Taking Stock of the Recent Changes at Prosper

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?

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Tom
Tom
Apr. 17, 2013 8:09 am

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

Dennis
Dennis
Apr. 17, 2013 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.

Trent
Trent
Apr. 17, 2013 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.

Ronald
Ronald
Nov. 10, 2017 3:24 pm
Reply to  Peter Renton

Hello, I noticed that you’ve been very helpful to a lot of people. So I was wondering if you had any information on how to get Prosper to identify and correct an error with a loan origination deposit. I applied on 11/04/2017 and was approved on 11/06/2017. But I found out from my bank that when they had me login it captured an account identification number instead of my account number. So my bank sent the deposit back do to the wrong account number. All week I’ve been calling and trying to email support. But everyone keeps telling me the funds are on the way. It takes 1-4 business days. And if there’s a problem they will request any information that is needed. When the bank has said they have the funds back at this point. Therefore, holding up what I needed to accomplish with this loan. This makes me want to go with a different company everything to this point was great. But now having to deal with support online and over the phone has been the worst experience. Your help would be appreciated at this point.

MikeB
MikeB
Apr. 18, 2013 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.

Josh Brooks
Josh Brooks
Apr. 20, 2013 11:15 am
Reply to  Peter Renton

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

Paul Beerkens
Paul Beerkens
Apr. 18, 2013 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.

Roy S.
Roy S.
Apr. 18, 2013 10:17 am
Reply to  Paul Beerkens

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.

Josh Brooks
Josh Brooks
Apr. 20, 2013 11:21 am
Reply to  Roy S.

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.

Roy S.
Roy S.
Apr. 21, 2013 4:53 pm
Reply to  Peter Renton

, 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
CA-Lender
Apr. 26, 2013 1:44 pm
Reply to  Peter Renton

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
Apr. 18, 2013 9:43 pm
Reply to  Paul Beerkens

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.

Dan B
Dan B
Apr. 19, 2013 10:07 am
Reply to  Peter Renton

“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.

Andrew N
Andrew N
Apr. 22, 2013 11:44 am
Reply to  Dan B

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

Hippo387
Hippo387
Apr. 18, 2013 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.

Kevin
Kevin
May. 1, 2013 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?

Dustin
Dustin
May. 20, 2013 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.

Dustin
Dustin
May. 21, 2013 9:46 am
Reply to  Peter Renton

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.

CA-Lender
CA-Lender
May. 23, 2013 8:53 pm
Reply to  Peter Renton

,

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):

https://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.

Rene
Rene
Feb. 6, 2014 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