zcommodore

Prosper had another site update early last week.  Lenders seem to be reacting to the news but it doesn't look good already.  Loan counts are going down from day to day on average.  Check out this graph:

Notice how the 10-day average is dropping very rapidly.  Of interest to me is that a similar thing happened after the last update in mid-September but it recovered by the en dof the month and was fairly flat after that.

I wonder how much of the change is due to Prosper showing lenders how much they could lose on borrowers who don't meet certain minimum criteria so lenders just stopped lending altogether and how much is a backlash from the removal of past listings and/or in reaction to some of the recent turmoil in the forums.

This is going to be interesting to watch.

I just finished sending the following via e-mail to a number of people at Prosper.

First, let me introduce myself so you understand my involvement with Prosper.  I found out about the site in early August, 2006 from a newspaper article discussing the person who is blogging away debt.  By the end of the day, I had signed up as a lender and was in the process of verifying my account.

I never had a lot of funds available to lend but eventually deposited $1000 into my account on Prosper.  After a few weeks I started a group and assisted 10 borrowers in getting loans so far and one more is making her second attempt in my group.  I never wanted a large group but have enjoyed helping borrowers getting funded.  In addition to the loans I've made and group members I've assisted, I have also given advice and encouragement to dozens of borrowers in the RML forum on Prosper along with many private messages to other borrowers on Prosper's website as well.

Back in January of this year, I participated in an interview on NPR's program, Marketplace. This interview was broadcast on January 19 and subsequent versions were broadcast on February 6 and July 4.

In addition to the above, I've told several people about this website and my sister and a highschool friend have both become lenders specifically due to my pointing them to this site.  Also, I've spent some of my own time and money promoting this website and have over 100 referrals to my credit on Prosper.

Basically, I'm trying to say I've been a huge fan of Prosper since I first found it and I always wanted it to succeed even though I have very limited funds available to participate.

Recently, I've noticed an alarming trend, particularly as it relates to customer service.  This topic has been mentioned repeatedly on the forums but I now wanted to share my experience.

Example 1

A few weeks ago, I bid on this listing. It eventually funded and ended on October 14 but was cancelled the 19th.  As a lender, I was disappointed but I moved on until I saw that the borrower has now relisted and says his previous listing was cancelled "due to a mistake" on the part of Prosper.  Normally I would figure the borrower was only telling his side of the story.  However I've seen numerous claims like this on the forums and I was beginning to wonder.  Did Prosper CS hit the cancel button too quickly?

Example 2

Just recently, on the forums, a borrower with the screenname of verybusymom453 says her bank account was messed up such that she couldn't make her payment on time.  She contacted Prosper CS repeatedly only to get non-answers that didn't help her situation.  Only when Shira reported it to Tim Bright did she start to get a resolution.  I hope the situation gets resolved but how many other borrowers are going through similar situations and don't know about the forums in order to get someone's attention?  How many borrowers are late on their loans due to an error on Prosper's part?

Example 3

Yesterday, a borrower in my group who has had a loan since December, 2006 had a listing cancelled since Prosper couldn't verify ownership of her bank account.  OK, I think I understand the reasoning behind this.  I think it's a bad situation that she has an existing loan that she is currently paying on out of the same account but I suppose there may be some legal reason why she couldn't use that account.  However, her account was also suspended.  Why?  Shouldn't there be a little bit more leeway given to existing borrowers and/or lenders who have had some experience on Prosper?

Example 4

I am a lender, not a borrower on Prosper.  However, this past week I received a credit card offer that I decided to take advantage of.  I was able to fill out the application online and within minutes I had a tentative line of credit for nearly half my annual salary.  I had very few hoops to jump through.  Repeatedly, I've seen borrowers on Prosper have to jump through all kinds of hoops in order to get loans where it would be so much simpler to go to their local bank and get one after filling out a couple of forms.  If Prosper can't find a way to streamline this process it is going to fail.  Only the most desparate and fraudulent borrowers are going to be willing to go through what Prosper seems to be requiring.

I realize that in each case above excepting my own, I'm only getting one side of the story.  Each taken individually appears to be a simple case of a misunderstanding or possibly an attempt at sympathy from the borrower.  However, these are only examples I've taken from a growing number of problems with customer service that I keep reading on the forums and from interracting with other members of Prosper.

I really hope Prosper can do something about improving customer service because my patience is wearing very thin at this point.  It seems to me that Prosper is having a very hard time keeping the members they have and it's a lot easier to grow the business with happy customers than to continually try to get new ones to replace the disgruntled ones.

Thank you for your time and attention to my concerns.
zcommodore

Prosper now has 54 segments (see graph at bottom of the linked page) that they've subdivided their credit grades into.  Based on the way they've divided it, it appears that autofund loans followed by high numbers of inquiries and then currently delinquent accounts are the biggest red flags for lenders to avoid or, at least, take into account when bidding.  I thought this was interesting since most discussions I see about red flags for lenders to avoid start with current and past delinquent accounts and public records.  Autofund loans usually get mentioned as well but inquiries seem to not be understood or are rarely taken into account.  Often, it seems that DTI is considered higher as well although it does appear to be a factor in some of the higher credit grades as a differentiator.

Prosper did say that over time they may change the segments and/or add to them once more data is available.  I wonder if/when public records, past delinquencies, size of credit balances or utilization percentage will come into play.

Last night, Prosper had a new update.  There were a number of changes but few of them do much for me and a number of them I think are bad.  I haven't done a complete survey of all the changes but I thought I'd highlight a few of the changes and add my thoughts.

Ended listings no longer available.  I think I understand why this change has been made but I don't like it.  I've spent a lot of time researching loans/listings to see what other lenders are doing right/wrong based on extended credit information that was available to lenders.  Now I can't see what that information is anymore so I can't do that research anymore.  Additionally, if a listing I had previously bid on but get outbid or it ends unexpectedly, I would like to be able to see what happened.  If the listing got cancelled or withdrawn, then I might want to see if I can find that out.  I don't necessarily know the borrower's ID and if I do find it but the borrower got suspended, there is no way I can find out what happened.  This is just a very poor implementation to fix an unknown problem.

36% interest rates.  I already mentioned this in a previous blog.  After I posted it, I did a bit more research on ericscc.com.  I found that there were a total of 68 loans on Prosper at 30% or higher.  Of those, only 22 are current or paid.  The rest have gone late(7), defaulted (34 or 50%!) or were repurchased/cancelled(5).  As I said before.  This is a very bad idea.  If a borrower can't get a loan at 29% due to bad credit, it's unlikely they'll be able to manage a loan at 35% either.

2nd loans for borrowers.  I'm somewhat ambivalent about this.  If a borrower has a business and has been successful with a small loan for expansion, I can see how another loan might help them grow further.  On the other hand, if a borrower has gotten a $10K loan for debt consolidation and run up the cards again and wants another $10K loan, then that's not good.  Lenders need to be very careful about bidding on 2nd loans in my opinion.

Authenticated API.  I know nothing about Prosper's API but I think I'm going to have to look into this more.  It appears that now I can do research using extended credit data using this interface.  If this is the case, it may help alleviate some of the problems the other change regarding not being able to view earlier listings caused.

Lender servicing fee.  It's nice that lenders don't have to pay any servicing fees on AA borrowers but the fact that A grade borrowers will have a 1% fee (up from 0.5%) should easily make up for that change on Prosper's end.  There are more A grade loans than AA loans so it is a positive change for Prosper's bottom line.  I have yet to get an AA grade loan simply due to the low returns on most of them.  I may have to look into bidding on a few more of those now though.

I was intending to add a post to my blog about late/default trends on Prosper but I've been having problems with the Performance tab on that site.  I've been getting inconsistent results there and finally posted about it on the main forums.  So far, I haven't gotten any results back.  Earlier I had sent in a question to Prosper's customer support but that tends to get rather slow responses as well.

I may try to update my information as time permits if I can get data that looks right but we'll see.