Prosper Releases Market Survey Results

Prosper just released their monthly market survey for July 2008. For the first time, the survey includes statistics showing how borrowers who list and get funded in the Prosper marketplace indicate how they plan to use their personal loans. Also noteworthy, the percentage of prime borrowers (borrowers with 720+ credit scores) hit an all time high in July, accounting for 47% of funded loans.

July 2008 Funded Loans

• Personal Loan for Debt Consolidation - 43%
• Personal Loan for Business Use - 25%
• Personal Loan for Home Improvement - 7%
• Personal Loan for Education - 3% (Fynanz is trying to own this niche)
• Personal Loan for Auto/Vehicle - 3%
• Personal Loan for Other Use - 19%
  

Last year, soon after Lending Club launched, Lending Club released similar statistics showing their "smart" borrowers were requesting most loans for debt consolidation or to pay of higher credit card rates.

Prime borrowing on Prosper hits record levels

Last week Prosper has published their March 2008 Market Commentary:

"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."

Press Release: Prime Borrowing on Prosper Hits Record Levels

Prosper CEO calls 2007 transition from 'optimism to fear of imminent recession'

Chris Larsen, Chief Executive Officer and Co-founder of Prosper said, "2007 proved to be a pivotal year for US markets as we abruptly transitioned from optimism to fear of imminent recession." This remark matches statements made in earlier Prosper monthly lending reports such as September's "flight to safety" remarks. We have previously discussed what effect a recession might have on the Prosper marketplace here on PLR. This is the full text of Larsen's remarks in January's lending market survey.

"2007 proved to be a pivotal year for US markets as we abruptly transitioned from optimism to fear of imminent recession. Who could have predicted at the start of 2007 that the word 'subprime' would be voted the word of the year?

At Prosper, we also saw a dramatic switch in the prime versus subprime market with subprime declining from over 25% in 2006 to barely 5% currently. This change reflects both a changing external market as well as a maturing of the Prosper marketplace.

Obviously the subprime meltdown exposed much more risk in the subprime market in 2007 compared with a year earlier. Prosper’s performance data bore this out and has clearly moved people to safer ground or to fund those borrowers with a clear social capital benefit.

The silver lining has been more opportunity in the prime and near prime segments. As the credit crunch has unfolded, many traditional lenders have dramatically tightened or eliminated credit to even their best customers. For example, home equity, which until recently was referred to as Americans’ ATM, has been substantially limited by falling real estate prices and mortgage industry bankruptcies. Credit card offers have also been substantially reduced as defaults have spiked nearly 20%. Thus, while the environment was tougher in 2007, there is also much less competition for the best customers. This bodes well for people-to-people lending which can take up the slack from the seized-up capital markets.

The key focus for loan buyers will be choosing borrowers smartly and pricing adequately for risk. Prosper’s additions of Prosper-specific market risk data and Portfolio Plans were both major milestones in giving bidders the information they need to choose wisely. For borrowers, pricing their listings adequately, telling and explaining their story honestly, and involving friends and family to bid as a measure of social capital are great ways to increase the success of their auctions."

Prosper market anticipates Fed rate cut

In Prosper's second monthly lending market survey, CEO Chris Larsen says that the Prosper marketplace appears to anticipate Federal cuts in the intrest rate. Specifically he says a drop in the rates borrowers are paying on loans is close "to what was widely anticipated to be a quarter-point instead of a half-point reduction by the Fed." Here is the full text of Larsen's October announcement:

"When the Fed cuts interest rates people often expect mortgage rates to drop. However, this is rarely the case given that mortgage markets typically anticipate rather than react to moves by the Fed. On the flip side of the coin, the variable credit card and savings rate markets react sometime after the Fed moves. In fact, some variable credit cards have a 90-day window to make adjustments reflecting the rate cut. So the question is: did the Prosper marketplace anticipate or react to the Fed rate cut?

Many might assume that the Prosper marketplace would act less like the mortgage markets and more like the credit card and savings rate markets given that the latter compete with Prosper. Nevertheless, the month over month drop in average borrower rates indicates that the Prosper marketplace may have anticipated the Fed cut.

For example, in September the average borrower rates for all prime and near prime loans funded in the Prosper marketplace were 12.29% and 18.22%, respectively; down 0.37% and 0.28%, respectively, from August.

What is interesting about these percentage drops is how close they are to what was widely anticipated to be a quarter-point instead of a half-point reduction by the Fed. However, what remains to be seen is whether the market will continue to push rates down further in line with the Fed’s surprise move."

Last month Larsen said, lenders are exhibiting rational behavior and "being far more cautious about chasing higher rates offered by subprime borrowers."