Site Update – September 24, 2008

09/24/08 posted by Andrew Martinez-Fonts

Last night we released another update to the Prosper site. The most significant change is the way that severely delinquent loans (charge-offs) are now reflected in lender’s accounts. You may also notice a few other small changes that we hope you will appreciate, as I will detail below.

Loans designated as “Charged-offs” after 4 months late

As described in a blog post last week, we have changed the way we report severely delinquent loans from “Defaulted” and “4+ months late” to “Charge-offs”.

As of today, borrowers whose loans are 91 or more days past due (DPD) will receive a “Notice of Acceleration”. The Notice of Acceleration is a warning that their loan will be accelerated in 30 days, meaning the loan will be due and payable in full. If the borrower doesn’t make a payment by the 30 day deadline, his or her loan will then be charged-off at 121 days past due.

This change may not be effective immediately for all severely delinquent loans. In order to roll out this change, for the next 30 days, loans that are 4+ months late that have not already been sold to a debt buyer will continue to be displayed as “4+ months late”. After approximately 30 days, severely delinquent loans will show as a “Charge-off” instead of “4+ months late”. The “4+ months late” status will then be used only in rare circumstances.

Loan Detail When a loan is charged-off, the following things happen:
• To the borrower, the balance is accelerated, meaning it is payable (and collectible) in full.
• To the lender, the outstanding balance of the loan (principal + accrued interest + accrued fees) is frozen into a “Charge-off balance”.
• The loan is taken out of pre-charge-off collections, and transferred to a post-charge-off collection agency.

Loan Recoveries Once in charge-off:
• The loan cannot return to “Current”. It will remain a “Charge-off”, even if the borrower pays the full balance of the loan.
• Payments made by the borrower are considered “recoveries”, and are applied to pay down the loan’s balance.

Learn more about charge-offs.

AA loan closing fees changed to 2%

The borrower loan closing fee for AA borrowers has changed from 1% to 2%. Listings created on or after September 24, 2008 will be subject to this new closing fee. Learn more about fees and charges.

Minimum loan closing fee changed to $75
The minimum loan closing fee for all borrowers has changed from $25 to $75. Listings created on or after September 24, 2008 will be subject to this new minimum closing fee. Learn more about fees and charges.

We hope you find these changes helpful, and look forward to your feedback. If you have any requests for the next release, please leave a comment.

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15 Responses

WastachLife | September 24th, 2008 at 8:50 am

“We hope you find these changes helpful, and look forward to your feedback.”

Ok, here’s some feedback. I do not find the increase in fees and minimums to be helpful at all. Nice of you to tuck them in at the end of your post.

jelly1126 | September 24th, 2008 at 12:52 pm

I am afraid that the increase in fees will do more to chase borrowers away from Prosper than whatever benefit will come from increased revenue they might represent.

For an AA borrower, the fees actually will triple making it practically unfeasible to borrow less than $3750.

HollowOak | September 24th, 2008 at 1:29 pm

Andrew, you say, “As of today, borrowers whose loans are 91 or more days past due (DPD) will receive a “Notice of Acceleration”. The Notice of Acceleration is a warning that their loan will be accelerated in 30 days…”

Surely this was standard even before the latest changes? I recall seeing language in the agreements that provided for acceleration.

HollowOak | September 24th, 2008 at 2:22 pm

Surely this was standard even before the latest changes? I recall seeing language in the agreements that provided for acceleration.

Can we have somewhere some indication of the fees associated with post-charge-off recoveries as well, please?

Prosper Blog | September 24th, 2008 at 4:08 pm

The fee change brings the revenue associated with smaller loans in line with the cost of originating these loans. A $75 origination fee is extremely competitive in the marketplace. Borrowing on Prosper continues to represent a relatively inexpensive way for consumers to get loans.

Andrew Martinez-Fonts | September 24th, 2008 at 4:44 pm

@HollowOak - No, sending a Notice of Acceleration was not standard practice before today. You are right that our legal agreements provided for acceleration, but until now, we have not taken advantage (in a systematic way) of that provision.

Wolfy500 | September 24th, 2008 at 6:17 pm

With the recent updates it looks like lenders are unable to see the actualy loan balance. I looked at all my loans and the loan balance on;y relfects the principal balance left, not the pricipal and the accured interest. Why was that changed?

Prosper Blog | September 25th, 2008 at 11:25 am

Thank you for letting us know of this issue – we appreciate our community informing us of areas of concern. Please be assured we will fix this shortly.

Gassman0102 | September 26th, 2008 at 5:49 pm

I dislike the fact that payments in transit, but not applied to current balance (designated by ‡) do not appear on the loan page since this update. They only appear once the payment is applied.

bestloanrate | September 27th, 2008 at 12:25 pm

I agree with the previous comments, the increased fees seem unreasonable. with 150,000,000 in funded loans, the site is generating 1.5 million a year in lender fees alone, regardless of origination fees. And it’s practically risk free for you, since the lenders are the ones putting their money on the line. I hope you would reconsider, as I think people will be less likely to invest through this site with higher fees.

jelly1126 | September 29th, 2008 at 3:44 pm

I don’t know if it was intentional, but Gassman0102’s comment regarding payments in transit is an important one. I am one of many who keep a spreadsheet for all of my loans and the double dagger symbol tells me to record a payment. Now I can’t rely on that and it is very annoying.

If it was intentional, it needs to be rethought, and if not it needs to be fixed.

Prosper Blog | September 29th, 2008 at 4:52 pm

@jelly1126
Thank you for your comment - this is a known bug and we will rectify as soon as possible.

NewHorizon | September 30th, 2008 at 12:18 pm

IMHO, even the given meaning of the *single* dagger - “payments in transit” - is misleading.

The borrower’s bank account could have insufficient funds, for example, or they closed their account. In these all-too-common cases, it is, of course, totally impossible to have any funds actually transiting. Yet we’re nevertheless blithely told that payments are “in transit” via the appearance of the single dagger.

Wouldn’t something like “Payment processing” be a more accurate definition of the single dagger? And maybe “Payment initiated” for the double dagger? Or maybe other folks can suggest even better verbiage…

Prosper Blog | September 30th, 2008 at 1:52 pm

Thank you for your suggestions. We agree and will update as soon as possible. As always, we thank the community for their input.

dan | October 8th, 2008 at 9:43 am

For the long term viability of Prosper as a lending platform, I encourage a reconsideration of the AA borrower fee change. Discouraging the best borrowers from using the site to find loans will have the effect of discouraging lenders from lending as the site becomes less of a true marketplace and more of a cesspool of bad borrowers. This is a classic example of economic “adverse selection” that encourages people to do bad things instead of good. If a borrower can ding their credit score down to A, they now have a better chance of getting a good rate than when they had perfect credit. Prosper: Although this seems like a good idea when you apply it to your last year’s business, because this is game-changing, due to economic principles it won’t hold true going forward. This is a mistake.