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?