Peer to Peer Lending with Prosper

A loan worth investing in

noreply@blogger.com (ProsperBlogger) — Sat, 01 Aug 2009 00:32:00 +0000

This is acutally my loan, my 2nd to be precise. I've been a Prosper member for a long time, please review my loan and place a bid if you can.

AA credit rating, and I paid my previous loan off in 16 payments.

Please feel free to ask any questions on the listing.

http://www.prosper.com/invest/listing.aspx?listingID=417449

Prosper back online

noreply@blogger.com (ProsperBlogger) — Wed, 06 May 2009 00:28:00 +0000

Prosper is back online. After a quiet period of over 6 months in which the SEC was reviewing the business the peer to peer lending company is back doing business.

The California based company was forced to stop brokering new loans temporarily while the SEC determined whether Prosper's loans should be classified as securities.

The growing niche lending business now has a second wind just at the moment when options for car loans and other credit has dried up.

Prosper Account Balances are FDIC Insured

noreply@blogger.com (ProsperBlogger) — Fri, 10 Oct 2008 10:24:00 +0000

While America becomes a nation of privatizing profits and socializing losses, Prosper account balances are FDIC insured.

The recent financial markets meltdowns are causing a global panic. If you are a Prosper lender, you can rest assured that your Prosper cash balances are FDIC insured.

Prosper itself is not a bank and does not take deposits but the funds that lenders keep with Prosper are held at Wells Fargo Bank which is FDIC insured.

Borrower Gets Funded on 57th Try

noreply@blogger.com (ProsperBlogger) — Wed, 06 Aug 2008 10:53:00 +0000

This is one for all of you Prosper borrowers that have not gotten a loan funded on the first try, get discouraged, quit and never come back. That's not the case for Prosper borrower mvbrothers2 who tried to get their listing funded an incredible 57 times before finally getting the loan.

I didn't believe it when I heard about it, but I saw it for myself. The loan finally funded on July 15th. The 3 pages of expired and withdrawn listings date all the way back to Febuary 2007, a total of 17 months of trying!

So, for all of you borrowers that think it will never happen, maybe you too will get a single lender to fund your entire loan like this one after 57 tries.

Lenders with a Prosper Loan: You Can Pay From Your Prosper Account

noreply@blogger.com (ProsperBlogger) — Sat, 02 Aug 2008 16:01:00 +0000

If you are a Prosper lender but also have a loan, here is something interesting I learned recently: you can make a payment on your loan directly from your Prosper account.

I wasn't aware this was possible. I have always had my payments automatically deducted from my account and never bothered to look at the "make a payment" link under My Account > Borrowing. But when I was researching the recent post I wrote on "Snowflaking" I discovered this was in fact possible so I thought I would pass it on to those that didn't know including me.

I've acutally withdrawn money from my Prosper account to my bank account in preperation for a payment, now I don't have to because you have 2 options for making a payment:

Paying down your loan by a certain amount
Making your next payment

I'm going to start using this!

Prosper in the News

noreply@blogger.com (ProsperBlogger) — Sat, 02 Aug 2008 15:48:00 +0000

Prosper has been in the news recently...

At MSNBC, Prosper is mentioned in regards to formalizing terms of a loan, something I've blogged about before

An eBay for lending at aLive

ECommerce Times talks about an easier path to cash, calling person to person lending the "teller window" on the Web

A study that tracks benefits of peer-to-peer online lending from the University of Deleware

US News and World Report asks: Is Peer-to-Peer Lending a Solution for Start-ups?

Can't get a mortgate? The Statesman discusses person to person lending as a new source for funds

Snowflaking your Prosper Loan to Save Interest

noreply@blogger.com (ProsperBlogger) — Sat, 02 Aug 2008 15:06:00 +0000

Snowflaking is a way to save on interest. The general principle is to pay in a small extra amount towards a loan every month, a $5 snowflake here, a $10 snowflake there starts to build into a snowball which, if rolled downhill, compounds. These small amounts might not seem like much but they definitely add up.

This process is traditionally used for reducing credit card payments but it’s also viable for a Prosper loan since any snowflake you put in will reduce the overall interest you’ve spent for the entire term of the loan. You will also end up paying it off early.

You will see below that that snowflaking is more valuable the higher your interest rate goes

For Example

Let’s look at a very simple example of how this process can save you money. Let’s say you got the minimum amount possible for a Prosper loan, $1000 and let’s say it was at 9%. Lets snowflake at a 1% rate, meaning that you put in an extra $10 (which is 1% of the loan amount) a month towards the principle, and see what happens:

Your 36 month loan term has been shortened to 27 month
Your total interest paid has been reduced from $144 to $106, a savings of 38$ which adds up to a savings of 27% on interest
That’s %3.8 of the $1000 principal

It may not seem like a huge amount, but if you pay a higher rate see below, it gets better.

Scaling it out

Now, a $1000 loan is not a lot of money, and $10 is not a lot extra to pay in, but if you scale the 1% rule up you save a lot more money. If you borrowed $10,000 and snowflaked at a 1% rate ($100 extra a month) you’d save almost $400 in interest payments!

Scale it up to the maximum loan amount for a Prosper loan of $25,000 and, at 9%, you’d save $1,000 in interest… nothing to sneeze at.

Scaling it up

I mentioned it gets better. We looked at how much you can save on a Prosper loan by looking across different loan amounts. What happens if we look vertically at different interest rates as they go up, how much more will you save?

Turns out a lot. Let’s start with that $1,000, and let’s say that interest rate is 25% instead of the 9% rate used above:

Your 36 month loan term is still shortened to 27 months
Your total interest paid has been reduced from $431 to $309, a savings of a whopping $122 which adds up to a 29% reduction on interest
$122 on $1,000 is 12.2% of the principal!

Now that we are scaling these calculations up to higher interest rates, lets scale it out again for higher loan amounts:

At $10,000 and 25% interest, the 12.2% still applies, so you’ve saved $1,222 in interest payments. That’s a lot of money.

At the $25,000 maximum the savings are a whopping $3050!

The 1% rule

I like the 1% rule because it’s easy to calculate and easy to do. No matter how much you borrow and no matter how much your interest rate, a 36 month Prosper loan will always be reduced to 27 months by simply paying 1% of the loan amount on top of your regular payment.

I've Been Listed on the Prosper Website!

noreply@blogger.com (ProsperBlogger) — Fri, 01 Aug 2008 16:16:00 +0000

Well, I've finally recieved some noteriarty from the Prosper.com website, my blog has been listed!

It's nice to be recognized for my effort in contributing useful information to the community.

If you want to check it out, go to their 3rd Party page.

How to Make an Endorsement Count

noreply@blogger.com (ProsperBlogger) — Mon, 28 Jul 2008 10:45:00 +0000

Endorsements are a useful tool to help get potential lenders interested in your Prosper loan. There are a few ways to get the most out of this technique which can sometimes make the difference in whether your loan gets funded.

Endorse early

First, get your endorsements in line before you create your listing. Sometimes you want a relative or friend to endorse you, in which case they have to join Prosper. Get this done in advance of your loan's initiation so the endorsement is there from the beginning.

The objective here is to get people interested in your loan early because a loan with early bids will attract much more attention (thus dramatically increase the chances of funding) than one that starts getting funded late. Endorsements as a desperate attempt to generate bids often fails.

What to say

Endorsements should be kept simple and be relatively short. They should include how you know the person, how long, some mention of confidence in the ability to repay, and, if a bid supports the listing, a 'money where your mouth is' statement.

Endorse with money

While there is absolutely nothing wrong with someone joining Prosper just to create an endorsement, an endorsement from a known lender with a bid to support it is more valuable, much more valuable.

If you want to take an endorsement with a bid to the next level, make the bid at a 1% interest rate so you are in no matter what, and make sure to mention that in the endorsement so folks know you are committed to this person's loan.

Prosper Referral Program Ending, Better Act Now!

noreply@blogger.com (ProsperBlogger) — Fri, 27 Jun 2008 00:07:00 +0000

You've got until June 30, 2008 (4 days from today) to register with Prosper and take advantage of the bonus for signing up as a lender.

Nobody knows what will happen to the referral program as of now, but if you want to be sure and get your $25 lender bonus, here is your chance. Act now, you can join Prosper here.

Prosper Introduces Institutional Lending

noreply@blogger.com (ProsperBlogger) — Thu, 26 Jun 2008 23:56:00 +0000

Its been a topic of conversation among blogs and message boards: are there any institutional lenders using Prosper? Is it even allowed?

Well, the answer is yes, they are allowed and as of now, they are being promoted. Prosper allows asset managers, hedge funds, and other institutions the opportunity to use peer-to-peer lending. To some this may take away some of the steam of people lending to people, but the reality is that for the Prosper marketplace to survive long term, there needs to be more volume.

An interesting aspect of this is that institutions can leverage Prosper's openness of data to create their own lending models and fund loans accordingly. It's not known if there are any such institutions which have already become lenders but it would be interesting to see if these kinds of lenders can actually be attracted.

Prosper Starts to Publish Bankruptcy Details

noreply@blogger.com (ProsperBlogger) — Thu, 26 Jun 2008 23:51:00 +0000

Prosper.com is now providing chapter and filing date information for bankruptcies filed by prospective borrowers. If a Prosper loan listing appears where a bankruptcy has taken place, a new set of fields will appear with details of the incident.

This is a positive developement because up until not we were always left guessing as to what the public records on the loans were and often times you'd see a question for the borrower asking what it was.

In some cases the chapter and filing date for the borrower is not available in which case you'll just have to ask.

Prosper Written About in the New York Times

noreply@blogger.com (ProsperBlogger) — Sat, 14 Jun 2008 12:55:00 +0000

If you want to read a great book that will turn a lot of ecomonic theories on their heads, read Freakonomics. It's a great book. The author, Stephen J Dubner, is apparently a fan of Prosper and makes some interesting observations about what he sees in the marketplace.

The article is called "Adopt and Prosper?", and points out how lenders are often swayed by a good cause.

Interesting New Study Published About Prosper Returns

noreply@blogger.com (ProsperBlogger) — Sat, 14 Jun 2008 12:41:00 +0000

Prosper has done a lot of work to make data transparent. Increasingly economists and credit analysts have started to study the Prosper model.

Economists Ginger Zhe Jin and Seth Freedman of the University of Maryland have just published a study looking at Prosper since inception to determine average returns.

The most interesting finding is that the probability for a loan to default peaks at around the 10th month and then goes down from there. Prosper's average portfolio as a whole is currently 9.7 months which is the peak of the curve.

The study also showed that the best returns were seen for loans whose interest rate was up to 25%. The implication is that borrowers willing to pay the higher rates are riskier. Maybe an obvious conclusion but there are many folks that come to Prosper seeking only high risk loans and quickly get into problems and become dismayed. Balanced portfolios do better.

The study, titled "Dynamic Learning and Selection: the Early Years of Prosper.com" is a very interesting read for anyone interested in the metrics behind lending.

Listings on Prosper are now all 7 days

noreply@blogger.com (ProsperBlogger) — Wed, 16 Apr 2008 11:13:00 +0000

The Prosper listing creation process has now been fixed at 7 days. This is intended as a means to simplify the loan generation process. Its also viewed as a way to create more fundable listings.

I'm not sure I agree with that. Some loans are more sure to fund than others, especially in the higher credit ratings of AA and A. I would have allowed those listings to choose 3 days as an option.

I think one of the intents by standardizing at 7 days is to eliminate the desperate borrower syndrome that 'I need money, and I need it fast' which are more than likely to become defaults over time. Prosper stands out among other peer to peer lending sites in that it allows high risk borrowers to create listings, this freedom has certainly been a double edged sword.

No More “Bank Account Verified” Icon

noreply@blogger.com (ProsperBlogger) — Wed, 27 Feb 2008 22:37:00 +0000

When you are looking at a listing on Prosper, you used to see 2 icons at the top of the listing, one for homeownership verification and the other was for bank account verification.

The bank account verification icon has now been removed from the site.

People used to view this as a positive sign, which is was, since no loan can be initiated without a verified bank account and seeing an account already verified was more reason to feel safe that a bid would not languish and then get returned when the verification process failed.

Prosper felt that the icon created confusion among lenders, but I think it should have remained. It rewarded borrowers who were proactive and got their accounts verified faster.

Criteria for 2nd Prosper Loan has Changed

noreply@blogger.com (ProsperBlogger) — Wed, 27 Feb 2008 22:30:00 +0000

Prosper has changed the eligibility criteria for borrowers wishing to get a second loan with Prosper.

The minimum amount of consecutive on time payments is now 6 months. Before it was only 2 months. Pre-payments don’t count.

This is a good change. It eliminates the potential for people getting a second loan to cover a first that they know will be in trouble, or generally racking up too much debt too fast. It also gives the credit bureaus more time to update their records so the new Prosper loan is reported.

I would say this is another measure Prosper is taking to curb defaults. It makes sense to establish more of a track record before being allowed to take out another loan.

Changes in Advance Search

noreply@blogger.com (ProsperBlogger) — Wed, 27 Feb 2008 22:19:00 +0000

A pair of recent change were made in the advanced search criteria on the Prosper.com website, one has been causing users some confusion.

The first is the 'disappearance' of advanced search categories. I think the intention was to streamline the search, but many think the other columns have disappeared, they have not. Just use the new “add/remove criteria” link at the top right and a large list box will appear, from here you can select whichever criteria you want to search on.
You can call it a personalized advanced search. I wondered why the first time I saw it, but you know, there are some criteria that I just never use so to streamline the page it makes sense for them to just not be there.

On the other hand, many of the fields on that page are not used for lack of knowledge so having them there might encourage users to learn about some criteria they can filter on. My recommendation is that if you are new to Prosper, you might just want to “select all” and see all the options. More experienced users could start to remove items they are not interested in.

The second change was to add some new search criteria, they are:

Bids from friends ($): Sum of highest single bids from the borrower’s friends
Bids from friends (#): Total number of bids from unique friends
Endorsements: Number of endorsements from the borrower’s verified friendsFriends: Number of verified friends the borrower has

So in fact, no advanced search criteria are missing, there are actually more to choose from.

Payment dates are going to change to improve loan performance

noreply@blogger.com (ProsperBlogger) — Wed, 27 Feb 2008 12:29:00 +0000

Some good news from Prosper Days 2008 for both borrowers and lenders: Prosper is planning to modify their policy on when payments are pulled from borrowers bank accounts to better match their pay days.

Up until now, the date that a payment is due has always been dependent on the initiation date of the loan. Often times this ended up being at the worst time of the month, for example days before someone’s paycheck arrived in their bank account. Often times this created late payments, incurring borrowers fees and causing the lenders to also lose money as fees are passed on to them.

Soon, payment dates are going to be matched with the borrowers pay day. This is an excellent solution. Prosper is going to target the payment date to match the date a borrower is paid from their jobs. This might not do a lot to lower default rates but will certainly lower the amount of 15 and 30 day late loans as borrowers wait for their next pay period to make a payment.

Prosper’s a-gonna start suing

noreply@blogger.com (ProsperBlogger) — Wed, 27 Feb 2008 12:19:00 +0000

One of the takeaways from "Prosper Days 2008" is that Prosper is going to start filing law suits for collections of defaulted loans.

Prosper is planning to starting the process slowly, as of today, a total of 5 suits have been filed in California with more on the way once the process is smoothed out. It appears a total of 74 defaulted loans are planning to result in suits within the next month or so.

This is very good news for Prosper lenders who have endured a higher than average default rate. Other signs are starting to show progress by Prosper in this area which will improve relations with lenders and create a ‘tighter ship’ with borrowers more aware that defaulting on a loan could have more serious consequences than just a bad mark on a credit report and annoying letters and phone calls.

It’s a good idea to send late borrowers a note

noreply@blogger.com (ProsperBlogger) — Tue, 19 Feb 2008 14:57:00 +0000

While it might not make a difference to someone in dire straits or in a bankruptcy, it could help keeping the community aspect alive within Prosper: it’s within the rules to send a late borrower a note with a reminder.

I’m treading on thin ice because lenders on Prosper have had their accounts suspended by taking this too far so if you do contact a borrower be careful. To be safe, never contact a borrower after the loan is in default. The legal limit here is that you are not allowed to make any attempt to collect a debt on Prosper’s behalf.

The terms of service state:

You should not contact delinquent borrowers directly. Prosper has a detailed delinquency schedule for borrowers, and any additional contact you have with a borrower may expose you to civil or criminal penalties for unlicensed debt collection. The language and tone you use when collecting a debt matter are important in the eyes of the law so what you might consider reasonable may in fact be illegal. If you were to accidently[sic] break the law you'd be putting yourself, your fellow lenders, and Prosper at risk of litigation.

What this means is you are allowed to contact your borrowers if they are just late. I have done this on two occasions now, and both loans have become current. One borrower replied almost instantly with a ‘don’t worry, payment in transit’ note which was nice to read. Not only did it remind the borrower that we are people but also allayed my fears of fraud.

Here is a suggestion for a note you can send, modify it to suit your needs, but consider doing it. The more people that contact late borrowers, the more likely they are to remain current. While it might not make a big difference, small differences are significant.

Hello,

I wanted to congratulate you on your recently funded loan. I was one of the winning bidders and am glad to be of assistance in fulfilling your request. Your loans metrics and reasons met my personal criteria for risk; it would appear it did for others as well.

I am writing to urge you to keep in mind that I and the others are all individuals, not banks or institutional lenders, and we are counting on your repayment. I’ve decided to take a leap of faith; Prosper has a significant number of defaults and delinquencies, especially later in the loan cycle. This is very damaging to the lenders portfolio and has caused many to pull their money out of Prosper in search of better returns.

Prosper is an excellent resource, I personally believe very strongly in the idea of community lending and want this concept to succeed. It takes both sides to make this work so please take note of your loans late status and rectify it.

It’s good to know you can turn to your peers again in the future and I know from experience it’s much, much easier to get funded once you have had success with Prosper. Wishing you luck and a successful transaction.

Length of Employment Has Big Impact on Default Rates

noreply@blogger.com (ProsperBlogger) — Wed, 06 Feb 2008 14:47:00 +0000

With Prosper loans, I’ve often suspected that there is a direct correlation between default rates and length of employment but had never checked my suspicion against Prosper’s performance data.

It appears that yes, there is certainly a correlation. At all employment levels the rate of default drops. Default rates for people employed 10+ years is less than half of the rate of people employed for less than 6 months. Generally, people employed more than 1 year have a substantially lower default rate, but the best performance are those steadily employed for the longer period of time.

Personally, I had expected a higher disparity between the length of employment ranges but there is enough evidence to support the conclusion that people employed more than 10 years are the safest risk.

For any borrowers employed more than 10 years, you should make a point of this fact in your listing.

Borrowers Need Longer and Better Descriptions for Better Chance of Funding

noreply@blogger.com (ProsperBlogger) — Tue, 05 Feb 2008 13:15:00 +0000

One of the fastest turnoffs for me when judging the merits of a loan request on Prosper is a meager description of why the borrower needs the money. I have seen descriptions as tiny as “Got some bills to clear up” or “Consolidating cards”. This, frankly, won’t do.

It’s been proven that the longer the description (within reason) the better the chances of getting funded are. As lenders, we want to know what the money is for and why you feel you are qualified for the loan. While many lenders on Prosper don’t care and just look at the numbers, most don’t.

There are a few reasons a short description is a turn off. First, it appears the borrower has something to hide. Second, it appears the borrower doesn’t really care about this listing implying they don’t care about paying it back. Next, lenders want to know if you have writing skills, this may sound ridiculous but its true: when something is very badly written it demonstrates a lack of care which implies no repayment. Furthermore, lenders just want a basic idea of who someone is, the way a borrower describes their needs tells lenders a lot.

As far as better descriptions go, there is certainly room for improvement. My biggest pet peeve is the “magical thinking” listing that seems to imply an alignment of the stars or some other metaphysical event that will cause Prosper lenders to flock to a listing. This attitude implies the loan will be repaid magically as well. A good description does 4 simple things:

Clearly describe why the loan is needed
Clearly describe your financial situation
Explain any marks on your credit
Clearly describe why and how you intend to pay

You’d be amazed how many loans don’t even achieve one of them. There is a second good reason to do this: once you lay this information out, it should be obvious to you as well whether you can really afford this loan. If your numbers don’t clearly demonstrate enough income to fund the loan consider asking for less or changing your budget so you can actually afford it.

Prosper Adds New Collection Agency: AmSher

noreply@blogger.com (ProsperBlogger) — Tue, 29 Jan 2008 02:54:00 +0000

Prosper has started using a new collection agency called AmSher. Many people who follow Prosper view this as a challenge to the weak performace that Penncro has had in collections of late and defaulted loans. I think this is great news and will certainly be a step towards improving the performance of collecting loans that go late.

AmSher is privately held company and is licensed in all fifty states. They have been around since 1939 in a few variations until 1986 when they started in collections.

Many of you might have seen the email announcement from Prosper. While AmSher charges a slightly higher fee for collections, my advice is to change your settings and give them a chance, at the very least to signal to FirstSource and Penncro that there is alot of dissatisfaction with their performance.

You can change this setting in the Account tab > Lending tab > on the bottom right.

Prosper’s Developers Tools and Data Mining Service

noreply@blogger.com (ProsperBlogger) — Thu, 24 Jan 2008 19:35:00 +0000

In the last year Prosper.com has introduced a series of developers to help build upon the platform. These tools allows users to acquire data about Propser loans in one of two ways: via an API (application programming interface) and a data export service.

The API is a web service based interface (SOAP) that allows for querying of the Prosper marketplace. This service enables retrieving data of things such as bidding, listing information and portfolio information.

The data mining service provides complete information on all listings, bids, users and specific loans that have ever been created on Prosper. This data is available in two formats, either as a Microsoft Excel Spreadsheet and in raw XML. Prosper also has tools to import the XML data into different databases such as SQLServer, MySQL or Access.This data is useful for things such as building graphs, finding changes in the marketplace over time, and examining bidding patterns.

If you’d like to explore the Prosper developer tools, you can find the developers API here and the data export tools here.

In addition, to support developers, Prosper has a developers discussion forum and also an outlay of many different tools that have already been developed.