When the Federal Reserve meets on March 21, many are speculating that there will be a rate hike. In addition, many indicators are pointing to the US finally entering a rising rate environment after years of record low rates. In light of this, it’s timely to provide Prosper’s investors with an update on our approach for portfolio pricing in a rising rate environment.
As a marketplace, Prosper is focused on building value for both sides of its lending platform –borrowers who are looking for access to affordable credit, as well as individual and institutional investors who want access to the consumer credit asset class.
Our goal with rate-setting is to provide a fair price for borrowers and a reasonable return for investors. This means the borrower rates offered in our marketplace must react to rate changes in the economy at large. For the bulk of our borrowers, the majority of their outstanding variable rate obligations are linked to the Prime Rate. For many investors the 2-year swap rate is an important input into their expected return calculations.
Prosper will be closely watching for increases in these two key benchmark rates. In order to balance the borrower and investor sides of our marketplace, we are anticipating increases to our portfolio’s borrower rates throughout the year if these rates continue to rise.
In general, we expect the timing of price increases to coincide with moves in the Prime Rate and Fed Funds Rate; however, our top priority is fair prices for our borrowers and solid returns for our investors. We will make policy changes as needed to ensure an appropriate balance.
