Prosper Introduces Institutional Lending

Its been a topic of conversation among blogs and message boards: are there any institutional lenders using Prosper? Is it even allowed?

Well, the answer is yes, they are allowed and as of now, they are being promoted. Prosper allows asset managers, hedge funds, and other institutions the opportunity to use peer-to-peer lending. To some this may take away some of the steam of people lending to people, but the reality is that for the Prosper marketplace to survive long term, there needs to be more volume.

An interesting aspect of this is that institutions can leverage Prosper's openness of data to create their own lending models and fund loans accordingly. It's not known if there are any such institutions which have already become lenders but it would be interesting to see if these kinds of lenders can actually be attracted.

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Prosper.com is now providing chapter and filing date information for bankruptcies filed by prospective borrowers. If a Prosper loan listing appears where a bankruptcy has taken place, a new set of fields will appear with details of the incident.

This is a positive developement because up until not we were always left guessing as to what the public records on the loans were and often times you'd see a question for the borrower asking what it was.

In some cases the chapter and filing date for the borrower is not available in which case you'll just have to ask.

The Prosper listing creation process has now been fixed at 7 days. This is intended as a means to simplify the loan generation process. Its also viewed as a way to create more fundable listings.

I'm not sure I agree with that. Some loans are more sure to fund than others, especially in the higher credit ratings of AA and A. I would have allowed those listings to choose 3 days as an option.

I think one of the intents by standardizing at 7 days is to eliminate the desperate borrower syndrome that 'I need money, and I need it fast' which are more than likely to become defaults over time. Prosper stands out among other peer to peer lending sites in that it allows high risk borrowers to create listings, this freedom has certainly been a double edged sword.

When you are looking at a listing on Prosper, you used to see 2 icons at the top of the listing, one for homeownership verification and the other was for bank account verification.

The bank account verification icon has now been removed from the site.

People used to view this as a positive sign, which is was, since no loan can be initiated without a verified bank account and seeing an account already verified was more reason to feel safe that a bid would not languish and then get returned when the verification process failed.

Prosper felt that the icon created confusion among lenders, but I think it should have remained. It rewarded borrowers who were proactive and got their accounts verified faster.

Prosper has changed the eligibility criteria for borrowers wishing to get a second loan with Prosper.

The minimum amount of consecutive on time payments is now 6 months. Before it was only 2 months. Pre-payments don’t count.

This is a good change. It eliminates the potential for people getting a second loan to cover a first that they know will be in trouble, or generally racking up too much debt too fast. It also gives the credit bureaus more time to update their records so the new Prosper loan is reported.

I would say this is another measure Prosper is taking to curb defaults. It makes sense to establish more of a track record before being allowed to take out another loan.

Some good news from Prosper Days 2008 for both borrowers and lenders: Prosper is planning to modify their policy on when payments are pulled from borrowers bank accounts to better match their pay days.

Up until now, the date that a payment is due has always been dependent on the initiation date of the loan. Often times this ended up being at the worst time of the month, for example days before someone’s paycheck arrived in their bank account. Often times this created late payments, incurring borrowers fees and causing the lenders to also lose money as fees are passed on to them.

Soon, payment dates are going to be matched with the borrowers pay day. This is an excellent solution. Prosper is going to target the payment date to match the date a borrower is paid from their jobs. This might not do a lot to lower default rates but will certainly lower the amount of 15 and 30 day late loans as borrowers wait for their next pay period to make a payment.

One of the takeaways from "Prosper Days 2008" is that Prosper is going to start filing law suits for collections of defaulted loans.

Prosper is planning to starting the process slowly, as of today, a total of 5 suits have been filed in California with more on the way once the process is smoothed out. It appears a total of 74 defaulted loans are planning to result in suits within the next month or so.

This is very good news for Prosper lenders who have endured a higher than average default rate. Other signs are starting to show progress by Prosper in this area which will improve relations with lenders and create a ‘tighter ship’ with borrowers more aware that defaulting on a loan could have more serious consequences than just a bad mark on a credit report and annoying letters and phone calls.

Prosper has started using a new collection agency called AmSher. Many people who follow Prosper view this as a challenge to the weak performace that Penncro has had in collections of late and defaulted loans. I think this is great news and will certainly be a step towards improving the performance of collecting loans that go late.

AmSher is privately held company and is licensed in all fifty states. They have been around since 1939 in a few variations until 1986 when they started in collections.

Many of you might have seen the email announcement from Prosper. While AmSher charges a slightly higher fee for collections, my advice is to change your settings and give them a chance, at the very least to signal to FirstSource and Penncro that there is alot of dissatisfaction with their performance.

You can change this setting in the Account tab > Lending tab > on the bottom right.

I was transferring some money into my Prosper account today and I noticed a new feature: Prosper now supports instant transfers, so you no longer have to wait the standard 4 days before the money appears in your account and is and is available for bidding on loans.

This is great news. Now, under certain conditions, you can transfer funds and get right to your bidding!

From the Prosper help files, describing the new feature:

When a transfer to Prosper meets certain requirements, funds are made available in a lender's Prosper account instantly, with no delay. Requirements for instant transfer:

• Transfer amount must be between $500 and $10,000
• Sum of pending transfers must be less than 20% of lender's active loan value

For example, if you had an active loan value of $10,000, you could transfer between $500 and $2,000 to your Prosper account instantly. If you attempted to transfer $3,000 to Prosper, it would not qualify for instant transfer because the amount is more than 20% of your active loan value. Your $3,000 transfer would still continue, but would be subject to the standard 4-day waiting period.