Okay, I'm just gonna quote this part because it's good.
Even before lending on Prosper was halted, the much-hyped start-up appeared to be encountering some problems. Though the company says 7.9 percent more money has been lent on the site this year than last year at this time, the monthly total actually peaked in May and has been steadily declining ever since. The average loan amount on Prosper has also fallen 13 percent from last year, as lenders have become nervous about whether borrowers will repay the loan.
Francis A. Vasquez, a 44-year-old lawyer in Vienna, Va., who has lent more than $186,000 on the site since January 2007, says one reason for those jitters is the high default rates on the site.
In his first four months on the site last year, for example, Mr. Vasquez said nearly 30 percent of his loans were in default or were four months late, costing him a 1.2 percent loss on his investment. “I don’t think there is a whole lot of trust on the site,” he said, citing borrowers who never had any intention of paying back loans in the first place.
Many lenders, including Mr. Vasquez, have responded by seeking out more reliable kinds of borrowers in the top credit-score categories.