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[Urbi_et_Orbi]

I think most of us who has been around Prosper for a while are now somewhat aware of many of the basic dimensions of risk associated with investiing on Prosper.com.

- Prosper is a lender of last resort for many borrowers
- Lack of (and decreased) transparency makes it difficult to identify problems with listings
- Enforcement/collection mechanism is sorely lacking
- Borrowers may be overly optimistic about their ability to service loan or lack basic understanding of their own financial situation
- Level of criminal activity by borrowers on Prosper is difficult to establish
- Fraud guarantee is largely meaningless

Then, we have new levels of risk that have emerged more recently:

- Ownership structure of the Prosper 3.0 loans has changed to the possible/likely detriment of lenders
- Uncertainty related to the long-term operational viability of the Prosper platform



Now, I think we may need to factor in another new level of risk:

- Almost 6 months after Prosper's re-opening, the listing volume has YET to touch the levels of March 2006 (Prosper's first full month of originations - and the all-time historical low)
- Back then, Prosper had many millions of dollars in available operating cash
- Now, according to public filings, Prosper's cash position is such that it is seeking incremental bridge financing at 15%

What does this mean?  It is likely that some level of desperation is becoming more prevalent.  As demonstrated during the last few days of December 2009, Prosper pushed through an unusually high number of loans during the last days of the month.  We know this has happened before, but considering Prosper's cash position, this takes on an even more serious color of risk.

Prosper's incentive is now to originate as many loans as possible - especially as the new batch of lenders is now starting to see their first set of seriously delinquent loans.

Whatever checks and balances were ever in place to review loans prior to funding, lenders would be foolish to assume that Prosper is now closely scrutinizing loan applications to any meaningful degree.  Similarly, anecdotal evidence from recently funded borrowers here on Org suggest that pre-funding verification is not happening and Prosper is aggressively moving money through the system and out to borrowers.

Lender beware.

[pioneer11]

lobby!

[xraider]

Prosper should just do a large number of listings for itself.  At 15 %, people will snap them up!

[ira01]

lobby!

+1.  Although I think that a chart of origination volume, rather than listing volume, would be more useful.  After all, a bazillion dollars of listings that will never fund (such as $25K listings by NC and old-scale HR borrowers that are no longer even allowed to post listings) are completely irrelevant. 

[Urbi_et_Orbi]

I know what you're saying, but I still think listing volume has some meaningful relevance to show that the overall pool of potential loans has shrunk, which limits opportunity for short-term exponential growth, perhaps indicates reduced interest or confidence in the platform and should make us even more suspicious about the associated low-sample size data being presented by Prosper.

The funded listing graph tells a similar story (http://www.ericscc.com/stats/prosper-loan-growth), but some of the perspective from this graph is perhaps skewed by the pipe-stuffing of potential lower-than-expected quality of loans being funded.

Either way, the story is the the same.  Point taken.

[Capital_Finance_Group]

lobby!

Second

[alexpkeaton]

Prosper should just do a large number of listings for itself.  At 15 %, people will snap them up!

I think that would be the definition of a Ponzi scheme: borrow more and more money to pay off earlier investors. I wonder how long that might work?

[ira01]

Prosper should just do a large number of listings for itself.  At 15 %, people will snap them up!

I think that would be the definition of a Ponzi scheme: borrow more and more money to pay off earlier investors. I wonder how long that might work?

Not really -- Prosper wouldn't be using the money to repay earlier investors (at least for a while), but to pay its operating expenses.  And even once Prosper was using part of its new loans to make payments on its old loans, since it would be disclosed and there wouldn't be any fictional returns, it still wouldn't be a ponzi scheme (just like a company that issues bonds and uses part of the money to repay earlier bonds isn't running a ponzi scheme).  Of course, it still wouldn't be a very good investment for the lenders.

[mothandrust]

Incremental changes to Prosper's platform have also increased risk:

-Deletion of forums reducing lender/would-be-borrower interaction.  How many scammers got caught in their own lies as a result of dialogue with lenders?

-Elimination of multiple pictures and captions.  If you knew there were 100+ lenders (who might be whacko sociopaths) who knew where you lived and where your place of business was, would you be late on your Prosper loan or on your credit card bill?  With only one picture and no caption, borrowers don't pay and sleep soundly--whacko lenders don't even know what City to comb through with torches and pitchforks.

-Elimination of GL fees.  Yes, it drove 2M and other bad actors out of business, but also anyone who might do "extreme vetting" like traveler505 and also slammed the door shut on many good group ideas that no one has ever tried.  And now no one will, because no one will work for free.

[mothandrust]

Prosper should just do a large number of listings for itself.  At 15 %, people will snap them up!

Here's one that got bid down to 4% yesterday (same day the lenders on it were born):

http://www.prosper.com/invest/listing.aspx?listingID=442724

This is truly amazing, since 1-3 year CCC rated corporate bonds (e.g. Ford) are yielding 7% and higher.

Not much higher than the after-tax yield from a municipal bond in some states, and bankrate.com says you can get a 3-year CD at 2.75%.

For a lender to get his 4%, this military borrower (who might be upside-down on his house and getting shipped off to a war zone--we can't tell from the one line listing) has to pay back AND Prosper.Com has to pass through all the payments.

[ccat]

It was Lender Beware since early 2007. Then it moved into Are You Nuts, and Madoff Might Be A Better Choice. 

[Flying Missle]

Prosper should just do a large number of listings for itself.  At 15 %, people will snap them up!

I think that would be the definition of a Ponzi scheme: borrow more and more money to pay off earlier investors. I wonder how long that might work?

Not really -- Prosper wouldn't be using the money to repay earlier investors (at least for a while), but to pay its operating expenses.  And even once Prosper was using part of its new loans to make payments on its old loans, since it would be disclosed and there wouldn't be any fictional returns, it still wouldn't be a ponzi scheme (just like a company that issues bonds and uses part of the money to repay earlier bonds isn't running a ponzi scheme).  Of course, it still wouldn't be a very good investment for the lenders.

Right, it's more like Propser has turned into one of their borrower's who is taking Pay Day Loans to bridge the gap from month to month.

Maybe they can get a loan at lendingclub?

[mothandrust]

If AA borrowers are getting 5% rates, wouldn't lenders accept this rate from Prosper itself? 

Each week Prosper could put up 50K worth of "General Corporate Purpose" listings in 5K blocks and lenders would bid them down to 5% or even lower since there's no borrower other than Prosper itself.

[ira01]

Some good points here.

[christoofar215]

Prosper has not been updating anyone's credit reports since September 2009.


That is a very BIG indicator to me that Prosper has some financial problems.   For the longest time they've been updating only quarterly.   Apparently they must be invoiced each time they submit an update file--so they make very infrequent update.   Most data furnishers to the credit reporting agencies update monthly in conjunction with each fiscal period.     I highly doubt Prosper simply "forgot" to do this cyclical function that's pretty frequent.



If Prosper is not updating CRs, that probably also means Prosper is getting lax at updating e-OSCAR.   So if a Prosper borrower defaults on their loan, they can erase any trace it ever existed by simply disputing the items on their credit reports.   If Prosper fails to respond in 45 days, the credit reporting agencies are obligated by law to delete the information.