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LendIt Fintech News: Daily Coverage of Fintech & Online Lending


Prosper Officially Launches HELOCs with First Bank Partner BBVA

After a year since the first announcement Prosper has launched HELOCs with BBVA

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It was last November when we first heard that Prosper had plans to expand their offerings from personal loans into HELOCs.  In 2018 David Kimball noted that they would be partnering with banks on the new product and loans would be available both directly through Prosper.com and also as a white-labeled offering. Now we know their first bank partner is BBVA.

As you’d expect from a fresh offering in 2019, the online application takes just a few minutes and potential borrowers are provided with an instant pre-qualification. There are also no origination fees. Per the official press release, BBVA USA is Prosper’s exclusive bank partner in four states (BBVA Ventures has also participated in Prosper’s equity financing rounds).

We were able to catch up with Prosper CEO David Kimball again to get an update on the new offering. He noted that while they would have liked to bring it to market faster they wanted to make sure they took the time to do it right.

The platform will initially be available to customers in Alabama, Arizona, Florida and Texas direct through Prosper.com and a select group of BBVA US customers will have access via a BBVA branded version of the same platform in the coming months. One of the benefits of this bank partnership is Prosper will not need to go to the capital markets for funding. BBVA is just their first bank partner and Kimball shared with us that they have an additional bank partner in the pipeline and they are looking towards having a national footprint soon.

Most people are already familiar with Prosper’s personal loan offering and Prosper tested the cross sell of their HELOC in an interesting way. After a potential borrower went through the application process for a personal loan, some borrowers were offered two different options: the personal loan they applied for, or a HELOC. The types of applications that typically fit were those loan applications for debt consolidation or home improvement.

Kimball noted that since these customers already were in the mindset of receiving a personal they often ultimately selected the personal loan. Some consumers weren’t swayed by the promise of a lower interest rate (often several hundred basis points cheaper) and they also had to weigh other factors. Prosper has worked hard to improve the user experience, but the application process is longer than that of a personal loan meaning the borrower may not receive their funds as fast. It is also likely that borrower education is a factor as some consumers just aren’t familiar with a HELOC. Prosper is looking to remedy these challenges both with speeding up the process and working on a strategy for borrower education on HELOCs. They are also looking to offer the HELOC as an option sooner in the funnel for particular situations like a borrower seeking funds for a home improvement.

As for the partnership approach itself Kimball noted that their two pronged approach through Prosper.com as well as offering it as a white label approach has its benefits, mainly the stability of funding. It seems like there is a trend these days of the fintech lenders becoming tech providers. We’ve seen this in consumer lending with Avant’s Amount as well as on the small business side with OnDeck’s ODX platform. By offering the tech platform the fintech companies get to benefit from the banks existing customer base thereby saving on customer acquisition costs.

Conclusion

The HELOC is a product with an interesting history. HELOCs peaked around 2009 as many consumers used their HELOCs as an ATM to fund various purchases as home prices continued to go up in value. Since then it’s no surprise that they have fallen steadily over time and HELOCs have not rebounded with the recent rise in housing prices and the subsequent rise in equity that homeowners have ($6.3 trillion in the second quarter of 2019). One of the big challenges will be educating borrowers on the benefits of this product over competing products like the personal loan which are already optimized for a great customer experience. When used responsibly and with further innovation to the time to fund, the HELOC is clearly a better product for homeowners. With a few fintechs getting into this space, namely Figure and now Prosper it’s going to be interesting to see if we see an increase of homeowners again opting for HELOCs.

My Quarterly Marketplace Lending Results – Q2 2019

My latest quarterly investment results show an overall 6.20% return for the year ending June 30, 2019

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Time for an update on my quarterly investment returns. This is something I have been doing for many years now and I know it is appreciated by many of you. I started out reporting on my marketplace lending investments in Q4 2011 and have provided updates every quarter since then. I share all the details of my LendingClub and Prosper investments as well several other investments I have made in the online lending space.

Overall Marketplace Lending Return at 6.20%*

The upward trend in my returns continued in Q2, making it the fifth quarter in a row with increasing returns. My preliminary return for the 12 months ending June 30, 2019 is 6.20% (one investment is still not final), the best I have achieved since Q3 2017.

My six original accounts at LendingClub and Prosper have all been open for at least seven years so they are very mature accounts that have experienced several turns of capital as I have kept reinvesting over the years. I have separated these out because these were the accounts I had when I first started doing these reports so readers can go back and see how they have trended over time. But as I have said before I am liquidating my taxable accounts here and will focus my investments in consumers loans in my retirement accounts.

Underwriting changes that were made in 2017 continue to bear fruit for my personal loan investments. My six original accounts had a return of 5.48%, a vast improvement from the 2.34% return of just a year ago, and back to near where it should be. In today’s benign credit environment I would still like to see returns in the 6-7% range for personal loans and we are headed in that direction.

Now on to the numbers. Click the table below to see it at full size.

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My Quarterly Marketplace Lending Results – Q1 2019

My latest quarterly investment results show an overall 6.09% return for the year ending March 31, 2019

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Put this in the “better late than never” department. Yes, I know it is late July and I am only now just publishing my Q1 2019 returns. Thanks to those of you who reached out but rest assured I am still committed to sharing my results publicly and I apologize for the extreme tardiness of this update.

I am happy to report this quarter that my returns continue to improve. Since hitting bottom in Q2 of 2018 my returns have improved each quarter. Both LendingClub and Prosper showed their best returns in almost two years as the underwriting changes that were implemented in 2017 have had a positive impact.

Overall Marketplace Lending Return at 6.09%

My overall returns for the twelve months ending March 31, 2019 was 6.09%. This is up from 5.35% that I reported in Q4 and 4.77% in Q3. My original six LendingClub and Prosper accounts had another full percentage point jump. Last quarter I reported the returns on those six accounts had jumped from 3.19% in Q3 to 4.16% in Q4. We see this quarter they are at 5.18%. This is quite a remarkable turnaround and while I still think 5% is not a high enough return for unsecured consumer lending, it is certainly moving in the right direction.

One point to note is that I am liquidating my taxable accounts at LendingClub and Prosper. I have a little too much exposure to consumer credit in my overall portfolio and so I will be focused only on investing in my IRA accounts there. I am moving my redeemed cash into other marketplace lending accounts as well as other investments outside of fintech.

Now on to the numbers. Click the table below to see it at full size.

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Ten Years of Investing in Marketplace Lending

I look back at my ten years of involvement in marketplace lending and share the major changes I have seen in the last decade

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This month marks ten years since I made my first investment in what was then called peer to peer lending. In July, 2009 I transferred $500 in to LendingClub to give it a try. Little did I know that first small investment would end up changing my life.

I had first read about peer to peer lending back in 2008 and I was immediately intrigued. I discovered Prosper but when I tried to open an account there they were in a quiet period. So I went looking for an alternative platform and found LendingClub. Within a few months I added $10,000 to that initial $500 investment. Then, I became so enamored with the whole idea of peer to peer lending that I was soon rolling over 401(k) accounts for my wife and I, as well as telling all my friends about it.

It was just over a year later that I decided to start blogging about this industry. Back then no one was writing about it and I really believed the industry had so much potential. So, I started the blog that would become Lend Academy back in November, 2010. The more I learned about peer to peer lending the more convinced I became that it had tremendous potential.

In 2013 as the industry was getting ready to take off I started LendIt, along with my fellow co-founders. It was the first ever conference focused on online lending and the one day event sold out. Then came the go-go years of 2014 and 2015 where dozens of new platforms got under way and venture capital was flowing into the space. The industry had its biggest setback in 2016 with the LendingClub crisis but the strong platforms endured and industry moved to focus on profitability.

Now, as I look back on the last 10 years I see so much has changed. The industry is now known as marketplace lending (thanks to Charles Moldow of Foundation Capital) and it has driven a resurgence in consumer lending and small business lending.

Ten Ways Marketplace Lending Has Changed Since 2009

1. Scale [Read more…]

My Quarterly Marketplace Lending Results – Q4 2018

My latest quarterly investment results show an overall 5.35% return for the 2018 calendar year

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I know I am very late with this regular feature but better late than never as they say.  I have been sharing my detailed quarterly returns with readers since 2011 and I will continue to do so for the foreseeable future. What started out as one LendingClub account in 2009 has now grown into 16 accounts across several different kinds of investments.

The good news is the slight uptick in returns that I experienced in Q3 continued into Q4 with my best quarterly return number in over a year. While I am still not happy with where these returns are today I am pleased with the upward trend of the last two quarters.

Overall Marketplace Lending Return at 5.35%

My overall returns for the calendar year in 2018 of my marketplace lending investments stood at 5.35%. This is up from 4.77% that I reported in Q3 and 4.46% in Q2. Interestingly, my original six LendingClub and Prosper accounts jumped considerably from 3.19% in Q3 to 4.16% in Q4. We are finally seeing the benefit of some changes that the companies made to their underwriting in 2017.

My lone holding in double figures is Streetshares as once again it is my top performing investment by far. But several of my newer investments have been performing well as I consider high single digit returns to be an excellent result these days.

Now on to the numbers. Click the table below to see it at full size.

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LendingClub and Prosper Tax Information for 2019

We share information related to filing your taxes with LendingClub and Prosper for the 2018 tax year.

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[Disclaimer: I am not an accountant nor am I qualified to provide tax advice. You should seek professional advice before taking action on any of the ideas presented here.]

Every year we provide information related to filing your taxes as an investor in LendingClub and Prosper loans. Both platforms have been around for many years and at this point not much is changing on a year to year basis. Our post last year has details which are still relevant today as you file your taxes for 2018.

You van view last year’s post on filing your taxes with LendingClub and Prosper here: https://www.lendacademy.com/lendingclub-prosper-tax-information-2018/

LendingClub has provided an update to their tax guide for retail investors. You can download the 2018 version of this document which will be helpful if you are new to the process. If you want to see a comparison of the 2017 and 2018 tax guide a Lend Academy forum member has created a link which shares the differences. The major changes apply to boxes 1f and 1g and are shown below.

Click to view forum thread

It’s also worth noting that LendingClub works with TurboTTax and they share how TurboTax users can import their LendingClub tax forms.

Prosper has also updated their tax guide for 2018. It is available for download here.

My Quarterly Marketplace Lending Results – Q3 2018

My latest quarterly investment results show an overall 4.77% return for the year ending September 30, 2018

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Every quarter I share my marketplace lending investment returns with the world. I started doing this back in 2011 with just my LendingClub and Prosper accounts. Today, I share my returns from 16 different accounts across a variety of investment vehicles and platforms.

I had at least some slightly good news this past quarter. After 13 consecutive quarters of declining returns I have finally had an uptick, albeit a small one. Of course, I am still not happy with these returns and I want to see a continued increase particularly when interest rates are rising. Given that you can now earn over 3% in an FDIC-insured CD for a three or five year duration I think these unsecured investments need to earn at least 7% to justify the risk we are taking.

Overall Marketplace Lending Return at 4.77%

My trailing 12 month returns for the year ended September 30, 2018 across all my accounts was 4.77% up from 4.46% in my last update. My original six accounts, all with Lending Club and Prosper, also improved over last quarter but are still at a paltry 3.19%.

My newer investments are all performing well with Streetshares still my standout account and the only investment today with returns consistently in the teens. But I am also very happy with AlphaFlow, Money360, Yieldstreet and Fundrise as they are all returning more than 8%.

Now on to the details. Click the table below to see it at full size.

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Prosper Announces HELOCs, Releases Q3 2018 Earnings

Starting early 2019 Prosper will add to their loan offerings with the addition of HELOCs.

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Back in 2005, Prosper was the first peer to peer lender to launch in this country, offering online unsecured consumer loans. It was a sea change at the time when offering a loan online was a novel idea. Now 12 years later, the company is leaning on their experience in the personal loan space to enter a new product category: HELOCs, or home equity line of credit. Around the time Prosper first launched, HELOC lending was at all time highs. It subsequently fell during the financial crisis, but is now on the rise again.

Prosper noted that according to a 2017 TransUnion Study an estimated 10 million consumers will take out HELOCs between 2018 and 2022 which would be more than double the number originated from 2012-2016. Part of this trend is the increase of home values over the years with homeowners wanting to to unlock the equity in their homes.

The new HELOC product will launch officially in early 2019. We spoke to Prosper CEO David Kimball to learn more about the new offering. The press release noted that Prosper “will be partnering with banks to improve the application process and reduce the time from application to closing”. What’s most interesting is that the move represents a significant change compared to their personal loan business when it comes to business strategy. While HELOCs will be offered directly through Prosper.com, they are also providing the offering as a white-label service to banks. We don’t yet know which banks they will be working with initially, but this is a trend we’ve seen more and more with fintech players. There are very few fintech lenders with traction today that operate a monoline businesses, most have grown to have a separate business line, many with a private label type offering for banks similar to the one Prosper is going to offer.

The banks will benefit by offering a tech forward product that leverages Prosper’s customer base and all of the data that Prosper has collected over the years. Prosper will be paid a fee for the use of their technology engine. It will be the bank’s underwriting model and capital which means the terms will vary from bank to bank.

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My Quarterly Marketplace Lending Results – Q2 2018

My latest quarterly investment results show an overall 4.46% return for the year ending June 30, 2018

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I know I am very late with my update this quarter as many of you have pointed out in emails and comments. But rest assured I am still committed to sharing my results publicly and I apologize for the tardiness of this update.

I wish I had good news to share but alas the decline in my marketplace lending returns has continued unabated. The biggest culprit for my declining returns is my exposure to unsecured consumer credit. As I have written about many times in the past a decline in underwriting standards at the major consumer lending platforms in 2015 and 2016 led to a marked increase in defaults where returns for individual investors like myself were significantly below projections. Recent vintages indicate that this severe decline is being reversed but given the loans I am invested in are three and five years in duration the effects are still being felt inside my own portfolio and will be for some time.

Overall Marketplace Lending Return at 4.46%

In my report from one year ago my trailing twelve month (TTM) return stood at 7.28% and I wondered whether my returns were in a downward spiral. That has proven to be the case as I am down almost three full percentage points over the last year as my TTM returns as of June 30 stood at 4.46%.

About 18 months ago I moved to a more conservative approach in my investing, focusing primarily on the lower risk loans at Lending Club and Prosper. The average interest rate of my portfolios continues to drop steadily every quarter but given my sizable portfolios of thousands of loans it takes a while for these changes to fully take effect. Interestingly, the one account where I have taken a more conservative approach from day one, my Prosper New Roth IRA, is easily my best performing consumer lending account with a TTM return of 6.32%.

Now on to the numbers. Click the table below to see it at full size.

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Prosper Reports Q2 2018 Financials

The company increased originations from the previous quarter while their net loss rose slightly.

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Yesterday, Prosper reported their Q2 2018 results. The company facilitated $867 million in loans for the quarter, up 12% from the prior year period. Prosper reported a net loss of approximately 12.6 million. While this is significantly better than the prior year period of $41.4 million, their losses increased slightly from the first quarter ($11.4 million). Total net revenues for Q2 2018 were $31.7 million, up slightly from the prior year period.

Below is a summary of Prosper’s key operating and financial metrics:

With their recent quarter, Prosper crossed the 1 million loan mark and surpassed $13 billion in loans total. David Kimball, Prosper CEO provided his perspective on the company’s progress related to adjusted EBITDA as well as platform changes in a prepared statement included in the press release:

“For the fifth consecutive quarter we successfully balanced growth with generating positive Adjusted EBITDA…Maintaining a balanced marketplace that provides value to both borrowers and investors remains our highest priority. Throughout 2018, Prosper has been raising interest rates and significantly tightening credit in order to ensure that we continue to provide a fair price for borrowers and a solid risk-adjusted return for investors.”

Prosper also highlighted that they have upsized their committed revolving warehouse facility to $200 million to continue to participate alongside their investors. We’ve seen this elsewhere in the marketplace lending space with LendingClub holding more loans on balance sheet for the purposes of selling these loans to investors at a future date. As of June 30, 2018 Prosper had $116.8 million of loans on their balance sheet held for sale.

You can view Prosper’s full 10-Q report on the SEC website.

ABOUT LENDIT FINTECH NEWS

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We are a team of fintech enthusiasts who have been covering the industry for many years. With a deep knowledge of online lending, digital banking, blockchain, artificial intelligence and more our team covers the daily news and writes in-depth editorials.

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