Prosper has just finished its best month ever for loan originations – we have reached $20.2M in loans for April, and $500M since inception. April’s performance was achieved with the largest volume and the highest average loan amount in history with 1,969 loans and $10,277 respectively. This amount is a 34% growth over March, 2013 and 74% year over year from April, 2012.
Over the past week, many of you have asked about the changes in loan volume. We have seen two trends; first, there have been fewer B through HR rated loans available. Second, loan origination volume through Prosper’s platform has actually gone up, as you can see above. To explain these seemingly contradictory trends, I’d like to start by saying that I believe the industry has reached an inflection point. Peer-to-peer lending is increasingly accepted as a viable investment class. Both retail and institutional lenders are realizing that peer-to-peer loans represent a very interesting and potentially profitable way to obtain unprecedented access to investing in consumer loans. As a result, the industry (not just Prosper) is experiencing a spike in demand. We are aggressively ramping borrower marketing campaigns to generate more loan inventory to meet that lender demand. We are also looking closely at the borrower user experience and application process over the coming months.
All in all, these short term challenges are a positive development for the industry. As we grow, we will help more consumers get their loans funded and therefore offer our lenders more opportunities to expand their investments in consumer loans.
As I mentioned in my April update, we introduced a whole loans program in a beta period for our institutional investors. This has been going well – over $5.8M in loans originated through the whole loan pool in April. This makes up about 28% of loans originated through the platform in April and the remaining 72% originated through the fractional loan pool. On May 3rd we will officially add the whole loans pool as a permanent part of our service.
Here are some details on how it will work:
Prior to posting times, Monday thru Friday only, a subset of randomly selected loans will funnel into a whole loan pool, while all others will post normally into the standard, fractional loan pool. Those loans in the whole loan pool will remain there exclusively for a brief 45 minute period of time. If the loans are not purchased from the whole loan pool within 45 minutes, they will funnel into the fractional loan pool at regularly scheduled posting times, becoming available for funding on the standard Prosper platform. On Saturdays and Sundays all loans will funnel into the standard loan pool, giving our retail lenders the opportunity to bid on all loans available during that period.
This new process is in line with market conditions and enables us to offer whole loan buyers a solution to meeting their mandate and specifications without disrupting the retail lender experience. Additionally, for loans in the fractional loan pool, lenders will now be limited to 75% funding, ensuring that all retail lenders continue to have equal access to a large number of loan options.
Now back to April. In addition to a record month in terms of loan originations, we also made some great progress. We launched a new logo and identity. We would love to hear what you think. As promised, we increased the loan cap from $25,000 to $35,000. Many of you have noticed that this change also included removing our one year loan option. The reason for removing this is simple; one year loans are not in high demand by our borrowers. We will continue to make changes and enhancements like these to balance the needs of both lenders and borrowers.
We also welcomed back our Washington lenders. We appreciate your patience while we worked with the Securities Division of Washington’s Department of Finance to obtain approval and reopen peer-to-peer lending in Washington.
Finally, we are approaching the deadline to transfer to the new enhanced API service we introduced to our lenders back in March. The feedback on this has been tremendous and we are transitioning everyone over. The last day to transition to our new API for lenders is May 1st. If you’re interested in this, please email us at firstname.lastname@example.org. If you’re already using it, great! A new password functionality in the settings section will be available in May. Stay tuned.
More exciting things are still to come over the next couple months.
Improved collections: We are still very focused on increasing the success of our collections. We have made several changes over the past couple months to increase call intensity and work closely with delinquent borrowers. We continue to enhance this service and will keep you updated here as changes are made.
Document Update Functionality: We have begun development on a tool that will allow our borrowers to upload documents directly to our site. This will help to streamline the borrower experience and allow our verification team to move more quickly on verification initiatives.
Ramping Borrower Inventory: Over March and April we focused a lot of resources and attention on the lender side of our platform. This has allowed us to onboard a lot of eager lenders. As stated above, in May, we are ramping up our borrower marketing initiatives to meet these new lender needs and will be funneling more and more loans onto the platform.
We are really proud of the progress we’ve made so far, and have many more exciting updates to come as we work to make Prosper the best peer-to-peer lending platform. I’d like to thank everyone who commented on my March post for their thoughtful questions and considerate debate. I’ll be reading and responding so feel free to ask questions or add comments below.
It’s been a little over two months since CEO, Steve Vermut and Head of Global Institutional Sales, Ron Suber, joined Prosper’s management team, and this week, I am excited to be joining them full time as President. I wanted to let our community know that we intend to use this blog as a method of communication to continuously inform both our borrowers and lenders of what we are working on here at Prosper, and of what new and exciting things are coming in the near future. It’s important to all of us that our customers understand we are striving to make Prosper a leader in customer service and technology. With valuable feedback from our customers, we are able to deliver products and solutions that will enhance the user experience across the platform.
I want to give everyone an idea of all the exciting things the Prosper team has been working on since bringing on the new management team. In February, we focused on building and launching tools and improvements vital to the platform’s performance. Our new API gives lenders the tools they need to customize their Prosper experience in ways never before possible, and Prosper Funding LLC provides increased security and protection for our lenders. We also extended our customer service hours to provide more one-on-one support for more hours of the day.
As we come to the end of March, we’re excited to report $15.1 million in loan originations, a 60% growth over February and our best month since October. We also project $25 million in new loan listings on the platform this month. In fact, at the time of this post, there are 200 new loans now available to lenders.
We have also been looking at various ways to improve our service and product offerings for our retail and institutional lenders, as well as for our borrowers. Here are some of the priority items that we’re focusing on over the next few months (in no particular order):
• New Prosper Logo/Identity: Along with the technology enhancements to our product, on April 2nd we are launching a rebranded web experience including a new logo and identity. We have been working on this for a while and are excited about the changes. Let us know what you think.
• Improved collections: Over the past several months, we have focused on improving collections by increasing call intensity, and working with our delinquent borrowers to be the payment of choice during tax refund season. As a result of these changes, we have had 3 consecutive record months of collections. Moving forward, we will be adding a new collections agency and will send delinquent accounts to collections at 16 days past due rather than 31 days past due. This will enable us to expand our call coverage and skip tracing capabilities, which will provide better results for our lenders.
• Washington State (and more): We are currently engaged in communication with the Security Division of Washington’s Department of Finance and hope to reopen the platform to Washington lenders very soon. We apologize for the inconvenience to our Washington customers – the blackout is a result of the implementation of Prosper Funding LLC’s New Note Offering. With this implementation, we have also added West Virginia and Michigan, and plan to have several additional states join the platform in the near future.
• Whole Loans: In April we are launching a whole loan product in beta for our institutional lenders, which will be separate from our traditional pool of fractional loans. The beta version of this product is in test mode and we will communicate more details as they develop.
• Additional Improvements: Some of the many other things we are working on are a new IRA trading option on Foliofn, an increase in the loan cap on the platform to $35,000, enhancements to our Automated Quick Invest tool (AQI), and expansion to both our customer support and technology teams.
Steve, Ron and I are committed to creating a transparent relationship with our borrower and lender communities. This asset class and market place are changing rapidly. We will continue to make ourselves available to answer any questions. Please check back here regularly as I publish new posts with updates as well as gather questions and feedback from our community at large. We welcome any comments and/or questions below.
Over the past several months, Prosper has been working with the SEC on implementing an important new protection to offer enhanced safety and soundness for all lenders on the Prosper platform. We’re very happy to share that we are the first peer-to-peer lending platform to provide all of our lenders further security of assets. This industry-leading protection, along with our recent fundraising efforts and additions to the management team, represent important milestones for our customers.
First, some details on how this works. A new legal entity called Prosper Funding LLC has been established, which is a wholly owned subsidiary of Prosper Marketplace, Inc. Prosper Funding LLC is now the owner of all loans and the issuer of all Notes on the Prosper Marketplace. As a result, all Notes (both new and previously issued) are now fully protected in the unlikely event of a Prosper bankruptcy.
In order to purchase Notes from Prosper Funding LLC, lenders simply need to agree to the new registration agreement. If you have not done so already, you will be alerted to accept this agreement next time you sign into your account. New lenders are automatically registered with Prosper Funding LLC. In addition, you can review a “Risk Factors” section in the Prospectus for information regarding the risks and benefits of this new offering.
Thank you for your continued participation on the platform. This new protection demonstrates our ongoing commitment to bringing best-in-class tools and services to our lenders.
OCTOBER MEDIA BRINGS INVESTORS LOOKING FOR POSITIVE RETURNS
Buoyed by press appearances on CNBC and NPR, in October Prosper posted $27m in new loan requests from potential borrowers and signed on more than 750 new investors. Loan and risk performance also continued to be strong, as the platform delivered its 38th consecutive month of positive returns to investors. In aggregate, Prosper has now returned more than $37m in interest payments to investors since its registration with the SEC in 2009, a figure that grows more rapidly with each passing month.
Election results changed investors’ focus from who will run the country to how Washington will handle the impending fiscal cliff. In many economists’ opinions, an impasse over the fiscal cliff could result in a recession as the combination of increased taxes and reduced government spending suppresses economic growth. Obviously, such a scenario would cause concern regarding how an investor would allocate capital to different investments, including Prosper loans. Do recent asset market trends support the fear of many economists? What potential strategies can a Prosper investor enact if the underlying health of the economy were to deteriorate?
Below we attempt to answer these questions.
Notwithstanding recent equity market weakness, it should be noted that the S&P 500 has had a very healthy year-to-date return, up 11.8% as of November 12th. Additionally, all major world equity markets are positive this year, with the exception of Spain and China. In short, 2012 world equity performance suggests an underlying global economy strong enough to support equity prices. Corporate high yield bonds have also shown strong performance. The BA Merrill Lynch High Yield index is up 12.9% as of October 31st. Perhaps more importantly, this index’s yield has remained remarkably steady over the past three months, suggesting that fears of a weakening economy are misplaced. If economic strains were beginning to appear, high yield bond’s interest rates should be rising.
Finally, consider two-year US government swap rates. For those not familiar with swap rates, they represent the price where two parties agree to exchange interest rate cash flows. Without getting over-complicated a high and rising swap rate indicates greater investor uncertainty about the course of future interest rates such that an investor pays more for a swap rate given this uncertainty. Note that swap rates rose prior to the beginning of each of the last three recessions (1990, 2000 and 2008) and are now back to levels not witnessed since 1993. The current level of swap rates seems to imply that fixed income investors are not overtly concerned about the direction of interest rates, or a recession. This suggests a slow but steady economic growth rather than any rapid increases or recessionary shocks. In other words, asset market data appears to suggest things will be ok.
Regardless, if investors are concerned about a recession they should look to the high credit grades of Prosper loans. Consider our back test analysis that estimates the potential variance of returns by Prosper credit grades throughout an economic cycle. Assuming an economic downturn one-third of the time in our simulation, we saw that steady performance, with little chance of principal loss, defines the likely performance of high credit grade Prosper loans. Of course, there is no free lunch, and an investor will give up additional yield by adding these to their portfolio. But the benefit of more stable returns could be exactly what the doctor ordered if tougher economic times were to prevail.
More information on October’s monthly performance update can be found here. For further explanation of this commentary or with any other questions or comments, please contact our investor marketing team at email@example.com or 1-877-611-8797.
Joseph L. Toms
Chief Investment Officer
1To calculate the Annualized Returns on Principal By Monthly Loan Vintage, all payments received on borrower loans originated during that month (i) minus principal payments (ii) minus servicing fees (iii) minus chargeoff’s are aggregated and then divided by the average outstanding principal balance. To annualize this return, it is divided by the dollar-weighted average age of the loans in months and then multiplied by 12. Seasoned vintages are categorized as those vintages that are at least 10 months old.
September was an eventful month at Prosper and for a number of reasons. First, we had the good fortune to have Josh Tonderys, previously Senior Director at Barclaycard US, join the Prosper team as our Chief Risk Officer. He brings a wealth of direct credit experience that will help us scale the platform while continuing to provide strong investor returns. Second, we were listed 4th on The Wall Street Journal’s list of the Top 50 Venture-Backed Start-Ups for 2012. Third, we set monthly records for originations, listings, and cash on the platform in September. All in all, a great month!
With $16 million in originations in September, Prosper continues to focus on providing a high yield, short duration alternative for investors. Which brings us to this month’s commentary from our Chief Investment Officer, Joe Toms.
LOOKING FOR YIELD: DURATION RISK VERSUS CREDIT RISK IN FIXED INCOME
I recently came across an article that quoted Paul O’Brien, head of fixed income at the Abu Dhabi Investment Authority (with estimated assets under management of $627 billion), that we felt perfectly summarized the challenges confronting fixed income investors today. He writes:
“The return for bearing duration risk is the lowest it has been in our careers. The return for credit risk, on the other hand, is probably average. If you take the history as a benchmark, then it’s fair to say that the return from fixed income is probably better served by taking credit exposure, rather than duration exposure.”
We think this quote confirms the point we have been making over the past year, that short-duration, high-yield portfolios like Prosper’s allow investors the opportunity to generate yield while taking little interest-rate risk.
Consider the historical evidence of Prosper 2.0 vintages that are at least 12 months old. The data shows not only the stability of the different vintages but that, by the end of month 12, the vintages returned to the investor 50% of their initial investment. In other words, through the combination of prepayments, straight line amortization of principal and interest, investors receive a tremendous amount of cash flow early on in the investment.
This high cash flow provides a number of clear and substantive benefits. It reduces interest rate risk while providing tremendous flexibility to either re-invest in Prosper Loans and/or allocate to other promising investments. In short, it allows investors to earn a considerable premium in yield relative to most other fixed income investments with little interest rate risk while providing significant cash flows. While admittedly biased, we think that the combination of high yields, short durations and strong cash flows make a compelling investment case.
More information on September’s monthly performance update can be found here. For further explanation of this commentary or with any other questions or comments, please contact our investor marketing team at firstname.lastname@example.org or 1-877-611-8797.
Notice: Blogs and other materials posted on or linked from this page that use the name "Prosper" generally use that name to refer to Prosper Marketplace, Inc. if published before January 31, 2013 and to refer to Prosper Funding LLC if published on or after February 1, 2013.
As of February 1, 2013, the Prosper marketplace was transferred by Prosper Marketplace, Inc. to Prosper Funding LLC, a wholly-owned subsidiary of Prosper Marketplace, Inc. From and after February 1, 2013 Prosper Funding LLC is the sole obligator of Notes offered and secured by loans made through the Prosper marketplace, including Notes originally issues by Prosper Marketplace, Inc. prior to such transfer. Prosper Marketplace Inc. contiinues to provide services to Prosper Funding LLC relating to loan and Note servicing, and may interact with borrowers and investors in relation thereto as agent of Prosper Funding, LLC. Except where otherwise noted, throughout this website "Prosper" refers to Prosper Funding LLC including acting directly or through its agents.
All personal loans are made by WebBank, a Utah-chartered Industrial Bank. All Prosper personal loans are unsecured, fully amortizing personal loans.
Notes offered by Prospectus. Notes investors receive are dependent for payment on personal loans to borrowers. Not FDIC-insured; Investments may lose value; No Prosper or bank guarantee. Prosper does not verify all information provided by borrowers in listings. Investors should review the prospectus before investing.