Archive for the ‘ Market Survey ’ Category

Prosper, America’s largest people-to-people lending marketplace for personal loans, released results for September 2008.

Chris Larsen, discusses what role Prosper will play and what trends we are seeing in the wake of this full blown crash of the global financial system.

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

In the midst of one of the greatest economic crises America has ever faced, and on the heels of last week’s Federal Reserve report indicating that for the first time in over a decade consumer borrowing significantly contracted, people are naturally asking what role Prosper will play and what trends we are seeing.

Although it’s a bit too soon to point to Prosper data that correlates directly with the financial meltdown that has only begun to unfold, there are some noteworthy trends that have accelerated since the credit crunch began 14 months ago that are relevant to the current environment.

The biggest trend that continues in the Prosper marketplace since the credit crunch began last summer is that the percentage of borrowers with sterling credit that are listing and getting funded on Prosper remains at record levels (See “Mix of Funded Borrowers” Table). We expect this trend to continue particularly as more lenders on Prosper have become more conservative in their bidding strategies; and as more people, even those with the very best credit, are having their credit card limits reduced and home equity lines cancelled, and are being turned down for auto loans and private education loans.

Another key trend we’re experiencing is that as consumer borrowing from traditional financing sources is shrinking, Prosper is experiencing solid growth. Year-to-date, the number of loans in terms of units is up 24% over the same time period last year, and up 37% in September 2008 compared to September 2007. At the same time, loan originations year-to-date in terms of dollars have increased 8% over the same period last year, and are up 7% in September 2008 compared to September 2007.

At a time when every sector in the economy seems to be under pressure and shrinking, the growth Prosper has experienced is very respectable. However, some may wonder why there is a disparity between unit growth and loan dollar volume growth. The answer lies in the average loan amount being funded on Prosper. Year-to-date the average loan amount is $6,047, down 13% or $925 compared to the same period last year. In September 2008 the average loan amount was $5,544, down 23% or $1,631 from September 2007. This indicates that lenders on Prosper are being more cautious by directing their bids toward listings with lower requested loan amounts.

All of these trends on Prosper are significant and interesting, but far more important in this time of economic upheaval is the opportunity for Americans to revitalize the spirit of It’s A Wonderful Life; to channel the essence of Bedford Falls and George Bailey; and to “do well by doing good.”

September 2008 Prosper People-to-People Lending Market Survey

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

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.

Prosper, America’s largest people-to-people lending marketplace, today released results for July 2008. For the first time, the survey includes statistics showing how borrowers who list and get funded in the Prosper marketplace indicate how they plan to use their personal loans. Also noteworthy, the percentage of prime borrowers (borrowers with 720+ credit scores) hit an all time high in July, accounting for 47% of funded loans.

———————————————————————————————————

July 2008 Prosper People-to-People Lending Market Survey

Purpose of Personal Loan Listings and Fundings

Borrowers who post listings in the Prosper marketplace are asked how they intend to use their personal loan. The following reflects borrowers’ statements of intended use of loan proceeds with regard to both listings and loans. Prosper does not verify or confirm after funding how loan proceeds are used.

———————————————————————————————————

———————————————————————————————————

———————————————————————————————————

———————————————————————————————————

————————————————————————————————–

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:

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.

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

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

In May, a record number of loans – in terms of dollars and units – were funded in the Prosper marketplace. The sudden increased supply of loan listings with an attractive risk-return tradeoff (as cited in last month’s survey) was the key driver of the record level of originations. Also notable in May and worthy of further discussion are two recently introduced marketing initiatives.

Earlier this spring, Prosper began testing a radio advertising campaign in select major metro markets, and in early May we unveiled our new Lets Bank on Each Other^™ tagline and pilot TV ad campaign in the Minneapolis metro region. No actors were used for the television campaign; rather they feature real Prosper borrowers and lenders who have benefited financially and socially through their participation in the marketplace. In June, we expanded the television campaign pilot to select San Francisco Bay Area markets and continued our radio campaign in select markets around the country.

Another new initiative is the enhancement we made to our Facebook application. After experiencing very limited success on Facebook, in mid-April we decided to lower the minimum instant transfer amount to $50 for lenders who install the Prosper Facebook application. For lenders who do not install the application, the minimum instant transfer amount must be $500 and less than 20% of their active loan value. Since the introduction of the new feature, the adoption of the application has significantly increased, growing from a mere 400 users to approximately 4,000 users. This indicates that the added benefit is serving lender demand for lower minimum instant transfer amounts. In addition to the $50 instant transfer feature, the application enables Prosper members who use Facebook to share their Prosper listings, bids, and watched listings with their family and friends on Facebook.

Definitions

Attractive Risk-Return Tradeoff: For purposes of this survey release, listings are considered to have attractive returns if, based on historical loan repayment performance of Prosper borrowers with similar characteristics, they are priced sufficiently to compensate lenders for risk. Risk includes both the risk of non-payment by the borrower and other risks associated with people-to-people lending. In general, as the credit quality of the borrower declines, the range of possible returns widens, requiring a larger risk premium to compensate the additional uncertainty. The amount of risk premium required to compensate for a given level of risk is a subjective judgment. The following formula is used by Prosper to determine if a listing is priced adequately to have an attractive risk adjusted return: Maximum Borrower Rate > Risk Free Rate¹ + 3.25% + (Expected Annual Default * 1.5) + Prosper Servicing Fee. All lenders must make their own judgments with respect to what constitutes an adequately priced listing.

¹Risk Free Rate = 2-year CD national rate on BankRate.

Since Inception: November 1, 2005 through May 31, 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 May 31, 2008.

2007 Year-to-Date: January 1, 2007 through May 31, 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 May 31, 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).