Prosper Releases Market Survey Results for June 2008

07/15/08 posted by Prosper Blog

Market Commentary By Prosper Co-founder and Chief Executive Officer, Chris Larsen

In June, two very interesting independent academic studies were released. The first study by Economists Ginger Zhe Jin and Seth Freedman of the University of Maryland looks at Prosper’s market since inception to determine average returns and other interesting conclusions about the market.

Another study led by Paul Dholakia at Rice University finds that decisions made by Prosper lenders are much less likely to be influenced by race or gender and “strong evidence for the democratization of lending practices in P2P loan auctions.” The study also cites that bidders on Prosper:

[…] seem more rational (bid according to what is best for them financially) and less influenced by stereotypes (bid according to old notions and stigmas). This outcome is substantially different from the documented discriminatory practices of financial institutions (e.g., Ladd 1998; Munnell et al. 1996; Blanchflower, Levine, and Zimmerman 2003) […].¹

As we have previously stated, one of our primary objectives in making Prosper market data fully transparent and freely available via an API is to allow and encourage anyone to study the Prosper market and consumer credit markets in general. We deeply appreciate the level of diligence and analysis so many have contributed using Prosper’s marketplace data. We are also very encouraged that an increasing number of academics, economists and professional credit analysts have taken the time to conduct deep studies of the market and share their conclusions publicly.

Membership and Loan Volume Statistics

	June 2008	June 2007	Year-to-Date 2008	Year-to-Date 2007	Since Inception
New Members	28,401	30,985	216,036	202,459	754,164
Funded Loans ($)	$8.3 million	$7.0 million	$46.8 million	$43.4 million	$155.8 million
Funded Loans (Units)	1,436	950	7,418	6,197	24,803
Average Loan Size	$5,755	$7,389	$6,309	$7,004	$6,282
Daily Average Number of Borrower Listings	2,510	2,385	2,454	2,039	1,729

Mix of Funded Borrowers

	June 2008	June 2007	Year-to-Date 2008	Year-to-Date 2007	Since Inception
Prime	43%	28%	42%	29%	34%
Near Prime	52%	61%	53%	56%	54%
Sub Prime	5%	10%	5%	15%	12%

Estimated Annual Return on Prosper Select Index

		June 2008
Prosper Select Index		7.22%
Prime Select Index		8.04%
Near Prime Select Index		6.38%
Sub Prime Select Index		9.18%

Average Borrower Rates on Prosper Select Loans

	June 2008	May 2008	June 2007	Year-to-Date 2008	Year-to-Date 2007	Since Inception
Prime Select Loans	9.38%	9.55%	10.09%	9.78%	9.96%	9.95%
Near Prime Select Loans	16.53%	16.17%	17.17%	16.09%	15.47%	16.10%
Sub Prime Select Loans	35%	22.37%	23.15%	27.36%	23.29%	24.21%

Definitions

Since Inception: November 1, 2005 through June 30, 2008. Prosper’s by invitation only “friends and family” launch began on November 1, 2005 and Prosper launched to the general public on February 13, 2006.

2008 Year-to-Date: January 1, 2008 through June 30, 2008.

2007 Year-to-Date: January 1, 2007 through June 30, 2007.

Prosper Select Index: The Prosper Select Index return is the estimated average annual return on principal, based on actual delinquency performance to date. The Prosper Select Index includes AA - E credit grade loans for borrowers whose credit reports at the time of application indicated zero current delinquencies, three or fewer credit inquiries, and a debt-to-income ratio of 40 percent or less. The annual return period reflects loans originated in the twelve month period ending one month prior to the observation date of June 30, 2008. Prime Select includes AA and A credit grade loans (credit scores of 720+). Near Prime Select includes B, C, D credit grade loans (credit scores between 600 and 719). Sub Prime Select includes E credit grade loans (credit scores between 560 and 599).

Average Borrower Rates: Average Borrower Rates are the weighted average borrower rates on Prosper Select Index loans with loan amounts between $5,000 and $10,000. Rates shown are interest rates, not annual percentage rates.

Mix of Funded Borrowers: Prime includes all AA and A credit grade loans (credit scores of 720+). Near Prime includes all B, C, D credit grade loans (credit scores between 600 and 719). Sub Prime includes all E and HR credit grade loans (credit scores below 600).

¹ Rick L. Andrews, Utpal (Paul) Dholakia, Michal Herzenstein, Evgeny Lyandres (2008), “The Democratization of Personal Consumer Loans? Determinants of Success in Online Peer-to-Peer Loan Auctions,” 31

Posted in Market Survey

4 Responses

TSC | July 15th, 2008 at 3:59 pm

Based on the rate of defauts, I think it will be worth considering a twist on unsecure lending. Borrower endorsed lending.
It could ba a good product addition tot he present line-up.

This is just a twinst similar to what micro lenders do around the planet.
Without offering a guarantee, but offering a letter of endorsement with no monetary resposibility, the borrower submits a minimum of three letters of endorsement, and receives a preferential rate improvement from its bid final rate. The endorsers will receive via mail -no email- a letter informing them of the loan performance in simple terms, basically is your endorsee performing on their loan or they are late and defaulting. This is not a substitution to the present format but an addition, based on historical data of such loans from small lending practices.
The rate reduction and the costs of mauiling should be discounted from the final rate and this will be the lenders costs on bidding on a percibable better loan.

phredy148 | July 18th, 2008 at 10:49 am

TSC,
How is your plan different than the current endorsments at Prosper?

TSC | July 18th, 2008 at 7:50 pm

“offering a letter of endorsement with no monetary resposibility, the borrower submits a minimum of three letters of endorsement.”
“The endorsers will receive via mail -no email- a letter informing them of the loan performance in simple terms, basically is your endorsee performing on their loan or they are late and defaulting.”

The difference is a formal letter signed by an endorser, right now prosper does not have any formal process if you get 0 or 20 endorsements.

There are studies determining that people that proudly understand the need for money or any other need, have a very high probability of succeding in their endeavor to get ahead. Reason why banks all over the world
use the formal or informal collateral at different levels and those loans have a 98% chance of been repaid.