web (and if you have no clue what I'm referring too, catch up on your Mel Brooks movies):
Hyve Up has done a video interview with Chris Larsen. My translation of CEO speak: "Banks are the man. Damn the man! We're taking him down." Nothing about saving the Empire, though.
zcommodore has been on a posting streak:
I'm happy to announce I have joined the blogging team at Lending Club. Read my first post here
I thought it would be interesting to take a look at the word choice in the Description of funded vs. non-funded listings to see if there is anything significant. It could possibly reveal trigger words that appeal to lenders (or repulse them). To obtain this word ranking, I queried all the completed and expired listings from 2/1/06 to 11/2/07 and counted the number of times each word appears. Words that were less than 5 characters were filtered out so that we can see some more interesting results.
I have been lending on Prosper for about a year. I have closed on 146 loans, and 5 are late at this time.
If you don't have any common sense, then you can lose a lot of money. That being said, I have made more than 10% over the past year, and as lenders scrutinize the borrowers a bit more it is getting tougher for loans to get filled, therefore lower default rates.
You have to be willing to sift through a lot of crap - and mix up your portfolio with some AA, A, and B credit ratings borrowers to diversify.
But, this has proven to be a great place to keep my housing fund until the housing market returns to some semblance of reality - in about 3 years, which is the length of these loans!
IT IS like eBay for money.If you're near a computer, and have got the fidgets, try punching www.prosper.com into your browser.
You will see a lot of Americans asking for money. No, it is not a chatroom for e-beggars. Nor a system of cyber-busking, with tech wizards wheeling out tricks in exchange for electronic shrapnel.
Prosper has unveiled their new estimated loss calculation for loans. Notice those disclaimers down along the bottom. Yeah, me neither. Well, there's an interesting note.
If you get out the magnifying glass, you'll read:
1Estimated average annualized loss rate based on the historical performance of Prosper loans for borrowers meeting the estimated loss criteria, originated between Jun-01-2006 and Aug-31-2007, measured as of Sep-30-2007. Actual performance may differ from estimated performance due to many reasons, for example, worsening economic conditions.
Federal Reserve Chairman Ben Bernanke said Thursday that a host of economic problems, including the severe housing slump, will cause business growth to slow noticeably in coming months.
Bernanke told Congress' Joint Economic Committee that the central bank is watching developments closely, but gave no signal that it's prepared at the current time to cut interest rates even further.
I have always been perplexed by the relationship that Prosper has maintained with it's lending community. Just since I've been paying attention, there have been the equivalent of online riots in the Prosper forums over group rewards, personal information, blenders (borrower-lenders), confirmed (yet unconfirmed) features, and information hiding. Some have consisted of lenders trying desperately to have Prosper recognize a problem in the marketplace (group rewards), while others have been because Prosper has made seemingly arbitrary changes to the system without explanation.
I am convinced that if you were to ask any Prosper employee whether having a strong community was good for Prosper, they'd agree. Yet, at the same time, when Prosper changed the system to hide old listings, Prosper Andrew defended it by saying:
We don't expect that you're going to like this change. But like a lot of changes that we have made to the site, we made the choice to protect borrowers' privacy.
zcommodore was the first to spot that expired listings are back. This fix probably went in with a host of other hot fixes last night. However, folks need to be logged into a Prosper account to view expired listings. This is obviously a nod to Prosper's privacy concerns. I see this as a reasonable limitation since it still lets lenders observe past listings and use them educationally to improve their bidding. Kudos to Prosper for listening to the community and pushing it out quickly.
There will be some that will say 9 days was too long a time to wait for the fix. They need to get over it. Prosper is still a small business and cannot drop everything to change one feature when the consequences for a few days of delay is very small. They listened to the lenders on this one and implemented a fix in a reasonable time frame. However, I do not understanding why Prosper didn't have someone (Prosper Andrew) post to the forums that the change was coming. Assuming that bamalucky would spread the word far and wide is not an effective communications method.
Update: Prosper's official comment on the reverse of fortunes
Prosper changed lenders’ access to records of prior listings last night.
Allowing members access to old listings is an example of Prosper’s ongoing efforts to balance transparency with privacy in the marketplace. Our original objective was to restrict access to non-active listings if there was no need to see them. However, many of you indicated that lenders use old listing data to formulate ongoing listing strategies. As a result, we changed the access to past listings so lenders can conduct research for future bidding decisions.
The changes include the following:
- Borrowers can access all their past listings
- Registered lenders have access to all past listings
- Potential borrowers and lenders have access to only current, active listings. This will allow registered lenders to conduct necessary research while ensuring borrower privacy.
- All of these changes are reflected in the “Listing not available” page
Thank you for your feedback. We hope this makes a positive impact on your lending strategies.
I've noticed that when I search for listings to bid on, the listing's status seem to differ between the search results listing and the individual listing view. One of my many individual searches turned up this listing:
C grade, low amount (<$10k). 97% funded at 18%. Ok, I'm mildly interested. I click on the listing however and discover this:
Woah now. It's fully funded, at 16%, and has been for 3 or 4 days. These screenshots were taken yesterday afternoon. Today, it's down to 14%, but the search results listing still shows it at 18% interest, 97% funded as of about 9 AM. This isn't the only listing that I've had it happen on either.
I suspect that this is a side effect of the last big upgrade. It would be nice if it was corrected, however.
bamalucky has it that the ability to view old listings will be restored in some form in the next week or two:
Tom Underdown just called me to tell me that old listings would be back in the next hot fix.
ETA:By next week
Ira01 has become the latest crackdown victim (or prospers.org). Ira01 was vocal on the forums and provided many insights to how the marketplace works. His Prosper lending account has been suspended and he's been booted out of the forums. Ira has been a strong voice in the forums and community. Whether this was fair or not, you be the judge.
Prosper's position:
It has come to Prosper's attention that you sent a number of unsolicited emails to Prosper Lenders. This behavior is an unacceptable violation of Prosper's Site Policies, which prohibits sending unsolicited spam to Prosper members. Prosper has suspended your Prosper registration indefinitely, effective immediately.
Suspension of your Prosper registration precludes further participation in the Prosper marketplace as a borrower, lender, group leader, or forum participant during the period of suspension. All active loans held by you shall remain in full force and effect in accordance with their terms, and will continue to be serviced by Prosper in accordance with the terms of the Lender Registration Agreement.
You will continue to have online access to your monthly statements, as well as the ability to transfer funds from your Prosper account, by logging on to the Prosper website with your username and password. However, during the period of suspension you will not be able to send messages to other Prosper members.
The messages that I sent (which I in no way attempted to hide from you, even posting about them on your forums), were NOT a violation of your Policies. Before sending each PM, your system stated that sending "unsolicited COMMERCIAL" spam was a violation. My messages were not commercial in nature. Further, your policy regarding contacting other members says that it is a violation to send messages NOT related to borrowing, lending, or leading a group. My messages all related to lending.
Furthermore, my messages were exactly what the messaging system you provide is intended for -- they were all polite, did not express any point of view about Prosper, and simply pointed out to lenders the existence of Prosper's OWN forum. Please explain exactly how that violated ANY policy of Prosper's? Lenders (like every Prosper member) have the ability to choose whether or not to receive PM's from other lenders, and everyone I sent a PM to had, by definition, specifically chosen to accept such messages, thereby making my messages "solicited" (or at least equally as solicited as any other PM sent through Prosper's system that is not a reply to another message). Please explain exactly why my account was suspended but no one else's was for sending a PM to another lender.
Furthermore, I received replies to MANY of the PM's I sent out. I believe without a single exception, EVERY LENDER thanked me for my message. NOT ONE expressed ANY displeasure that I had emailed them. This makes your unsupported action even more laughable.
Oh fiddle-faddle. As Lend2 has pointed out, my method of tracking Prosper collections is a bit flawed. Prosper has confirmed that, indeed, loans don't just go current when payments are made. From deep within the inner workings of Prosper:
For the raw “Delinquency Activity” data he is looking at I think he’s assuming a loan has fewer options about how it can change state, aging or curing than it does. 3 month late loans can stay 3 months late for more than a month if a payment comes in before it rolls to 4+ months late. Loans that are 4+ months late can receive payments that partially offset the past due total resulting in the loan being becoming 3 months late. 2 month old loans can become 3 months late. Some payments can fail a couple weeks after they’re made so some loans that are 1 month late might jump to 3 months late…
With the last feature upgrade, Prosper has added a ROI calculator that will estimate the average return for certain classes of loans. It helps lenders to estimate how much risk they're taking on, and prevents people from complaining that they didn't know what they were getting into. And, if you proceed anyway, Prosper has added a big warning that you're doing something that is not recommended.
Wasn't that nice of them to let me know that a 3-year CD would do better than this loan?
And now for the competition part. I think it's likely that Prosper will place ads for some well meaning financial institution along with this Low Estimated Return warning (probably for CDs or high interest savings accounts). The reader whose guess is closest to the date the ads go live will get a copy of Banker To The Poor: Micro-lending and the Battle Against World Poverty.
So, here are the rules (for you legal-types).
RateLadder looks at thin slices of loans:
However, I would caution lender to think for themselves a little bit. Speaking as one who has analyzed a bunch of Prosper data if you sliced the current loan data into 54 equal segments (see graph at the bottom of the page) you start to get some mighty fine segments. There are currently 15,832 loans on Prosper. 15,832 / 54 = 293 per segment assuming equal size buckets. I haven’t looked but I am sure that not all buckets are of equal size. Even with even distribution this is cutting it close.
P2p lending services can tolerate only a low level of identity theft cases. The innovative approach of p2p lending requires that lenders trust the concept and the service. Fraud cases endanger that trust.
Yesterday, I had one of those bitter sweet moments. Sweet in that a loan I had been writing off in my mind as bad was repurchased by Prosper for the full principal balance. Bitter, because I really believe I am helping people with these loans and yet someone would take advantage and try to steal my hard earned money.
If someone with a lot of cash wanted to invest on Prosper there are ways to automate it and reduce the workload relative to what I was doing. For instance, you can set up bidding agents that will bid on any loans with certain characteristics. My hunch is that lenders who are continually refining their agents and doing rigorous analysis of the data on the site probably can make money without plodding through thousands of listings. If you can't be that sophisticated about it, I wouldn't recommend lending on Prosper unless you think it's fun.
IF THE banks won’t lend you money, might a stranger? Probably not, to judge by recent data from Prosper, an American peer-to-peer lending marketplace (a place where people can lend their own money to other people).The website, which lets lenders bid against each other on the interest rates they are prepared to offer to specific borrowers, has seen an increase in demand from subprime borrowers as access to credit has tightened. But lenders have responded in turn.
With tried-and-true sources of capital drying up, entrepreneurs need to get creative about finding financing. If lenders turn you down, consider one of the new Web sites that link entrepreneurs and individuals with cash, such as prosper.com or lendingclub.com.
As I mentioned in a previous blog post, one way to gauge the effectiveness of collections is to look at how delinquent age. If a loan is one month late, in a month it will either be brought current or it will be two months late. From this, we can get near real-time updates on whether Prosper's attempts to improve collections are working.
And on that note, we now have Nov 1 statistics to add to the table.
| Month Initially Late | Initially Late (1 month late) | 1 Month Later (2 months late) | 2 Months Later (3 months late) | Repair Rate |
| January 07 | 95 | 83 | 82 | 13.68% |
| February 07 | 101 | 90 | 90 | 10.89% |
| March 07 | 108 | 91 | 89 | 17.59% |
| April 07 | 130 | 119 | 119 | 8.46% |
| May 07 | 193 | 178 | 171 | 11.40% |
| June 07 | 203 | 195 | 186 | 8.37% |
| July 07 | 224 | 194 | 187 | 16.52% |
| August 07 | 250 | 232 | 227 | 9.20% |
| Sept 07 | 259 | 229 | 234 | 9.65% |
| October 07 | 313 | 264 | ? | ? |
| November 07 | 324 | ? | ? | ? |
P2P lending got featured during this morning's rush-hour NPR coverage during Morning Edition. Prosper was promoted prominently. It was a little rosy compared to actually lending on Prosper, but was interesting none the less. I was amused that I had seen the listing they referred to in the piece just a day or two ago. Head over to NPR if you want a listen.
America is known as a nation of borrowers. At last count, it had a collective $2.5 trillion in consumer debt. But it could become a nation of lenders — theoretically at least — as Web sites enabling ordinary people to lend and borrow from each other flourish.
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