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Impact of the credit crunch on Prosper mainly constructive: comments Chris Larsen in the August 2008 Prosper Monthly Market Survey

by Prosper on 09/9/08

Chris Larsen is Prosper’s Co-founder and Chief Executive Officer

When we first introduced the monthly market survey one year ago, we noted that the impact of the credit crunch on the Prosper marketplace was broadly constructive. At that time we noted that as consumers began experiencing the evaporation of introductory credit card rate offers and home equity loan options, Prosper was becoming an increasingly attractive financing alternative, especially for borrowers with good and excellent credit. We also discussed that lenders on Prosper were steering their bids toward the listings of higher credit quality borrowers.

As may be gleaned from the “Mix of Funded Borrowers” table below, the trends we observed at this time last year remain in full force today, particularly as the pervasiveness of the credit crunch is extended even further in the wake of the Federal government’s bailout of mortgage giants Freddie Mac and Fannie Mae.

 

Mix of Funded Borrowers

  August
2008
August
2007
August
2006
YTD
2008
YTD
2007
YTD
2006
Since
Inception
Prime 43% 32% 25% 43% 29% 27% 35%
Near Prime 49% 59% 50% 52% 57% 49% 54%
Sub Prime 7% 9% 25% 5% 14% 24% 11%

 

The table above also indicates that as lenders on Prosper have become more conservative in their bidding strategies and can be more selective as more prime (720+ credit scores) and near prime (600 – 719 credit scores) borrowers turn to Prosper, sub prime (520 – 599 credit scores) borrowers listing on Prosper may need to leverage “social capital,” such as inviting friends and family to bid to fund a portion – if not the majority – of their requested loan amount, in order to improve their chances of getting funded.

Very broadly, friends and family bidding activity demonstrates to lenders in the marketplace that borrowers are bringing more to the table than their credit data; they’re bringing people who are willing to put their money on the line because of their belief in that individual’s integrity and ability to repay the loan. In this tough economic climate, Americans’ social capital may be more important than ever.

For more details on the August 2008 Prosper People-to-People Lending Market Survey click here.

Prosper’s People-to-People Lending Market Survey results are released the second Tuesday of every month. To register to automatically receive the survey, send an email with “SUBSCRIBE” in the subject line to: p2plendingmarketsurvey@prosper.com.

Today we release results for August.



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