Prosper has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future.
Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. If you’re an existing lender, your current lender agreements will be unaffected; your existing loans will continue to be serviced; you’ll be able to track and monitor your loans; and you’ll be able to withdraw funds from your Prosper account.
If you’re a borrower with an existing loan, you will continue with your current borrower agreement and be unaffected by the registration process. If you’re a borrower seeking a loan, you will still be able to create a new loan listing, which we will endeavor to fulfill through alternative sources. As the appropriate securities authorities may consider a new loan listing to constitute the offer of a security, we are unable to post new loan listings on our site until our registration statement becomes effective.
A successful registration can take several months, but we assure you we will do our best to move forward as quickly as possible. Until this process is complete, we’re required to be in a quiet period and will be unable to respond to press, blogger or other inquiries about Prosper or the registration filing until it becomes effective.
We apologize for any inconvenience this may cause, and want to thank you in advance for your understanding and support.
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 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.
A few people have asked for more detail about our new feature and process change where borrowers will now be signing promissory notes. We’ve been asked whether the change was made to fix a weakness in the process.
There has never been any weakness in the manner in which borrowers have signed Prosper promissory notes. Prosper’s notes are and always have been fully enforceable. We did not have to make this change, as we were not receiving any complaints about the manner in which the notes have been signed.
Until now, at the time a listing is created borrowers have appointed Prosper as their agent to sign the notes on their behalf. This has been done as a convenience to the borrower, so that the borrower didn’t have to sign 20 or more notes. Now we have created a process where borrowers can conveniently, with one click, sign the notes themselves. We elected to make this change primarily for two reasons.
First, there have been occasions where borrowers, after their listing expired but before loan disbursement, changed their mind about wanting a loan. It those instances, Prosper would go to the trouble of funding the loan (and the borrower would rightfully incur a closing fee) but they would end up paying off their loan right away. We thought this arrangement didn’t really benefit anyone – the borrower, lenders or Prosper. By having the borrowers confirm prior to loan disbursement that they indeed want the loan, this problem would be avoided entirely.
Second, the new process makes it easier to see how Prosper’s promissory notes are signed. Now there will be one page that shows how the notes were signed. Before, in order to evidence the signing of the notes, you would have to see not only the note, but also the listing creation web page and Borrower Registration Agreement that contains the language authorizing Prosper to sign the notes on the borrower’s behalf. Prosper undergoes routine regulatory examinations from time to time, and is sometimes asked to explain how notes are signed; this new process will make the task quick and easy. It may also make Prosper’s notes more familiar to prospective debt buyers who consider bidding on a portfolio of defaulted Prosper loans. (As noted earlier, in the current credit crunch environment it is a buyer’s market for defaulted loans, so anything we can do to make our loans more mainstream could help garner more or better bids.)
I hope this clears up any confusion about this feature change.
–
Ed Giedgowd is the Chief Compliance Officer and General Counsel of Prosper
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.
Family and Friend Lenders can bid via PayPal or Credit Card
Check out our Licenses
