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Taking Stock of the Recent Changes at Prosper

by Peter Renton on April 17, 2013

It has been nearly three months now since the new executive team took over at Prosper and the changes keep coming. We all know about the new look they launched two weeks ago but there have been plenty of other recent changes as well. Here is a quick summary of some of the major changes that have been made as well as some that are coming very soon.

Maximum loan size is now $35,000

Until this month the maximum loan size was $25,000. Now, for grades AA, A and B the maximum loan size has been increased to $35,000. For C-grade loans the maximum is $25,000, D is $15,000 while both E & HR grade loans have stayed at $4,000. This is not a surprising change. Lending Club made this same increase over two years ago and the higher dollar loans have been performing well. The one thing that you should keep in mind if you have any saved searches where the loan amount is one of your criteria you may want to consider adjusting those searches to adapt to these new maximums.

No More 1-Year Loans

The 1-year loans at Prosper have always been just a small part of their business. But many investors liked them because it provided a quicker repayment of cash. Unfortunately, they are no longer available. When I asked why they said it was really a borrower demand issue. When the origination fee can only be amortized over 12 payments the APR gets pretty high and there just wasn’t enough take-up in it to make 1-year loans worthwhile.

Washington is Back Plus Two New Investor States

When Prosper introduced their bankruptcy remote vehicle on February 1st investors from the state of Washington were locked out and could not invest in new notes due to state regulatory issues. That changed a couple of weeks ago and they are now back in the fold and able to invest again. Also, as a result of the new legal structure Prosper is now approved for investors in Michigan and West Virginia.

Borrower Interest Rates Have Been Adjusted

This change is not unusual, both Prosper and Lending Club regularly adjust their interest rates. At Prosper rates now start at 6.04% for a AA-rated 3-year loan which is lower than the rate of 7.49% that was being charged 12 months ago. The drops are more dramatic for the lower grade loans. An E-rated 3-year loan is now 26.39% down from 29.58% 12 months ago. Interestingly, repeat borrowers no longer enjoy a discounted loan rate, which probably explains why there are fewer of those kinds of loans these days.

[Update: Someone from Prosper called me today to explain that my assumptions here are not completely accurate. You see, Prosper now has multiple interest rates within each loan grade whereas before they had just one. AA-rated 3-year loans can now range from 6.04% to 8.49% whereas before they were all 7.49%. For 3-year E-grade loans the range is now 26.39% - 30.06%, so rates have not in fact uniformly gone down as I suggested above.]

A Whole Loan Program is Coming 

Astute investors will have noticed a new field on the loan summary page called Initial Status. This has been added in preparation for a whole loan program that is launching at Prosper soon. This program will be run in a similar fashion to Lending Club’s where a random portion of loans will be held back from the main platform for a short period and large investors will be given the opportunity to invest in the entire loan. A test of this program was run last week and it will be implemented some time in the coming weeks.

Prosper is Moving to a New Location

Pretty much since their founding in 2006 Prosper has occupied the top floor of a beautiful historic building in the heart of downtown San Francisco. Last year they expanded to another floor in that building. But starting next month they will be at a new location at 2nd and Mission, just a few hundred yards away. The new space is larger and is a better deal financially.

They mentioned a few other changes as well. They have hired a new Chief Financial Officer, as well as an ex-FICO analyst and many others as well. There are also signs of a bit more public outreach than before. In the blog post by the new president, Aaron Vermut, published a couple of weeks ago there were many comments that were in fact responded to by the president himself. That was the first time a Prosper executive had engaged in public discussion since founder Chris Larsen left over a year ago.

I have been assured there are more changes in store as well. I realize not all these changes are great news for retail investors but I believe these are all necessary for Prosper to grow and to be able to compete with the industry goliath, Lending Club.

What do you think?

{ 31 comments… read them below or add one }

Tom April 17, 2013 at 8:09 am

Thanks, Peter. It seems like the new team is executing well thus far on the plan that they rolled out.

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Dennis April 17, 2013 at 12:37 pm

It seems like the new management team is putting in a lot of effort to make Prosper better, but one thing I haven’t liked lately is the extreme lack of notes on the platform. Especially noticeable is a lack of higher risk notes. As of this writing there are zero HR, zero E, and 10 D notes to choose from. I’m finding it impossible to invest new money with Prosper because of this. LC is currently a much better option for me.

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Peter Renton April 17, 2013 at 2:26 pm

I know the HR loans are few and far between and I have heard they are going away completely at some point. I have seen plenty of E-grade loans this month but you are dead right there are none on the platform right now. I am having to adjust some of my Prosper filters in order to find more loans. There are still loans available but it is a very different mix than a few months ago.

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Trent April 17, 2013 at 6:16 pm

Hi,
This may be off topic. I applied for a loan and 3 minutes after I received the email that that the listing was live I received a second email that it was funded, and that I needed to submit documentation which I have done 4 times ( because I have received two emails requesting the info over two days.)

Then I received a decline letter from Web Bank. It wasn’t due to income or job time. Everything that I put on my original listing should have panned out just fine.

Needless to say I am a little concerned now that Prosper has my W2, checking account info and Social Security number.

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Peter Renton April 18, 2013 at 10:05 pm

Trent, I just sent you a private email. Prosper would like you to follow up with them so they can work out exactly what happened.

As for your private information, like most financial institutions that deal with sensitive personal information they have many safeguards in place to protect your information.

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MikeB April 18, 2013 at 7:33 am

“This program will be run in a similar fashion to Lending Club’s where a random portion of loans will be held back from the main platform for a short period and large investors will be given the opportunity to invest in the entire loan.”

I’m guessing this is what accounts for the significant decline in the quantity and quality (based on my lending criteria) of loans at LC.

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Peter Renton April 18, 2013 at 10:08 pm

The decline in number of loans at LC is due to investor demand there. The popular loans are not staying on the platform very long at all, a matter of minutes, and they can’t add loans fast enough to keep up with the investor demand.

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Josh Brooks April 20, 2013 at 11:15 am

So true, Peter. I have been logging on at 0500, 0900, 1300, 1700, and 2100 EDT daily to get or exceed my target quota of D, E, F, and G loans on LC. Since I have started doing this, I have had no problems meeting or exceeding my goals, but – very literally – listed notes get fully funded in five or ten minutes. By the time I log into my third account, many notes that were just listed are already gone.

With big money scooping up 70% of these notes in seconds, and the rest of the little guys like me getting the last 30% over the course of the next few minutes, my confidence that this is the best investment available to small investors is greatly increased.

Thanks again for such a great Web site.

Josh

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Paul Beerkens April 18, 2013 at 7:37 am

I have over 2000 notes currently at Prosper but I will stop investing soon. Like LendigClub Prosper is becoming a playground for big money institutional investors. Small investors like us will get screwed.

Now that they no longer publish bids they can get away with any unfair practice they like. We are allowed to bid only once every 90 seconds (through the API) but now they can secretly give big investors different rules and there is no way for us to find out about this. Giving big investors access to “random” loans should worry all of us. What do you think the quality is of the loans after the big investors with large research teams and it departments are done with picking their loans.

Also prosper is retiring the current API and replacing it with a new one. Given the current conditions it is not worth rewrite my investment strategy.

Bye bye Prosper. It was fun while it lasted. Only a fool with continue to invest with them.

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Roy S. April 18, 2013 at 10:17 am

You are not alone in leaving Prosper. If I wanted to invest on LC, I would have gone over to the LC platform and invested there. Prosper has become a smaller, crappier version of LC. I stopped adding money a year ago, and I’ve already begun pulling out what I put in. I’ve never been a large player, so I doubt Prosper cares or will even notice my absence.

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Josh Brooks April 20, 2013 at 11:21 am

I would add that the few times I called Prosper’s investor services, I felt like I was talking to a stoned high schooler. Lack of familiarity with the platform, vague answers, absence of broader financial perspective. Really a disappointing experience, and one of the reasons I left Prosper.

In contrast, there is an investor services specialist at LC who manages my account. Every time I call LC, I am transferred to him. He knows the name that I go by (which is different than the name on my accounts). He occasionally sends relevant articles to my email. When I make a large deposit, he sends me a thank you note. Every January, he works with SDIRA Services to get our IRA contributions straight. Totally a professional experience, and if anyone from LC is reading, please keep this up.

I have suspected that Prosper is a dead man walking, and with the upcoming move, my confidence in this statement has increased.

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Peter Renton April 20, 2013 at 2:20 pm

Roy/Josh,

Of course, you are both entitled to your opinion but if Prosper was truly as bad as you both claim their future would most certainly be in peril. Yet they are in the process of putting together their best month ever with increased demand from both institutional and retail investors. They couldn’t be further away from a “dead man walking”.

My experience of Prosper has been different. My returns are still excellent, I have found the management to be very responsive and their availability of loans continues to improve. I know I see the world through rose colored glasses but I am continuing to invest in Prosper as well as LC.

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Roy S. April 21, 2013 at 4:53 pm

@Peter, I never claimed they were a “dead man walking.” Prosper just no longer fits my needs. I understand that they are more concerned with growing as well as their need to please and attract the large institutional investors in order to do. Unfortunately, I find that this has been hurting my ability to invest. I have been adjusting my (already very lax) lending criteria to reinvest in Prosper. There is no way I was going to add to my portfolio when I was already having a difficult time reinvesting. These changes may ultimately help Prosper grow, and others may like the direction in which Prosper is headed. I am just not one of those people…and I know Prosper is aware that they cannot please 100% of the people 100% of the time. And in the large scheme of things, I am no WB2. They can more easily afford to lose small investors like myself than they can afford to lose the large institutional investors like WB2.

I have just grown weary of hoping that there will be changes that I find appealing enough to add to my position at Prosper. And I find the looming downturn in the economy makes for a decent time to withdraw from this investment vehicle. I’ll still keep an eye on the industry (especially as to how well it weathers the downturn), and I’ll reevaluate my options. But as it stands, if I were to invest in one platform or the other, I’d now go with LC. In my opinion, I am seeing very little differentiation between the two platforms, and LC is stronger and more successful than Prosper.

Just my $0.02.

CA-Lender April 26, 2013 at 1:44 pm

Peter,

I have to agree (unfortunately) a little with Josh’s assessment of Prosper’s front line support. The few occasions that I have had to contact Prosper support, (either by email or phone), the replies were canned and non-helpful. On the other hand, every time I escalated any issue to any of the “higher ups” that I deal with the issue would get resolved to my satisfaction in very quick order.

Note–I had a small account at LC in early 2010, and from what I recall, their front line support wasn’t any better (maybe it’s changed since then).

Michael April 18, 2013 at 9:43 pm

Paul, the new API has no such restrictions. I’ve spent much time working with the new API. Please email me michael {at} nickelsteamroller.com if you’d like discus some options I have worked out to get ahead of the “big money” and get idle cash down.

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Peter Renton April 18, 2013 at 10:14 pm

Paul, I take issue with your statement that “only a fool will continue to invest with them”. I continue to invest and I do not consider myself to be a fool.

I will have complete details of the whole loan program after it launches but I can explain the way it will work now. A small percentage of loans, chosen randomly, will be made available to large investors who want whole loans for an hour before they hit the retail platform. The majority of the loans on the retail platform will never be made available to large investors.

While I would love to have every loan available to me I also see the need for Prosper to grow and make large investors happy as well. It is good for all investors in the long run if Prosper builds a strong platform and is able to reach profitability more quickly. I am prepared to give them some slack on this one.

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Dan B April 19, 2013 at 10:07 am

“Paul, I take issue with your statement that “only a fool will continue to invest with them”. I continue to invest and I do not consider myself to be a fool.”

I’m sure that I speak for most people here when I say that I don’t think you’re a fool. On the other hand, one could easily round up a dozen people over at prospers.org who think you are one (in addition to a bunch of equally complimentary terms as well, I’d suspect :) ) It is just a matter of perspective.
Paul is basing his comments from his perspective, as he has laid out……………just as the people over at dot org are basing it on theirs. Who knows, both Paul & dot org may even be right in their assessments of Prosper, when all is said & done.

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Andrew N April 22, 2013 at 11:44 am

What is going on with the class-action lawsuit against Prosper?

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Roy S. April 22, 2013 at 2:54 pm
Hippo387 April 18, 2013 at 2:25 pm

There seems to be an assumption that less higher risk loans and more lower risk (AA – B) is a bad thing. I’m not so sure. In a world of 0% interest rates, a consistent 6-10% return is significant. The jury is still out on the long term returns of high risk P2P notes, but I don’t think investors should assume that they will be without volatility.

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Peter Renton April 18, 2013 at 10:17 pm

Good point Hippo387. Every investor has different goals and some clearly like the lower risk loans. Any one who thinks they can earn 12-14% on high risk notes year in year out is very optimistic. In an economic downturn it stands to reason that defaults will increase on higher risk loans at a much faster pace than lower risk loans.

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Kevin May 1, 2013 at 1:24 pm

Regarding the elimination of 1-year loans, I think a more likely explanation is that the closing fee for those was only 25% of the fee for 3-year loans, so Prosper decided to try to force those guys into the 3-year category. When they pay their loans off in a year or less, Prosper’s already got the closing fee, yeah?

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Peter Renton May 2, 2013 at 6:44 am

Of course that may have entered in to the decision as well. And there is nothing stopping a 3-year loan in paying off in 12 months as well. As an investor that is fine with me.

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Dustin May 20, 2013 at 11:25 pm

I do not like the idea of institutional investors have a chance at loans before others. That completely eliminates the peer to peer lending aspect.

If anything, it should be the other way around. “Peers” should get a shot at the loans first, then if anything is left it should be passed on to institutions.

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Peter Renton May 21, 2013 at 9:10 am

Well Dustin, you are certainly not alone in your dislike of the institutional investors getting first dibs on the loans. There are dozens of comments here on the blog as well as on the forum agreeing with you.

Here is my take. Peer to peer lending is evolving. In fact, that name has not been accurate for some time. What we are doing here is investing in consumer loans. It just so happens that many large investors also want to invest in consumer loans which is understandable.

As the industry matures there may be a company that comes along focused on pure peer to peer lending. But the history of both LC and Prosper demonstrates the difficultly of making a profitable company with that model. It wasn’t until the institutional investors came along that LC really began to take off.

I wish it were different. In an ideal world we would have had a million individual investors by now and the industry would be thriving without institutional investors. But that has not been the case. So, I agree with the decision of both LC and Prosper in courting the institutional investors – without them the industry probably would have ceased to exist by now.

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Dustin May 21, 2013 at 9:46 am

I have never seen a good loan go without funding. It does not seem like there is a lack of investors, but rather a lack of people seeking grossly over charged loans. Why not flip the offering, let “peers” have a shot at the loans for an hour. Then hand it off to the institutions to pick up loans that might not have been funded. All they are doing by giving it to institutions first, is funding loans that would have been funded in the first place.

I think the sheer problem with the business model is that the primary target for loan offerings; debt consolidation and home improvement, have a flooded market. A flooded market that does not charge 20+% rates or nearly 5% origination fee’s. It is so easy to just get a 0% balance transfer card, or a home equity line of credit. Business loans remain, and a business should be seeking investors at the start, not high rate loans.

Prosper has always declined me for a loan, but I continue to apply every month to get a free FAKO score. So, they turn away perfectly good business. I am able to get low rate, high limit, high reward credit cards. Yet I am unable to get a personal loan from prosper. I am able to get a low rate unsecured personal loan from my bank. Which I have done in the past. So, they decline somebody with a paid personal loan on their credit report and thousands invested on the platform.

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Peter Renton May 23, 2013 at 8:26 pm

I have to disagree with you on this. In my chats with management at LC and Prosper the constraint isn’t in fact borrowers. It is infrastructure and people. Both companies could easily triple the number of borrowers on the platform almost overnight but they wouldn’t have the manpower to handle such a dramatic increase in volume. There is no shortage of borrowers looking to pay the interest rates LC and Prosper are charging.

Don’t feel bad about being declined. I have a credit score around 800 and LC declined me for a loan and Prosper charged me a 32% interest rate. Self-employed people like myself have a very hard time getting loans. If you can get a low rate for an unsecured personal loan from a bank then you are in the minority. I have spoken with many borrowers who found that not to be the case for them.

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CA-Lender May 23, 2013 at 8:53 pm

@Peter,

Regarding the interest rate charged at Prosper, they seem to be getting closer to accurately reflect high credit score self employed borrowers, like you and I.

If you view my 4 Prosper loans (log in required):

http://www.prosper.com/groups/member_home.aspx?screen_name=CA-Lender&display_mode=5

You’ll see my first was 32% and the most recent was at 12.5%. I went from and E to C to B to A with really no changes to my credit or financial data (my credit score was 760 on the first loan and 740 on the last).

Point I’m making, is they seem to be getting better as pricing out the risk.

Peter Renton May 24, 2013 at 1:47 pm

Interesting. Thanks for sharing CA-Lender. I am planning on taking out another loan later this year, maybe I will be pleasantly surprised by the outcome. I know self-employed people used to be hit very hard but it is clear they are tweaking their underwriting here.

Rene February 6, 2014 at 8:22 pm

I have noticed that there are very few if any business loans posted on prosper why is that the case? I check it from time to time and I don’t see any. Are they no longer offering business loans for us small investors to invest in? I’m afraid that these business loans are no longer available to us small investors, and in fact it may be the very loans that you referred to as part of the home loan program where they’re being held back for some large investors, this is truly unfair to a small investors who enjoyed investing in small businesses where we usually don’t have that opportunity unless we are considered an accredited investor? Could you report on this

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Peter Renton February 8, 2014 at 7:03 am

Hi Rene, Small business loans have always been just a small part of the total loans at Prosper and that continues to the case. I checked the data on NickelSteamroller.com and there have been 190 small business loans issued this year out of a total of 6,691 loans. There is currently one business loan on the platform as I write this:
https://www.prosper.com/invest/listing.aspx?listingID=1181003

The problem is that most loans on Prosper are being funded in seconds. There are many large investors as well as small investors using the API to invest and so unless you are very quick you do not get to see the loans being added. I am going to have a post next week on Prosper about this very issue. Stay tuned.

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