First Prosper.com Note up for Trade on Trading Platform

Prosper.com picked up speed again fast after the relaunch. As of today there are already more than 500 loan listings open for bidding. 5 loans already originated, despite the short timespan since re-opening.

Today I saw the first note for resale on the note trading platform. It is sold in auction mode where lenders can bid (sealed bids) during a seven days auction. Currently there are four bids. Would the auction end right now, then the buyer would purchase the note at a steep discount (40.4 Cents on the dollar). But I am sure bid prices will rise fast when more lenders discover that there is now activity on Prosper’s secondary market.

What changed on Prosper?

Following up on my last post here are the largest operational changes  at the new Prosper.com:

  1. Minimum credit score requirement is now 640 (up from 520)
  2. Prosper calculates expected defaults (‘loss rate’) now by using the two factors: the credit score obtained by an external agency and the internal Prosper score (in the past the fore-casted value was based only on external data and way to low)
  3. There is a hard bid floor (a minimum interest rate set by Prosper) on each loan listing
    The bid floor is the minimum yield a lender can bid on a listing. It’s not possible to bid any lower. This also affects the minimum rate a borrower can possibly receive.The bid floor for each listing is calculated by adding the national average 3yr CD rate to the minimum estimated loss rate assigned to each Prosper Rating. For example, a B-rated listing with a minimum estimated loss rate of 4.0% is added to a national average CD rate of 2.27%*, resulting in a bid floor of 6.27%.
  4. Minimum bid amount is now 25 US$, instead of 50 US$
  5. There are several legal changes affecting lenders (e.g. ‘In the unlikely event that we receive payments on the corresponding borrower loans relating to your Notes after the final maturity date, you will not receive payments on your Notes after maturity.‘ – this seems to mean that, if a late borrower who paid more than a year after the date the loan was supposed to be paid back in full, the lender is not credited that amount – but check yourself I might be misinterpreting the meaning)

New Lenders should read the SEC prospectus. Some disclosures might make them wary. Quotes:

  • You assume the risk that information provided by borrowers may be intentionally false.
  • Status information given on loans between inception and March 31, 2009 shows 31.3% of loans had been at least 15 days late at least once, and 20.1% had defaulted.
  • The fact that Prosper will have the exclusive right and ability to investigate claims of identity theft in the origination of loans creates a significant conflict of interest between Prosper and the lender members

That might we necessary legal disclaimers – but if Prosper performs in future like in the past, the risk for lenders will be high and by the prospectus Prosper will exclude liability for all risks spelled out.

I read that Prosper makes all lenders re-sign 6 new legal agreements.

Prosper Reopens with SEC Approval – Starts Secondary Market

Prosper.com has reopened – now with the long sought approval of the SEC which was granted last Friday. In his blog statement “We mean it this time!” CEO Chris Larsen sheds light on what was delaying SEC approval. It was auction bidding on loan requests:

… the first Internet auction-based P2P loans marketplace and trading platform to have its SEC registration declared effective, which means the SEC is permitting Prosper to facilitate auctions in a way that has never been done before.

Selling securities by auction is not new and critical to greater efficiency in fair price discovery for both sides of the transaction. However, the SEC has never permitted Wall Street investment banks or any other institution to run a true auction where investors could make an irrevocable bid that committed funds prior to the establishment of a final rate….

Prosper introduces a secondary market. The internet auction priced trading platform for Prosper Notes is operated by FolioFN (like Lending Club’s Note Trading platform). Only loans (‘notes’) issued after July 13th can be traded.

At the moment lenders from California, Colorado, Delaware, Georgia, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Wisconsin and Wyoming can use Prosper, if they fulfill state set financial suitability requirements. Prosper is open to borrowers from almost all states.

With the PR Prosper will likely build up a large selection of loan listings again fast (as of now there are 10). The interesting question will be if Prosper lenders will continue to have faith investing via Prosper after extremely high default rates and low collection results in the past. Furthermore disappointed (former) long term lenders are critisizing risks for lenders embedded in the latest SEC filing.

With the likely press coverage of the relaunch all p2p lending companies in the US can expect to see a rise in traffic.

Licence of Zopa Italy Revoked

Zopa.it has posted a message on their frontpage that the Bank of Italy has revoked the licence to act as a financial intermediary.

As a result Zopa Italy has currently stopped issuing new loans and accepting new lenders.

EDIT: Speculation – It may have to do with this order of the Bank of Italy, which came into effect on July, 1st limiting the max. allowable interest rates.

UPDATED July 14th – Information provided by Carlo Vitali, Zopa Italy:

I can assure you that the action of Bank of Italy has nothing to do with this order of the Bank of Italy. The document you refer to has quarterly releases and it simply states the average interest rates for various credit products and says that any interest rate higher than 1.5x the average is considered usury (and therefore is illegal).
Zopa has never quoted a single loan even close to usury rate and our average rates are really appreciated by borrowers being in average 9,6 APR against a 15% industry average.
Bank of Italy accuse us of operating banking activity without being a bank while we sustain that we are just intermediating payments between private lenders and borrowers. Accusation is based on the fact that we have a transit lender account, where the money stays for few days, maximum a couple of weeks, before going out in loans. On this account we don’t get any interest and is not part of the assets of Zopa Italia. Nevertheless we had proposed an operative solution to solve the issue and we hope we will get the chance to implement it and reassume the business. I remind you that we got an authorization from Bank of Italy before launching Zopa in Italy.

Thanks to Carlo Vitali, for providing P2P-Banking.com with this information on the status.

Zopa Partnerships Bring in New P2P Lending Borrowers

British p2p lending company Zopa has recently entered two partnerships.

Zopa Prime

Zopa partners with the Charity PRIME to offer loans to entrepreneurs over 50 starting or running a business. The loan is not a loan to the business but a personal loan of up to 15,000 GBP (approx 24,125 US$). PRIME is the Prince’s Initiative for Mature Enterprise. The charity’s role is to vet the business plan of the applicant.

Lenders benefit because all Zopa prime loan listings are 50% guaranteed by PRIME. More details on how to obtain a loan.

Zopa and Good Energy

Zopa also partnered with Good Energy, a 100% renewable electricity supplier. Customers of Good Energy can use a Zopa loan listing to fund the initial installation cost of solar panels or wind turbines. In this partnership Zopa uses affiliate links with a branded landing page:
http://www.goodenergy.co.uk/affiliates/zopa

Benefits for Zopa from the partnerships are:

  1. More borrowers
  2. More quality without more costs – borrowers are vetted/screened by partners
  3. 50% of loan amount secured for PRIME loans
  4. Possibly earning referral fees from the affiliate link to Good Energy
  5. Great story for press coverage and marketing (catchwords:  “Prince Charles”, “renewable energy”, “credit crunch”, “older age”, …)

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Interest Free Loan

The borrower who receives the 10,000th loan from Zopa UK will be lucky – it will be an interest free loan.

Furthermore Zopa has a referral promotion in July. Zopa pays 100 GBP (approx. 165 US$) to members that refer a borrower who successfully gets a loan in July.