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.
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.
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.
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.
Ever since we changed the marketplace performance page from listing old loans as “Defaulted” to calling them “Charge-offs”, and then promising more changes inside lender accounts, we’ve had a lot of questions. Let me try to explain why we’re making this change, how it will look if you’re a lender, and what you can expect going forward.
Performance page changes In mid-August, we changed the way we displayed seriously delinquent loans on the marketplace performance page, renaming “Defaults” as “Charge-offs”, and moving the “4+ months late” loans into the “Charge-offs” category. Our goal was further transparency in reporting our marketplace’s default rate, and I believe we achieved such transparency.
In our next site update, we’ll be adding even more data to the performance page, separately listing principal payments made before a loan is in Charge-off (4 months late) as “Pre-charge-off payments”, and displaying the total amount collected after a loan is in Charge-off as “Recoveries”.
What does charge-off mean? In general, a debt or account is considered “charged off” when it is unlikely that further payments will be received. Debts are usually charged off after they remain unpaid for a period of time (e.g., 90 to 180 days). Prosper uses the 120 days as the charge off threshold because loans that become over 120 days past due are eligible for sale to a debt buyer, and we have found that there is a steep drop-off in likelihood of further payments after 120 days of delinquency.
You can think of the new “Charge-off” status as a combination of “4+ months late” and “Defaulted”. A loan is designated as charged-off when it reaches 121 days past due.
The implications of a loan being designated as charged-off are the following:
• The loan’s entire balance (principal, interest and accrued fees) is immediately due and payable in full as of the charge-off date.
• As soon as a loan is charged-off, it remains in collections until final disposition of the loan. Possible dispositions include payment in full, sale to debt buyer, or if the loan is discharged in bankruptcy.
• Although the status of all loans 121+ days past due will be “Charge-off”, you will be able to distinguish the various collection, bankruptcy, and sale “sub-statuses” of charge-offs as they will be visible on the loan detail page.
• Once in charge-off, loans cannot be brought out of charge-off. Payments made by the borrower post-charge-off are considered “recoveries”, and are applied to pay down the loan’s balance, but the loan stays charged-off.
When a loan goes to charge-off, the loan’s balance (principal + accrued interest + accrued fees) will be frozen into a “Charge-off balance” for lenders.
As mentioned above, post-charge-off payments (i.e., recoveries) pay down the lenders’ charge-off balance. From the borrower’s side, however, interest continues to accrue, so there is a possibility (however small) that if a borrower pays off a charged-off loan in full, a lender could receive more than the charge-off balance indicated.
Lender account changes Inside your lender account you’ll find that loans previously marked as “4+ months late” bucket will now be included in a bucket called “Charge-offs”. You’ll also now be able to see the total number of loans paid in full. A rough approximation of what my lender account will look like once these changes have taken effect is shown at right.
Charge-offs will also be included in the “Net defaults” (now called “Net charge-offs”) total of the lender performance table. If any recoveries are collected, your net charge-off total will go down accordingly.
How are recoveries handled? A recovery is just a different name for a payment made on a charged-off loan. Post-charge-off recoveries received on accounts that are with a collection agency are subject to collection fees.
In addition to the “Payment history” table, each charged-off loan will have a separate table for the “Recovery history” of the loan. This table will detail the date, amount, and any related fees for any amounts collected after the loan has been charged off.
I look forward to your feedback and further questions.
Last September, I took out a $10,000 home improvement loan on Prosper, to fix a leaky patio that I inherited when I bought my apartment. It was a known repair, and the leak wasn’t particularly bad, but I knew that it should be patched soon. With my annual property tax bill taking up all my liquid cash at the time, I decided to ask for the $10k loan on Prosper.
I probably could have gotten a personal loan at a bank, and maybe even a home equity line… although they’re extinct now, I’m pretty sure those existed about a year ago. I probably could have asked my parents to lend me the money, but they’ve already suffered enough. :o)
Instead, I posted a loan request on Prosper. In the process, I invited my closest friends and family to help me out. I only invited those I knew would be willing to bid, and let the Prosper community do the rest.
My listing was bid down from a strategically high starting rate of 15% to the embarrassingly low final rate of 5.54%. Five of my friends bid on my listing, and even at that ridiculously low rate, four of them stayed in the money. One was outbid at 5.95%, and wisely stayed out of the fray. Anyone will agree that there are better returns to be had from other borrowers on Prosper.
While my listing was up, I got 21 questions from lenders, ranging from serious to funny, and from sincere to rude. I answered 20 of the 21 questions. My favorite was from tekiegreg, who asked: “You seem to have a disgusting habit of paying everything on time, not declaring bankruptcy and living within your means (aka low DTI) explain all your sins here immediately!” I answered: “Sorry - I will try harder next time!”
If I can give some advice to lenders asking questions, based on my personal experience as a borrower, I would encourage them to strive for two goals. First, be gentle. Asking for a loan from the public can be daunting, and an accusatory or ill-phrased question could cause a perfectly honest and well-meaning borrower to withdraw their listing and go elsewhere. Second, try to ask specific questions about the borrower’s loan intent and financial situation. One question I got was: “Do you promise to make your payment on-time and in full?” I’m not even sure what kind of question that is. It’s like asking me if I love my mother.
There is one thing in my answers to lenders that turned out not to be true… I wrote: “I expect to hold this loan for at least a year,” and yet here I am 10 days short of a year paying the loan in full. Prosper has no pre-payment penalty, which makes it easy for those of us with debitophobia to pay our loans quickly (and with no penalty) and move on.
I apologize to my lenders for paying back so early. But again, I maintain that there are better rates to be earned with other Prosper borrowers. And next time I need some cash, you may be able to cash in on me again. Happy lending!
Last night we made another update to the Prosper site. We’ve focused on making the site easier to use (particularly for first-time members), and have changed the way delinquent loans are displayed.
Family and Friend Lenders can bid via PayPal or Credit Card
In this release, borrowers will find it easier to request (and receive) bids from friends and family. After clicking on a friend’s email invitation, new lenders may fund their first bid using PayPal or a credit card. The new process is smooth and easy, and only takes a few minutes. These changes should further empower the Prosper community to help each other get funded.
Engaging their network of friends and family is the easiest way for borrowers to show that they are trusted, and lenders are eager to reward their effort - listings with bids from family and friends have a higher likelihood of being funded. If you’re an existing lender, you can use the advanced search tool to find borrowers who have bids from their friends. Happy bidding!
Marketplace Performance Page Changes
We are changing the way we display seriously delinquent loans on the marketplace performance page, renaming “Defaults” as “Charge-offs”, and moving the “4+ months late” loans into the “Charge-offs” category. We want to have transparency in the reporting of our marketplace’s default rate, and this change should help lenders take a more direct measure of the market’s charge-off rate. This change is the first step in a larger change we will be making in the way delinquent loans are displayed in lender portfolios.
Instant Transfer Changes
We are happy to announce the expansion of our instant transfer program in this month’s update. In the past, lenders could only execute an instant transfer that amounted to 20% of their active loan value (50% for lenders with the Facebook application installed).
Now, lenders with at least one active loan will be able to transfer as little as $500 ($50 with the Facebook app installed) and as much as $20,000 instantly. We hope this change will make it easier for new lenders to get funds deployed quickly and easily. Learn more about instant transfer.
Check out our Licenses
We added scanned copies of our state lending licenses to the Legal Compliance page. If you click on the name of the license, you’ll get to see the license in full glory. Our license for Illinois, the Prairie State, is at right.
Faster Listings for Qualified Borrowers
In an effort to get higher-quality borrowers through the Prosper loan application process more quickly, we’re testing a streamlined listing process where some borrowers post listings without adding a title, picture, or description. You’ll start seeing these listings on the marketplace, with titles like “My personal loan for [category]“.
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.
Last night we made another update to the Prosper site. The update includes a few nice changes for lenders and some important process changes.
Adjust the rate on your portfolio plans
When you add a portfolio plan to your lender account, now you can adjust the average bidding rate on your portfolio plan from the “Fund your plan” page:
Just change the average bid rate, and all of the slices that make up your plan will be changed accordingly. This makes customizing your plan even easier. View your portfolio plans now.
Manual bidding guidance
As of this release, a new reminder may appear when you’re bidding on a borrower listing and the bid rate may be too low to account for the risk associated with the listing based on the estimated loss rate for similar listings. For example, if, after taking the default rate into account, you are aiming for a 6% estimated return, in most cases you would need to bid considerably more on a D listing than on a AA listing because D loans normally experience a much higher estimated loss rate and therefore you are taking on more risk.
As foreshadowed in the May site update, we are now providing chapter and filing date information on bankruptcies filed by borrowers. If you have a loan where the borrower has filed bankruptcy, you’ll see something like this on the loan detail page:
Keep in mind that in some cases we don’t have the chapter and filing date for the borrower. In those cases, that information will not be provided in the message box.
Borrowers will now sign promissory notes for their loan
As of today, borrowers will be required to return to the Prosper site and sign the promissory notes which evidence their loan, before loan proceeds are disbursed. Until now, borrowers have not had to sign all of the notes themselves because they authorized Prosper to do so on their behalf.
Borrowers will receive an email notifying them that their loan is ready to sign, and will have 7 days to return to the site and sign the promissory notes. We will remind the borrower via email and phone calls every day until the 7 days is up, at which point, if the borrower has not responded, the loan will be cancelled.
Although this new process may add some additional time before loan funding, we expect that this change will reduce immediate loan payoffs and enhance the legal enforceability of Prosper promissory notes.
Self-employed borrower changes
Borrowers who are self-employed will now have their DTI displayed as “Not calculated”.
This is due primarily to the wide variety of business activities engaged in by self-employed borrowers, which present equally wide variations in the forms of income and tax statements often provided to verify income. As a result, income verification for self-employed borrowers is extremely difficult and time-consuming.
Additionally, the DTI of full-time, part-time, and retired borrowers who cannot verify their income will be displayed as “Not calculated”. Previously, it was displayed as “Not available”.
Stated income changes
The “Income range” field on the listing page has been renamed “Stated income”, and the stated income of every borrower will always be displayed. This includes self-employed borrowers and wage earners who indicate that they cannot document their income.
The employment section of the listing page will now look like this for self-employed borrowers:
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.
Loans designated as “Charged-offs” after 4 months late
When a loan is charged-off, the following things happen:
Once in charge-off:
Inside your lender account you’ll find that loans previously marked as “4+ months late” bucket will now be included in a bucket called “Charge-offs”. You’ll also now be able to see the total number of loans paid in full. A rough approximation of what my lender account will look like once these changes have taken effect is shown at right.
Last September, I took out a $10,000 home improvement loan on Prosper, to fix a leaky patio that I inherited when I bought my apartment. It was a known repair, and the leak wasn’t particularly bad, but I knew that it should be patched soon. With my annual property tax bill taking up all my liquid cash at the time, I decided to ask for the $10k loan on Prosper.
Family and Friend Lenders can bid via PayPal or Credit Card
Check out our Licenses
