Mac Lenders Blog

SAN FRANCISCO - (Business Wire)Prosper, America’s largest people-to-people lending marketplace, today released results for July 2008. For the first time, the survey includes statistics showing how borrowers who list and get funded in the Prosper marketplace indicate how they plan to use their personal loans. Also noteworthy, the percentage of prime borrowers (borrowers with 720+ credit scores) hit an all time high in July, accounting for 47% of funded loans.

July 2008 Prosper People-to-People Lending Market Survey

Purpose of Personal Loan Listings and Fundings

Borrowers who post listings in the Prosper marketplace are asked how they intend to use their personal loan. The following reflects borrowers’ statements of intended use of loan proceeds with regard to both listings and loans. Prosper does not verify or confirm after funding how loan proceeds are used.

Definitions

Since Inception: November 1, 2005 through July 31, 2008. Prosper’s by invitation only “friends and family” launch began on November 1, 2005 and Prosper launched to the general public on February 13, 2006.

2008 Year-to-Date: January 1, 2008 through July 31, 2008.

2007 Year-to-Date: January 1, 2007 through July 31, 2007.

Prosper Select Index: The Prosper Select Index return is the estimated average annual return on principal, based on actual delinquency performance to date. The Prosper Select Index includes AA - E credit grade loans for borrowers whose credit reports at the time of application indicated zero current delinquencies, three or fewer credit inquiries, and a debt-to-income ratio of 40 percent or less. The annual return period reflects loans originated in the twelve month period ending one month prior to the observation date of July 31, 2008. Prime Select includes AA and A credit grade loans (credit scores of 720+). Near Prime Select includes B, C, D credit grade loans (credit scores between 600 and 719). Sub Prime Select includes E credit grade loans (credit scores between 560 and 599).

Average Borrower Rates: Average Borrower Rates are the weighted average borrower rates on Prosper Select Index loans with loan amounts between $5,000 and $10,000. Rates shown are interest rates, not annual percentage rates.

Mix of Funded Borrowers: Prime includes all AA and A credit grade loans (credit scores of 720+). Near Prime includes all B, C, D credit grade loans (credit scores between 600 and 719). Sub Prime includes all E and HR credit grade loans (credit scores below 600).

N/A: Not available; no loans met these criteria.

Prosper Secures an Additional $20 Million

Series C Financing led by DAG Ventures and Meritech Capital Partners

SAN FRANCISCO–(BUSINESS WIRE)–Prosper (www.prosper.com), America’s first people-to-people lending marketplace, today announced the closing of a $20 million Series C financing round led by DAG Ventures and Meritech Capital Partners with participation by existing investors: Accel Partners, Benchmark Capital, Fidelity Ventures and Omidyar Network. This financing brings the total amount of capital raised by Prosper to $40 million.

“Prosper is well positioned to capitalize on a tremendous market opportunity,” said Paul Madera, Managing Director of Meritech Capital Partners. “Prosper has the team, technology, and long-term drive to transform the multi-billion dollar consumer lending industry.”

“An enormous market opportunity combined with a terrific business model is a recipe for success,” said John Cadeddu of DAG Ventures. “We think Prosper has both of these ingredients. But more importantly, we believe Prosper has the team to build an enduring, leading company.”

“We are appreciative of our new and early investors for their support and commitment,” said Chris Larsen, Co-founder and Chief Executive Officer of Prosper. “This latest round of financing provides us with considerable resources toward maintaining our leadership position and continuing to rapidly grow the Prosper marketplace.”

Since launching in February 2006, Prosper’s membership has grown to over 330,000 individuals with $70 million in loans funded in the Prosper marketplace. To find out more about Prosper, visit www.prosper.com.

What’s In Your Score

FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining your score.

These percentages are based on the importance of the five categories for the general population. For particular groups - for example, people who have not been using credit long - the importance of these categories may be somewhat different.

Payment History
Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
Presence of adverse public records (bankruptcy, judgements, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
Severity of delinquency (how long past due)
Amount past due on delinquent accounts or collection items
Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
Number of past due items on file
Number of accounts paid as agreed

Amounts Owed
Amount owing on accounts
Amount owing on specific types of accounts
Lack of a specific type of balance, in some cases
Number of accounts with balances
Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

Length of Credit History
Time since accounts opened
Time since accounts opened, by specific type of account
Time since account activity

New Credit
Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
Number of recent credit inquiries
Time since recent account opening(s), by type of account
Time since credit inquiry(s)
Re-establishment of positive credit history following past payment problems

Types of Credit Used
Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

Please note that:

A score takes into consideration all these categories of information, not just one or two.
No one piece of information or factor alone will determine your score.
The importance of any factor depends on the overall information in your credit report.
For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. Thus, it’s impossible to say exactly how important any single factor is in determining your score - even the levels of importance shown here are for the general population, and will be different for different credit profiles. What’s important is the mix of information, which varies from person to person, and for any one person over time.
Your FICO score only looks at information in your credit report.
However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.
Your score considers both positive and negative information in your credit report.
Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your score.

It’s important to note that raising your score is a bit like losing weight: It takes time and there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time. See how much money you can save by just following these tips and raising your score.

Types of Credit Use Tips
Apply for and open new credit accounts only as needed.
Don’t open accounts just to have a better credit mix - it probably won’t raise your score.
Have credit cards - but manage them responsibly.
In general, having credit cards and installment loans (and paying timely payments) will raise your score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
Note that closing an account doesn’t make it go away.
A closed account will still show up on your credit report, and may be considered by the score.

Lenders on Prosper do not have the opportunity to meet you, as say a bank loan officer would, and cannot, therefore, make a judgment on the intangibles normally factored into a loan decision. Prosper lenders may only look at your credit score, debit to income ratio and the proposed interest rate offered to decide if they will place a bid on your loan.

The Experian chart below shows historical default rates lenders use as a guide in deciding whether or not to bid on your loan.

Grade and chart
Average
Range
AA 0.20% 0.00% - 0.40%
A 0.90% 0.70% - 1.10%
B 1.80% 1.60% - 2.10%
C 3.30% 2.90% - 3.70%
D 6.20% 5.40% - 7.20%
E 10.40% 9.1% - 11.8%
HR 19.10% 15.1% - 28.2%
NC
Cannot estimate default rate for borrowers with no credit history
For example, a borrower with a D rating has an average default rate of 6.2% that means if a lender invests in 10 D borrowers 1 borrower will default about half way threw the loan and the lender will take a 50% loss on that borrower.

The significantly higher risk (and the higher possibility that they will not be repaid) requires “compensation” in the form of higher interest. Say a borrower expects to make at least an 8% return on all loans they make. That means the lender must add the 8% to the 6.2% default rate to get a 14.2% rate that they need to bid in order to make a 8% return on a D loan.

Lenders may use a formula to gage their risk vs reward when making a decsion on bidding on a loan. Here is an example of a lenders formula.

Prime Rate is currently 8.25%
A lender may want the following returns based on credit risk.

Lender calculation
Rating Prime Default Rate Risk vs. Reward Minimum Bid
AA Rating: 8.25% + 0.20% + 0.05% = 8.5%
A rating: 8.25% + 0.90% + 0.25% = 9.4%
B rating: 8.25% + 1.80% + 1.0% = 11.05%
C rating: 8.25% + 3.30% + 2.75% = 14.30%
D rating: 8.25% + 6.20% + 4.0% = 18.45%
E rating: 8.25% + 11.10% + 5.0% = 24.35%
HR rating: 8.25% + 19.10% + 6.0% = 33.35%
Prosper has a max borrower rate of 30% so you will not see many HR loans be filled if the lender were to use this calculation.