Since the last investor update in April, the overall macro-economic environment has shown signs of improvement. In June, the unemployment rate was 11.1% compared to 16.9% predicted at the beginning of May. Household spending on goods and services, which accounts for more than two-thirds of GDP, rose a record 8.2% in May compared to April. While these were encouraging signs, at the same time, a recent resurgence in COVID-19 cases and subsequent shutdowns by several states along with the upcoming expiration of federal unemployment benefits under the CARES Act pose a risk to the ongoing recovery. At Prosper, we remain disciplined and cautious with respect to the current environment and we continue to take actions on both the current servicing book as well as new originations to help actively manage investor returns.
Existing Portfolio Performance
Overall, we are encouraged by the credit performance of borrowers graduating out of our payment relief programs as well as borrowers who are not on any relief program. We continue to focus on providing payment relief options to our borrowers as well as adding collections and customer service capacity to effectively manage portfolio performance.
- As of July 12, 10.6% of Prosper borrowers have enrolled in COVID-19 related payment relief programs that we first began offering in March.
- 87% of borrowers graduating from skip-payment programs have either made a payment or have enrolled in the Payment Reduction program by their payment due date. Prosper began the Payment Reduction program in May, which allows eligible borrowers to reduce their minimum monthly payment for up to 6 months and extend the maturity of the loan for up to 11 months.
- Our focus is to transition borrowers graduating from skip-payment programs to either making a full payment or making a partial payment through the Payment Reduction program.
- As of July 12, borrowers who have not enrolled in any relief programs are performing favorably compared to historical trends.
New Originations Credit Quality
Overall, the credit quality of new originations continues to be strong. This reflects both the credit actions taken in response to COVID-19 and, more broadly, over the last three years.
- Loan weighted average FICO for Q2 2020 originations was 730, improving 13 points year-over-year and 27 points vs Q2 2017.
- In Q2 2020, 11% of originations were from C-HR rated loans vs. 35% in Q2 2019 and 63% in Q2 2017.
- Median monthly loan payment to income ratio (PTI) was 5.1% in Q2 2020 vs. 7.2% in Q2 2017.
- Over the years, we’ve seen that many borrowers return to Prosper for a second loan. Historically, these repeat borrowers have demonstrated significantly better credit performance than new borrowers. In Q2 2020, the mix of repeat borrowers increased roughly 375 basis points year-over-year.
- Our verification strategies continue to be more stringent post COVID-19 and focused on stability and consistency of income in the current environment.
- Compared to pre-pandemic levels, borrower rates on the platform remain higher to help provide sufficient cushion to platform investors against overall higher level of risk.
The trends above reflect our disciplined approach to managing credit performance on the Prosper platform under the current environment and over the last three years. We remain committed to delivering solid risk-adjusted returns for our investors and also helping borrowers who are facing financial hardship as a result of COVID-19. We will continue to actively monitor the evolving economic environment and take actions as necessary.