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[Mark12547]

This story just came up in my Google Alerts: "Desperate consumers can no longer get credit -- Can you capitalize?"
http://www.walletpop.com/2008/02/10/desperate-consumers-can-no-longer-get-credit-can-you-capitali/

It mentions the tightening of credit (credit card issuers getting stingy, HELOCs unavailable when home value drops below mortgage balance) and mentions person-to-person lending sites as a possible out.

The last paragraph seems appropriate for lenders:

The only question is whether you want to take a risk lending money to people who've been cut off by the banks.

I'll add that they are usually cut off from banks for a reason. 

[Mark12547]

Web gives banks new competition: http://www.thestar.com/Business/article/303046

There's a new breed of "loan arrangers" promising fast cash to the bad credit crowd.

Prosper is mentioned as making peer-2-peer [sic] lending on the web popular, but all web p2p lending sites are painted with the same broad brush of appealing to the 'bad credit crowd."

After enough losses, I think most p2p lending web sites will be as difficult for the bad credit crowd as banks.

[truelark]

I think that Prosper is the only P2P lending site out that that excepts credit below a "B" now.  So it will probably attract even more folks than before.  I know that there's been a lot of talk about what a risk it is and many lenders refuse to even consider lending to folks who aren't an A or AA, but when you think about it, there's risk in every loan, whether you're lending to an A or an HR.  I'm not trying to defend Prosper because they have a lot of things that need to be fixed, but when it comes down to risk, it's really up to lender to minimize his or her risk.  There are far too many listings out there with some strange statistics and requests for loans that don't seem to make sense (wanting to refinance something, but then asking for a loan that's a higher rate than what's being financed) that get fully funded without being asked a single question.  Lenders need to ask more questions, demand more documentation and make sure what they are investing in is an acceptable risk for themselves.  I know some people have suggested that Prosper shouldn't be catering to folks who have been turned away by the banks, but isn't that the niche that Prosper and other P2P lending sites were created to fill?  Just my 25 cents worth (inflation and all).

[Nora_Lenderbee]

I know some people have suggested that Prosper shouldn't be catering to folks who have been turned away by the banks, but isn't that the niche that Prosper and other P2P lending sites were created to fill? 

No, not really. The idea of Prosper was to cut out the middleman (banks) and allow more human interaction between lenders and borrowers. Some borrowers with poor credit (so the thought went) could show that they really were better/worthier risks than their credit numbers indicated, and that would lead to some of them getting funded.

However, prosper and other P2P sites were never intended to be the last resort for people who can't get credit elsewhere.

Two years of existence (of prosper) have shown that people with bad credit usually have bad credit for a reason. They tend to have a lot of trouble paying back their loans.

[Caladia]

I know some people have suggested that Prosper shouldn't be catering to folks who have been turned away by the banks, but isn't that the niche that Prosper and other P2P lending sites were created to fill? 

No, not really. The idea of Prosper was to cut out the middleman (banks) and allow more human interaction between lenders and borrowers. Some borrowers with poor credit (so the thought went) could show that they really were better/worthier risks than their credit numbers indicated, and that would lead to some of them getting funded.

However, prosper and other P2P sites were never intended to be the last resort for people who can't get credit elsewhere.

Two years of existence (of prosper) have shown that people with bad credit usually have bad credit for a reason. They tend to have a lot of trouble paying back their loans.

Absolutely.  Prosper never envisioned itself as a place geared specifically toward people with bad credit; the focus was more on internet-savvy folks who would be interested in using the net for getting a loan.  It was "The Ebay for Loans."  Frankly, I think if Prosper had put even more emphasis on actively recruiting high-tech early-adopter types with good credit,it would be in better shape now.

[ira01]

I know some people have suggested that Prosper shouldn't be catering to folks who have been turned away by the banks, but isn't that the niche that Prosper and other P2P lending sites were created to fill? 

No, not really. The idea of Prosper was to cut out the middleman (banks) and allow more human interaction between lenders and borrowers. Some borrowers with poor credit (so the thought went) could show that they really were better/worthier risks than their credit numbers indicated, and that would lead to some of them getting funded.

But this only works if Prosper would allow that interaction, and allow those borrowers to "show" lenders that they were better risks than their credit scores indicated.  But Prosper has done the opposite, by hiding the city, trying to hide all non-active listings (until forced to give in on that one), preventing all PII in listings (and using too broad a defiinition of PII), failing to provide additional credit data, eliminating the ability of GL's to properly vet (and then basically eliminating good GL's altogether by eliminating all compensation for them) preventing borrower/lender interaction on the new forum, etc.  

[misssalaska2000]

I heard about it from a friend who said essentially the same thing... It's a place for people to get loans when they were turned down from the banks.

I'm pretty sure someone on this board shot that down within .2 seconds of me posting.  I stood corrected. 

[HollowOak]

I heard about it from a friend who said essentially the same thing... It's a place for people to get loans when they were turned down from the banks.

I'm pretty sure someone on this board shot that down within .2 seconds of me posting.  I stood corrected. 

Actually, I was strong on making that differentiation to borrowers and lenders myself. However, things are what they are, not what we wish them to be.

If, in fact, borrowers turn to Prosper when banks turn them down, then we have to accept that Prosper is the place where people come when banks turn them down.

Until the facts support the hypothesis, it doesn't matter what Prosper was conceived as. It is up to Prosper management to either change the type of borrowers who they attract or to build a site that can work with the types of borrowers they do attract. You can only work with what you have - and that determines what you make.

[misssalaska2000]

What if prosper functioned like Cashcall?  Like, catered to HR borrowers, and let them borrow at RIDICULOUS rates w/ RIDICULOUS fees... would that mean it was attracting HR borrowers?

With the current setup, it's attracting HR borrowers, but many are not getting fund b/c of the high default rates.  So I would say that while it's current plan is geared towards HR/ un-bank-fundable borrowers, the majority of those who actually fund (as opposed to just putting up a listing) would probably be able to get a bank loan, no?

So it's a mix... change the marketing and be OBVIOUS about catering to HRs/unfundables (with lots of fees and higher rates to offset the defaults), or keep the marketing and do away with HRs?

What would you (or anyone else) change about the current marketing plan to gear it more towards AA-D?

[SGriff]

It's really a catch-22, missalaska. Most AA-D's who come to the site basically find that they can get a better rate from a bank than they can at Prosper, so they leave.

[Mark12547]

I know that there's been a lot of talk about what a risk it is and many lenders refuse to even consider lending to folks who aren't an A or AA, but when you think about it, there's risk in every loan, whether you're lending to an A or an HR.

That's true, but there are more risks lending to HR's than to A's.

Lenders need to ask more questions, demand more documentation and make sure what they are investing in is an acceptable risk for themselves

Except that Prosper has advised to not share PII and has continued to erect barriers between lenders and borrowers. For example, on the new official forums, there isn't any place for lenders and borrowers to interact over listings (unless one has both the lender and borrower role), so such interaction is limited to the Q&A in the listings themselves, which gives very little room to ask, answer or explain anything (limited to 255 characters).

I know some people have suggested that Prosper shouldn't be catering to folks who have been turned away by the banks, but isn't that the niche that Prosper and other P2P lending sites were created to fill?

There's that rumor, but the way Prosper has been advertised to us lenders is a way for borrowers and lenders to get together to lend money without banks as middlemen, so borrowers could get lower rates than they typically can at banks and lenders can get higher rates than typical of savings accounts.

In the first year, without adequate data, many listings were funded without an appropriate risk premium because the risks weren't understood (we had Experian's "Average annualized default rates for all bank card products", which was 1/2 to 1/3 the default rate being experienced on Prosper), and that may have contributed to some borrowers thinking that Prosper is the "lender of last resort."

But the targeted niche, as far as I can tell, has been for the Internet-based lending & borrowing market, not those who can't borrow someplace else and not those who are looking for tax write-offs.

[lenderguy]

Until the facts support the hypothesis, it doesn't matter what Prosper was conceived as. It is up to Prosper management to either change the type of borrowers who they attract or to build a site that can work with the types of borrowers they do attract. You can only work with what you have - and that determines what you make.

In another thread, where I suggested that PMI bares some responsibility for the grades of borrowers present here, you told me that they were simply giving the market what they wanted, and that they bare no responsibility for its composition.  Are you now claiming that PMI can, in fact, influence the marketplace?

[HollowOak]

Until the facts support the hypothesis, it doesn't matter what Prosper was conceived as. It is up to Prosper management to either change the type of borrowers who they attract or to build a site that can work with the types of borrowers they do attract. You can only work with what you have - and that determines what you make.

In another thread, where I suggested that PMI bares some responsibility for the grades of borrowers present here, you told me that they were simply giving the market what they wanted, and that they bare no responsibility for its composition.  Are you now claiming that PMI can, in fact, influence the marketplace?

I highlighted a part of my quoted post. Does that answer our question?

[lenderguy]

Until the facts support the hypothesis, it doesn't matter what Prosper was conceived as. It is up to Prosper management to either change the type of borrowers who they attract or to build a site that can work with the types of borrowers they do attract. You can only work with what you have - and that determines what you make.

In another thread, where I suggested that PMI bares some responsibility for the grades of borrowers present here, you told me that they were simply giving the market what they wanted, and that they bare no responsibility for its composition.  Are you now claiming that PMI can, in fact, influence the marketplace?

I highlighted a part of my quoted post. Does that answer our question?

Nope.  First, exactly what does Prosper have?  What do they actually make?

Immediately preceding that, you wrote: "It is up to Prosper management to either change the type of borrowers who they attract or to build a site that can work with the types of borrowers they do attract."  So, which one are they doing?  Are they changing the type of borrowers they attract, or are they building a site that can work with the types of borrowers they do attract?

Let's talk about the actions of cutting off borrowing to NC's and sub-520 HR's, as well as instituting lender guidance that clearly indicates lending to subprimes is likely going to be a losing proposition.  Is that an action designed to work with the types of borrowers they have?  I don't see how -- since this place clearly attracts subprime borrowers, taking steps to lower their presence here doeesn't seem to be working with what they have.

Second, if they are trying to change the type of borrowers they attract, I don't see how cutting off access to the sub-subprimes and NC's in and of itself attracts better quality borrowers here.  It would be like a soup kitchen barring homeless people from eating there -- the homeless people would go away, but that doesn't mean wealthy clientele are going to walk in the door the next day.

[SGriff]

It would be like a soup kitchen barring homeless people from eating there -- the homeless people would go away, but that doesn't mean wealthy clientele are going to walk in the door the next day.

An incredibly succinct analogy. Well put!