Showing posts with label prosper news. Show all posts

Financial Start-ups Form ‘Coalition for New Credit Models’

Washington, D.C. – October 20, 2009 – Amid historic regulatory reforms being considered by the new administration and lawmakers on Capitol Hill, the Coalition for New Credit Models announced its formal launch today as its representatives descended upon Washington. The Coalition is made up of non-profit, for-profit, and social enterprises using new technologies, products and business models to provide credit and information to millions of consumers and small and midsized businesses. These models serve as innovative alternatives to existing banking and financial institutions and are backed by venture and social capital to stimulate the economy, shore up financial markets, and enhance local communities. They have a special focus on bringing transparency, fairness, durability, and accountability to consumers and to our credit markets.

Chris Larsen, Chief Executive Officer and Co-founder of Prosper, America’s largest peer-to-peer lending marketplace, said, “This country has been in an energy crisis for years and we are now in a financial crisis. America’s economic future depends on new and alternative credit models being embraced in the same way green technologies are being nurtured by policy leaders to help solve the energy crisis. We are at risk of being suffocated by rigid regulations that threaten rather than embrace new technologies and models.”

The current regulatory environment has stifled many entrepreneurs in this nascent industry, and it is clearly time for new policies and fresh thinking from lawmakers and regulators. At a time when the credit crisis and recession have adversely affected consumers, families, small and mid-market businesses, Coalition members have created alternatives and innovations that will make the country less dependent on any single point of failure, or institutions that are too big or too interconnected to fail.

James Gutierrez, Chief Executive Officer of Progreso Financiero, said, "Without new innovators providing better options, millions of Americans will be left out, far away from the American Dream and stuck with predatory choices, simply because they lack established credit history. We believe government can do more to provide greater access and financial inclusion to all consumers, especially the underbanked, and help cultivate new models that do so on responsible terms."

Nicolas Perkin, President of The Receivables Exchange, said, “Now more than ever, America’s businesses should have unfettered access to alternative and reliable sources of capital to meet their business financing needs. As the economy regains momentum and technology continues to accelerate the pace at which business is conducted around the world, only innovation and an uncompromised focus on transparency and responsible financing models will drive sustainable growth and prevent businesses from being reliant on a single source of funding, and thereby exposed to unnecessary risk.”

The Coalition for New Credit Models recommends that Congress and the administration:

1. Adopt legislation classifying person-to-person lending as a consumer banking service, not a securities offering.

2. Create a liquidity fund to provide capital for companies making small consumer loans to underbanked individuals.

3. Establish a federal backstop for small and mid-sized businesses to provide access to working capital through electronic marketplaces.

4. Enable the emergence of a robust U.S.-based private company stock market to provide the exit path necessary to attract investment capital back to this country, bolstering domestic small businesses, innovation and job growth.

5. Create a Start Up Liaison at Treasury Department or within banking regulators to guide and fast-track the development of new financial products by start-up companies and organizations seeking to innovate the way consumers and businesses raise and access capital.

Background on Coalition Members:

Credit Karma (San Francisco, CA) is the consumer’s advocate for demystifying credit, is the only Web site that provides consumers free access to their credit score, and has a range of tools and information resources to help them monitor and manage the credit aspect of their financial health. Credit Karma’s goal is to help consumers easily digest the contents of their credit report and understand what makes up their credit score. Credit Karma works with a range of partners, including mortgage lenders, credit card providers, banks, and wireless providers.

Loanio, Inc. (Nanuet, NY) is an Internet-based peer-to-peer lending platform where individuals can request personal loans that are funded by other individual (or corporate) investors. Interest rates on loans are set by auction, where lenders/investors bid on loan requests that they find attractive. Through patent pending features such as Platinum Verification and Co-borrowing, Loanio’s goal is to provide access to a significantly underserved borrower market and stronger security for its lenders/investors. Loanio, Inc. suspended its business activities in November 2008 and is currently registering its securities with the SEC.
ProFounder (Palo Alto, CA) is a platform where entrepreneurs raise seed funding from their social network and affiliates through a legally compliant and dynamic process; and individuals invest small amounts of money in companies in exchange for ownership. ProFounder is co-founded by Jessica Jackley, Evan Reas, and Dana Mauriello. Jackley is Co-Founder and former Chief Marketing Officer of Kiva.org, the world's first peer-to-peer microloan website which has made almost $100M in loans since its inception at the end of 2005.
Progreso Financiero (Mountain View, CA) is the leading provider of consumer friendly loans to underbanked Hispanic families in America. Progreso has developed a proprietary credit score based on over 25,000 initial loans, and in turn, can lend money at fair rates and lower losses to families who lack FICO scores and traditional banking relationships. Progreso's mission is to help its customers build a credit history and fully realize the American Dream, and to provide ground floor innovation that helps move the underbanked up the financial services ladder. With over 100 employees and $26 million in venture capital, Progreso is rapidly expanding throughout the Southwest, and aims to serve over 1 million underbanked families with credit, debit, savings and other mainstream products by 2012.

Prosper (San Francisco, CA) is America’s largest peer-to-peer lending marketplace. Since its launch in February 2006, over 850,000 Americans have joined the community and $180 million in loans have been facilitated. Prosper is an auction-based platform, where borrowers set the maximum rate they’re willing to pay, and individual and institution investors bid at or below the rate set by the borrower. In October 2008, Prosper halted its marketplace and entered a quiet period as part of the process of registering with the SEC. Nine months later, in July 2009, Prosper’s registration statement with the SEC was declared effective. Notes offered by Prospectus.

The Receivables Exchange (New Orleans, LA) is a real-time, online competitive marketplace for accounts receivable that gives small and medium-sized businesses the ability to generate cash flow quickly and as competitively as possible. The Receivables Exchange allows businesses to sell their receivables to a global network of institutional investors and access working capital in as little as 24 hours. When you consider the typical remittance term of 48 days, or as much as 180 days, The Receivables Exchange is a welcome financial tool for small and mid-sized businesses.
SecondMarket (New York, NY) is the largest centralized marketplace for illiquid assets, including auction-rate securities, bankruptcy claims, collateralized debt obligations, limited partnership interests, private company stock, residential and commercial mortgage-backed securities, warrants/restricted securities in public companies, and whole loans. SecondMarket’s online trading platform has more than 4,000 participants, including global financial institutions, hedge funds, private equity firms, mutual funds, corporations and other institutional and accredited investors that collectively manage over $1 trillion in assets available for investment.

Prosper.com, The Only P2P Player on the Beltway?

If anyone has dealt with the brunt of regulation on the P2P lending space, it’s Prosper. They’ve been through all kinds of regulatory hurdles, and as mentioned earlier, are once again in a quiet period after a brief re-launch last month.

I was surprised to come across a lobbying report filed by their firm, Podesta Group, a major player in the Beltway scene showing a $60,000 expenditure on lobbying for first quarter of 2009.

What surprised me most is the figure--$60,000 over three months—not an outrageous figure, but remarkable, as they appear to be the only P2P lender that has any lobbyist presence in DC. Why so much when nobody else in the business seems to think it's a worthwhile expense?

As a former lobbyist myself (on the state and local level), I would have actually expected all of these firms to be lobbying, but when I checked in with Lending Club and Pertuity Direct, I was told, respectively “no comment” and “We are currently not supporting any active lobbying on behalf of the P2P space. Not sure what Prosper is doing.”

Most companies seeking changes to improve their business’ regulatory environment have a presence in DC somehow. Often this is through a trade association or contracted firm such as Podesta. The lobbyists for the agency would be working with the agencies and officials that would be regulating their business space, in this case, the Commerce Department, SEC, and any Congressional committees that deal with banking and finance.

However, as I read through the Podesta Group’s report (publicly available at http://www.opensecrets.org/), I see that Prosper hasn’t been lobbying the expected committees and agencies alone, but also lobbying the Exec. Director to the Congressional Black Caucus, and the DOL Employment Standards Administration , the Secretary of Labor’s office, and in the House of Representatives, the Budget, Appropriations and Oversight committees. An interesting combination for sure.

Why Appropriations, Budget and Labor? I can’t help but wonder if Prosper is working on a new initiative? As Prosper is still in a quiet period, so they aren’t answering questions yet, but once they’ve re-launched, I for one will be excited to hear what they’ve got in the works.

Jessica Ward is a freelance writer and blogger based in Seattle. She writes about finance, business and family. You can follow her on Twitter as @jessc098 or visit her Web sites at www.jessicaward.me or www.pennywisefamily.blogspot.com.

Prosper closes again - open less than two weeks

Last week Prosper re-opened to borrowers in all 50 states and lenders in California after a six-month quiet period. Prosper did not facilitate any loan activity or communicate with members while they registered their platform with the SEC. Now, after being open for less than two weeks, Prosper is closed again. Here's the announcement on the website:

Prosper is Currently in a Quiet Period

We have been overwhelmed by the outcry from potential investors around the country who want to participate in peer-to-peer lending. Thank you for your support and your letters to us.

After much consideration we have decided to voluntarily shut down our operation in order to complete our SEC approval for a nationwide peer-to-peer lending platform. As a result, due to regulatory concerns, and in the interest of working toward getting our registration statement effective as soon as possible, we are discontinuing our California intrastate offering at this time.

If you're an existing lender, your current lender agreements will be unaffected; your existing loans will continue to be serviced; you'll be able to track and monitor your loans; and you'll be able to withdraw funds from your Prosper account.

If you are a borrower with an existing loan, you will continue with your current borrower agreement and be unaffected by the registration process.

We want to assure you that Prosper is looking forward to being able to offer a transparent, durable and participatory lending institution very soon.

As a result of this decision, we will not be accepting new lender or borrower registrations or loans, or new commitments from existing lenders effective immediately. Until this process is complete, we are required to be in a quiet period and will be unable to respond to press, blogger or other inquiries related to our SEC registration process, even though we would like to.

We sincerely apologize to the Prosper community members for this inconvenience or disappointment our decision may have caused. We want to thank those of you who demonstrated your support through your active participation whether by investing with us again or referring friends to our site.

Thank you in advance for your understanding, support and patience once more. We look forward to serving the needs of the community in the hopefully not too distant future.

While Prosper is closed, Lending Club has the full blessing of the SEC and has facilitated nearly $40 million in loans.

Prosper launches to borrowers in 50 states; lenders in California

After a six-month quiet period to register their platform with the SEC, Prosper has re-opened to borrowers in all 50 states and lenders in California. They have simultaneously launched FixTheCreditCrisis.org which is a campaign to reach out to elected officials to allow peer lending in all 50 states.

Currently, Lending Club and Pertuity Direct are the only two p2p lending platforms available to most investors throughout the United States. Prosper's model is different because, among other things, loan rates are determined by an auction among lenders.

Here is an open letter from Prosper's CEO Chris Larsen about the new launch and an appeal to regulators to allow lenders to lend from all fifty states:

We are pleased to announce that Prosper is now open for business once again after a six month hiatus. At this time we are launching to borrowers nationwide and to individual and institutional lenders in California. We hope to be fully national soon.

First we would like to thank the Prosper community for your incredible patience and support. We’re especially thankful to the overwhelming number of lenders who have kept their funds in their Prosper trust accounts, eagerly awaiting our re-launch.

We also want to thank Governor Schwarzenegger’s team, particularly Preston DuFauchard of the Department of Corporations, for embracing peer-to-peer lending as a promising new technology and alternative credit system for getting credit flowing to consumers and small businesses at the very time they need it most. California regulators have always been known as innovation leaders and they just proved it again.

We remain hopeful that the SEC, which until now has effectively hamstrung the growth of the peer-to-peer and micro-lending industries in the U.S. will start applying the same common sense approach as California’s regulators. California has recognized that Internet auctions, just like the Google IPO, are the most efficient means of price discovery; that loan level transparency is better than the opaque loan pooling that brought the financial system to its knees; and that requiring regulatory filings every other day of web site transactions that are already visible in real time, is redundant and cost prohibitive.

We want our users to know that while we have been in a quiet period, we have been innovating. Most significantly, we are launching our Open Market initiative, which for the first time will allow other financial institutions, such as auto lenders, small business lenders and community development lenders, to place their already funded loans on our site for auction. This is both exciting news for lenders on Prosper as well as a much needed solution to the credit crisis.

As we all know, America is in the midst of the greatest financial meltdown since the Great Depression. Creditworthy consumers and small businesses can’t get loans. The government is scrambling to get money on the street by pumping hundreds of billions into our banking system. Yet, the banks are still pulling back and consumer loan securitizations, which make up nearly half of the lending market, are still frozen. We all know the causes of the crisis - lack of transparency, over-complexity and reliance on single points of failure.

The crisis is painful but is also a once in a lifetime opportunity to rewire finance in a way that is fundamentally more transparent, more participatory and more durable.

Prosper and our Open Market initiatives were built on these fundamental values.

Prosper’s Open market model could be the securitization market of the future. Rather than pooling loans, using rating agencies, and creating artificial tranches that are too complex, and opaque, Prosper now allows each loan to be sold separately, priced by the originator and auctioned in a fair and transparent Dutch auction. It uniquely provides a direct line of sight from the money invested to the loan itself.

In addition, Open Market brings the same social lending possibilities to securitization that we have always seen in the Prosper Loans Marketplace. For example, auto loans listed on the Open Market will show in which auto plant and city the car was made. That way fellow Americans who put a value on American jobs might make loans to cars made in Ohio, for example, at a better rate than loans to cars made in Germany. This could never be done with traditional securitizations because investors never had that level of transparency.

Obviously some areas of our financial system need more regulation and more limitations on what can be done. Understandably many in Washington now equate innovation with the toxic Wall Street concoctions like the Credit Default Swaps or CDO-squared monsters that nearly wrecked our economy. While these exotic instruments need to be reigned in, a sweeping ban on all innovation would be a grave error with lasting negative consequences. What we need is a common sense approach to innovation that is judged on its merits. For instance, shouldn’t innovations that result in more transparency, fairness and accessibility be embraced?

We can draw a parallel to how America is dealing with the on-going energy crisis. We know that we can’t depend solely on an oil based economy. The solution is not to just “drill baby, drill”, but to concurrently develop new energy systems that are cleaner, more sustainable, and fundamentally more diverse and durable. The same idea should apply to fixing our financial meltdown. If all we do is clean up the toxic mess while propping up the too-big-to-fail institutions, we will be engaging in a “drill baby, drill” mentality and will have missed a tremendous opportunity to rewire our financial system. As in the energy crisis, we need to encourage new alternative sources of credit by embracing innovation and entrepreneurs. This is at the heart of what makes the American economy continue to thrive.

But we need the help of our political and regulatory leaders. That’s why we are so grateful for California’s leadership in embracing peer-to-peer lending. And it’s why we’re asking for your help in encouraging other regulators and leaders across the country to take a similar view.

You can help us get this message to Washington and other leaders. We invite you to call or email your State’s elected officials using the tools we’ve provided for you at FixTheCreditCrisis.org. By reaching out directly to your state’s elected officials, we’ll ensure that our collective voices are heard.

Best regards,
Chris

Update: Prosper closes again after less than two weeks

Speculating on a possible Prosper Re-Launch

I’ve been spinning through the list of FINOVATE participant companies watching for changes and upgrades that are coming out just in time for FINOVATE and I’m excited to see some really cool things coming up. However, this one certainly took me by surprise.

After months of “quiet period” the Prosper.com web site is down for maintenance.

Now, I’m gonna go out on a limb here and project that prosper.com will launch Monday or Tuesday, in time for Finovate. It makes sense. When you compare the Lending Club S-1 documents to the Prosper documents, the timeliness match nicely.

I’m not the only one speculating about the possibility of a Prosper re-launch. Investar on the “Prosper Quiet Diary” forum notes the difference between the normal notice and the current notice and that Prosper’s normal blackouts are just a few hours, not two days. They also normally include the term “routine maintenance” which this notice certainly does not.

Another post from “Investar” says that one of his “notes” has been charged off, when usually the language says “loans.” Semantics or quiet hints?

I guess, in a few days, we shall know. Most of us expected Prosper to resurface after their April 14th filing, but if the SEC required further communication (and note that the SEC recommended “accelerated” communication) another 10-15 days would be a great window.

Also, they’re a registered FINOVATE company. Why bother promoting themselves when there’s nothing to promote? Re-launching for FINOVATE just makes sense.

Jessica Ward is a freelance writer and blogger based in Seattle, Wash. She also blogs about frugal family living at www.pennywisefamily.blogspot.com

P2P lending: 2008 in review

The P2P lending marketplace changed significantly in 2008. Of course, we said the same thing in our 2007 P2P lending review. There are also likely to be even more significant changes in 2009.

In 2006 the only real P2P lending story was Prosper. In 2007, Lending Club launched and Zopa expanded to the U.S. In 2008 the story is dominated by regulation - Lending Club obtained a green light by the SEC and most other companies shut their doors as they work towards SEC approval.

Here's a look at each individual company:

Lending Club

First a quick review of 2007: launched inside of Facebook in May 2007 and loaned $100,000 during their first month, expanded to users outside Facebook and became the first p2p lending platform to loan to borrowers nationwide without state-by-state lending caps, hosted a popular YouTube video contest, and received $10 million in venture capital
In April 2008 Lending Club halts lending in order to register their secondary market and lending operations with the SEC
In October Lending Club re-opens for investors and announces a secondary market

Prosper

First a quick review of 2007: named one of the 50 best websites of 2007 by Time, passed $100 million in loans (now at $108 million), received $20 million in venture capital for a total of $40 million raised
April - Follows Lending Club's lead and eliminates state rate caps
October - Immediately after Lending Club reopens, Prosper enters a quiet period and halts operations
December -Prosper is fined $1 million. They then file a S-1 registration statement with the SEC.

Zopa

First a quick review of 2007: Zopa expanded from the U.K. to the U.S.
Named 'most threatening non-bank' in April by the 2008 Retail Banker International Forum.
In October I had a bad experience trying to obtain a loan from Zopa. A couple days later Zopa closes operations in the US

Loanio

Loanio launches in October with a focus on platinum verification and co-borrowers
Follows Prosper's lead and halts operations in November in order to register promissory notes with the appropriate securities authorities.

Other companies to capture our attention in 2008:

Swap-A-Debt seeks regulatory approval
Pertuity Direct announces they will launch 'immediately after the New Year' And they do.
Fynanz becomes the first P2P student loan marketplace. They halt p2p lending and rebrand themselves (Jan 2009) as a loan platform for credit unions.
In Canada, IOU Central beats CommunityLend to Canada's market for a couple of weeks in February before they halt operations to 'resolve a regulatory matter'. We are still waiting for the first p2p lending company to open in Canada.
In January 2008 Globefunder opens their doors to borrowers. Since they are only open to institutional investors we have not discussed them on the blog much since.
Microfinance grows in the U.S. and around the world. We will cover these companies more in 2009 than we have in the past.

We started Prosper Lending Review in 2007. It has been fun and we have learned a lot. Our traffic has grown significantly. According to unique visitors, these are our most popular articles in 2008.

Prosper works through regulatory process; nears re-launch

Prosper updated their S1 with the SEC on Friday. In October Lending Club updated their S1 less than a week before they reopened. It is possible Prosper will open in days.

All the documents can be read here:

Swap-A-Debt, a new p2p lending company we discovered in December, also updated their paperwork - on the same day as Prosper. Their filings are here:

Prosper fined $1 million; faces class action lawsuit from lenders

Prosper has agreed to pay state regulators $1 million for selling unregistered securities. In October Prosper stopped making loans and last week the SEC filed cease and desist proceedings against the company. According to a press release from North American Securities Administrators Association (NASAA):

"Under terms of the settlement, San Francisco-based Prosper agreed not to offer or sell any securities in any jurisdiction until it is in compliance with that jurisdiction’s securities registration laws. Prosper also agreed to pay a fine totaling $1 million to the states. In consideration of the settlement, the states will terminate their investigation of Prosper’s activities related to the sale of securities before November 24, 2008."

Although Prosper has settled with state regulators, they still face potential legal trouble from lenders. Phillip Kim, an attorney with The Rosen Law Firm posted the following message on Prospers.org:

"We are investigating a potential civil securities class action against Prosper on behalf of any person or entity that has lost money in offering loans using the Prosper platform since Prosper's inception in January 2006. Such persons and entities may be able to recover their losses from their loans because the loans may have resulted from unregistered securities."

Based on the legal quandary of p2p lending, Zopa and Loanio have both closed their doors. Lending Club, on the other hand, has registered with the SEC and has seen increased business due to the failure of other platforms and the current economic difficulties.

PA lenders angry over ban

Due to state regulations, Prosper banned lenders from Pennsylvania. This caused an immediate and angry response from Prosper lenders. One started a petition and blog - Pennsylvanians for Prosper Lending.

Many PA lenders left angry comments on the official Prosper blog. Here's a sample:

"I want to express my outrage. I received an email this morning stating that you are no longer allowing bids from registered lenders in PA, and you are also not allowing new lenders from my state as well. The policy in general doesn’t make any sense to me, but more importantly I think all PA lenders should’ve been notified that this change was coming (instead of it becoming effective immediately). I feel like Prosper has slapped me upside the head in the way this situation has been handled. I have previously been very content with the way this site has been run and am more than disappointed in how this situation has been handled." - wyominggirl7

"If Prosper has had ongoing discussions with regulators in Pennsylvania, why didn’t Prosper contact PA lenders sooner? Not only is this announcement a surprise, it’s a wasted opportunity: PA lenders could have contacted their state senators and representatives, not to mention Governor Rendell’s office, to apply some pressure." - DonQ

"I contacted my state rep over this lending issue for PA residents. I imagine that the banks do not like this peer to peer lending and so they lobbied to shut us down. Yes I know, heavy handed government tactics at work again." TeddK

"I suggest you all contact your state representatives and senators as well as the governor. I already have my state rep interested in this issue. I need more information to give him about the what the regulations are and what officials and organizations are involved. I wish prosper had told use sooner so we could have pressured law makers." - Jon P

"Pennsylvania get more ridiculous all the time. I want to continue lending! I have signed the petition mentioned above and will be contacting my legislators right away!" - Mike S

"I just can’t believe this. With all my other investments tanking, you take away the one that I am actually making a good return on. Its crap like this that pushes people over the edge." - Jim C

In response, Prosper has published contact information for PA officials who may be able to influence the decision. They indicate they are primarily in discussions with the Pennsylvania Securities Commission.

Pennsylvania Securities Commission
http://www.psc.state.pa.us/investor/contact.html

Pennsylvania Governor Edward G. Rendell’s Office
http://www.portal.state.pa.us/portal/server.pt?open=512&objID=2998&mode=2

Pennsylvania Open for Business
http://www.paopen4business.state.pa.us/paofb/cwp/view.asp?a=3&q=440975

Pennsylvania House of Representatives
http://www.legis.state.pa.us/cfdocs/legis/home/member_information/email_list.cfm?body=H

Pennsylvania State Senate
http://www.legis.state.pa.us/cfdocs/legis/home/member_information/email_list.cfm?body=S

Pennsylvania lenders booted from Prosper

Pennsylvania appears to be one of the least friendly when it comes to peer to peer lending. One year ago we reported that Pennsylvania borrowers avoided Prosper due to the low rate caps. Borrowers residing in Pennsylvania could only request loans at 6% and below due to aggressive state regulations. Few lenders were willing to risk their money for such a low return. The situation changed in April when Prosper raised the rate cap for all states to 36%.

Now p2p lending has a new problem in Pennsylvania - lenders are banned. Here's the announcement from the Prosper blog.

"We have made the decision to discontinue accepting new lender registrations, and new bids from existing lenders, from residents of the Commonwealth of Pennsylvania. Our decision to make this change was based on our ongoing discussions with regulators in Pennsylvania, which led us to believe the change was necessary to comply with their current interpretation of their state regulations.

We have notified existing lenders residing in Pennsylvania of this change via email and at the point of signing into their Prosper accounts. Existing lenders residing in Pennsylvania will continue with their existing lender agreements, have their existing loans serviced, and be able to transfer funds out of their Prosper account. However, they will not be able to place new bids on listings or transfer money into their Prosper accounts.

This change does not affect borrowers residing in Pennsylvania, who remain free to create loan listings on Prosper."

Prosper eliminates defaults

In a site update today, Prosper eliminated all defaults - well, they renamed them. Defaults will now be known as "charge-offs". As reported on their blog:

"We are changing the way we display seriously delinquent loans on the marketplace performance page, renaming “Defaults” as “Charge-offs”, and moving the “4+ months late” loans into the “Charge-offs” category. We want to have transparency in the reporting of our marketplace’s default rate, and this change should help lenders take a more direct measure of the market’s charge-off rate. This change is the first step in a larger change we will be making in the way delinquent loans are displayed in lender portfolios."

In addition, Prosper will now allow some new lenders to make loans with PayPal and credit cards. Borrowers can invite family and friends to bid on their loan. After clicking on the link in the invitation, new lenders can place their first bid via PayPal or credit card. This is an attempt to make the site easier to use for new members.

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.

Prosper Days 2008 Videos

Hundreds of borrowers, lenders and Prosper employees converged on San Fransisco in February for Prosper Days 2008. Prosper has now released video from the conference. Thanks to Prosperous Land for the tip.

Prosper Days 2008: Prosper 101 - Session for those who are new to Prosper or need a refresher course. Bryan and Tim give a Prosper history lesson, site tour and how-to demonstration.

Prosper Days 2008: Chris Larson's Keynote - Chris Larsen, CEO and Co-Founder, Prosper Marketplace Inc. Introduction by Marilyn Paguirigan.

Prosper Days 2008: Borrower Experiences - This session presents an opportunity for all members to gain a better understanding of the overall experience and process from a Borrower.

Prosper Days 2008: Leveraging Social Capital - In this session, panelists share their thoughts on social capital and what role it can play in improving borrower credit performance and lender returns.

Prosper Days 2008: Managing Large Portfolios - In this session, one of Prosper's larger lenders will discuss some best practices for creating a large portfolio with attractive returns. In addition, the session highlights a third party technology solution for building and managing a large portfolio.

Prosper Days 2008: Earning A Risk Adjusted Return - This session covers how to earn a risk adjusted return by understanding the relationship between risk and pricing.

Prosper Days 2008: Collection Practices - This session reviews the current status of Prosper’s collection process, including the results of several recent initiatives, and discuss the road map for future enhancements.

Prosper Days 2008: Prosper API Workshop - The API session provides a discussion with a number of users of the Prosper API including demos and commentary on how to put the API to work for better bidding, building applications, and even creating a new business built on Prosper data. The session is for advanced users, both programmers and non-programmers alike.

Prosper Days 2008: Advanced API Applications - Advanced applications information that goes beyond the API Workshop topics.

Blogger Panel: P2P Lending 2.0 Trends - A diverse group of banking, microfinance, P2P lending and social networking experts shed light on trends impacting Prosper, financial services and personal finance.

Prosper Days 2008: Town Hall Lunch - Town Hall Lunch with Chris Larsen, John Witchel and Bob Kagle.

Prosper eliminates state rate caps

Following Lending Club's lead, Prosper has opened up to borrowers in almost all states and eliminated state rate caps. All loans now have a maximum rate of 36%. The only exception to the nationwide plan is Texas (limited to 10% interest for personal use loans and 18% for business use loans) and South Dakota (cannot borrow).

Previously borrowing was not permitted in some states (like Nevada) and was restricted to businesses in some states (like North Carolina) and had very low rate caps in some states (like Pennsylvania). Prosper was able to eliminate rate caps by partnering with WebBank, a Utah-chartered Industrial Bank. Lenders do not technically lend directly to borrowers. Instead, they make a loan purchase commitments and purchase a promissory note from Prosper which represents the loan made by WebBank. WebBank assigns the loan to Prosper. WebBank is the same bank Lending Club uses to service their loans. All the legal details are on the state licenses page.

In addition to removing state rate caps, Prosper has made several other changes and upgrades.

Minimum instant transfer amount lowered to $50 - If you install Prosper’s Facebook application, you can instantly transfer funds from your bank account to your Prosper account as long as you have at least $100 in active loans. Previously transfers would take a couple days to go through unless you transferred more than $500 at a time.
Second loan criteria updated - The new rules for whether a borrower is eligible for a second loan are dependent on the borrower’s credit grade, and the factors taken into consideration include time since last loan originated, consecutive months of on-time payments, and whether the borrower’s credit grade has dropped or not. The total cumulative value for all of a borrower's loans is $25,000.
Lender servicing fee for AA increased to 1% per annum - Just three months after raising fees for borrowers, Prosper is also increasing the servicing fee for lenders. Previously the fee for AA loans was 0%. All the details are on Prosper's fees and charges page.
Listing durations standardized at 7 days - The listing creation process has been simplified and listing durations are all now 7 days.

Charlotte Observer: 'Peer-to-peer sites connect lenders with borrowers'

Christina Rexrode has published a detailed look at peer to peer lending for the Charlotte Observer - Peer-to-peer sites connect lenders with borrowers. Reaction to the article among veteran lenders on prospers.org was very complementary. The national media typically makes glaring errors when writing about peer to peer lending. This article, however, was different. Oak_Hill_Fire said it was "not a purely fluff piece." Lender j9359 called it, "Probably the best written and balanced piece on Prosper I've read" and DakotahFury said, "it was one of the better articles I've seen."

Christina and I exchanged several emails and phone calls regarding the article but kept missing each other due to our busy schedules. I hope this blog was helpful to her as she gathered information for her article. Her article is organized around five parts - the connectors, the risks, the borrowers, the lenders and the future. Read the whole thing here.

Speaking of the peer to peer lending and the media, there are three other articles over the weekend that are worth mentioning.

Los Angeles Times - Know the risks before investing in start-ups
In this Q&A the author recommends considering Prosper as a way to diversify investments to someone who is interested in investing in a friend's new company.

"If you're interested in seed-round investing, consider attending angel investor networking events to get a sense of the range of opportunities available. If you're interested in high-yield debt returns, Jacobs said, consider peer-to-peer lending websites such as Prosper, at www.prosper.com, where you can place many small loans across a portfolio of customers with different risk profiles."

Oddly, the same author did not mention the peer to peer lending sites when responding to a different question about lending money to family and friends.

"If you're making a very small loan, it might not pay to go through the time and expense of drafting legal documents or seeking collateral, unless there's a high possibility of default -- in which case you may want to reconsider."

I'd argue that Prosper and the other peer to peer lending sites are the perfect platform to use when lending money to family and friends.

The Press Enterprise - Riverside residents recommend social lending Web sites

"Returning from a trip to Africa in early 2007, Bruce Hammond, of Riverside, wanted to help out people in some of the poor villages he had just visited. He did some Web research, and heard from friends about a nonprofit social lending site called Kiva.org, which had been mentioned on book tours and TV shows by former President Clinton, Oprah Winfrey and other celebrities....Some like Kiva are being used for purely philanthropic purposes, but experts say other for-profit sites are becoming increasingly popular meeting places for qualified borrowers and lenders."

Sun Sentinel - Lending networks take off on Web

"In a credit crunch, borrowers who need the money may ask friends and family or use their credit cards. But there's another group you might want to try: People you meet over the Internet."

Prosper portfolio plans and performance guidance drive better loans

According to Prosper's March Market Survey, newly released portfolio plans and performance guidance have resulted in a dramatic increase in "well priced" loans and decreased bidding on unattractive loans.

Netbanker has also done some analysis comparing loan volume on Prosper and Lending Club.

Here's the complete market report from Prosper:

As we have previously reported, Prosper’s mix of “well priced” loans – loans with an attractive risk-return tradeoff – has dramatically changed from the same period last year with approximately a 200% increase in the percentage of “well priced” loans and a six-fold decrease in “low priced” loans – loans with an unattractive risk-return tradeoff. Part of this positive trend is attributable to the introduction of portfolio plans and performance guidance from the Prosper Marketplace – changes introduced last October. These changes continue to drive better overall performance of the market.

In March we saw further evidence of this with portfolio plan performance improving. For example, the Conservative portfolio plan – one of four model portfolio plans Prosper has provided as templates that can be used by lenders – consists of five credit slices. Looking at all the credit slices across all four plans, 18 of 21 slices improved or remained constant. This is quite positive considering the continuing credit crunch occurring in so many traditional financial markets and should lead to both better rates for borrowers and better performance for lenders.

We are also seeing a healthy start of custom portfolio plans, which lenders can create from scratch or modify from an existing Prosper model plan. These plans can be easily shared with friends or family. In March, approximately 1,800 custom plans were created that spawned over 18,000 bids.

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

Hacker: Prosper security 'above average'

The hacker who exploited cross-site scripting (XSS) vulnerabilities on Prosper called their security "above average" in a post on prospers.org. Although their security is better than most financial sites, the XSS vulnerability is significant and could allow a site visitor to download unexpected images with malicious code among other things he said.

One Prosper lender showed he was able to change the displayed credit grade and DTI ratio of a borrower listing by introducing a style sheet in the listing description.

In other cases, XSS vulnerabilities have been used to:

allow an attacker to run code on a user's machine without their knowledge after visiting the infected page
trick the user into sending their username and password to the attacker by altering the original webpage
allow the attacker to steal the user's cookie which could enable the attacker to login as the user

According to Prosper, "there are no known cases of hackers exploiting these vulnerabilities to date." Prosper will release a patch this weekend to fix the vulnerability.

'Ninja' hacks Prosper

According to GhettoWebmaster.com, Prosper's listing feature is open to XSS attacks and other hacks. GettoWebmaster demonstrated the potential by changing the background color of his own humorous borrower listing: Ninjas need funding for anti-pirate propaganda campaign.

According to a message he sent to Prosper, "Your member profile and listing pages are likely open to cross site scripting (XSS) attacks and other hacks at the moment. You can take a look at my profile and current listing to see that I did some light CSS tweaking to customize those pages. I didn’t test any potentially malicious stuff since this is a financial site."

Previously GettoWebmaster found vulnerabilities in the popular HotOrNot dating site. At that time he reported the vulnerabilities on HotOrNot could:

Auto-redirect all visitors to my profile to the url of my choosing.
Render the entire page blank.
Replace the entire profile with an image of the profile which was linked to the url of my choosing. etc, etc, etc…

When borrowers create a new listing they have the option to edit the source html of the loan description as shown below. This is where the vulnerabilities were apparently introduced.

A discussion about the ninja listing can be found on the prospsers.org forums. It looks like Prosper needs that new software engineer ASAP.

New Prosper book assists borrowers and lenders

Prosper borrower, lender, and group leader Sean Bauer has just published a new book about Prosper - The Complete Guide to Prosper.com. This 263 page book is a solid starter to help new borrowers and lenders avoid common mistakes and get started on the right foot with Prosper.

Most borrowers on Prosper do not get funded. Those that do often create more than one listing before they finally get a loan. The primary aim of this book is to provide advice based on research and experience to help these new borrowers create listings that will get funded.

This is a list of the chapters:

How and why Prosper.com will revolutionize America
Getting started on Prosper.com: Creating an account
Borrowing: Could/should you borrow with Prosper?
Borrowing: Creating your borrower's listing
Borrowing: Endorsements give you a helping hand
Borrowing: Managing your loan
Groups: Take advantage of their huge potential
Groups: Starting your own
Groups: Manage your group for success
Lending: Becoming a lender
Lending: Listings
Prosper.com fees (Yes, they charge!)
Tools for using Prosper.com
Forums and conclusions: You've seen it all now

As I read the book I was reminded just how fast the marketplace is changing. It's hard to print a book about Prosper and stay current. There are several marketplace changes in the past few weeks and months that are not mentioned in the book. For example, the book does not mention the recent change in collection agencies, the changes in the official forums, or any of the changes announced at Prosper Days such as portfolio plans.

Although the marketplace is rapidly changing, The Complete Guide to Prosper.com does provides current, practical useful advice to help any new borrower or lender. If this book resonates with the P2P marketplace I see Bauer publishing a new edition every year.

Special offer (today only): In an effort to climb the Amazon bestseller list, Bauer has partnered with 13 different sites including Prosper Lending Review to provide incentives for readers to purchase the book on March 6th. Details about the special offer are on the Prosper book website. These are the bonus gifts:

SCOTT BILKER, Author of "Talk Your Way Out Of Credit Card Debt" – A FREE downloadable Mortgage Comparison Calculator
JUNE CAMPBELL, Writer, Internet Marketer and the Owner of Nightcats Multimedia Productions – A Twenty-Two Step Guide to Making Money Online
DAWN VAUGHAN, Residential Designer, Vaughan's Home Design LLC – A FREE Stock House Plan: the "Laura Cottage" is an affordable starter or retirement home (valued at $600.00!)
MARK WALTERS, 3rd Generation Real Estate Investor & AuthorCashFlowInstitute.com – Not Just One, But Three Valuable Bonus Gifts: "Real Estate Investing Tips & Advice" eBook, Free Real Estate Videos, AND "How To Get Out Of Debt & Create An Investing Machine" Video
DR. JOE VITALE – Invincible Marketing – The 7 Principles of Success in Business. In this 58 paged Special Report, Dr. Vitale walks you through each of his 7 principles about Invincible Marketing, as he is interviewed by Jeff Chavez for this live, once-in-a-lifetime teleseminar!
LEARNTOLEND.COM – Free Membership. Get your peer lending questions answered with the Lending Profits Guide, helping you succeed in peer to peer lending at both Prosper.com and LendingClub.com.
BRUCE LIU, Primemax Marketing Group – FREE eBook entitled "7 Secrets Guaranteed To Boost Your Credit Score!" Discover the "little-known" secrets that guaranteed to raise your credit score.
WAHMCART.COM – Special Report on "The Key Components of a Successful Website".
JOAN SOTKIN – FREE "Basic Money Management" eBook
PROSPER LENDING REVIEW – Ten articles for Prosper lenders from the Authors of Prosper Lending Review in one easy to read PDF.
LAZY MAN AND MONEY – 37 Tips for Living Your Life Better.
S&S INVESTMENTS, LLC – Three Articles: Simple Money Management 'Check-Up' Strategies, The Power of Compound Interest, Choosing the Right Mortgage for You.
THEDIGERATILIFE.COM – Four Articles: 8 Lessons I Learned From The Cheapest Family In The Nation, The Brand New World Of Peer To Peer Lending, Top 10 Wealth Building Ways Of Ordinary People, Bad Ways To Use Credit: A List of 21 Credit Card Mistakes.

More information:

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