Prosper Remains Committed to Its Retail Notes Platform

We have an update regarding our retail notes platform. Prosper launched in 2006 as the first peer-to-peer lending platform in the U.S. and since then we have gone through many changes. But, more than 15 years after we were founded, one thing stays the same – our commitment to our borrowers and investors. 

As one of the largest online marketplace lending platforms, Prosper offers institutional and individual investors a unique opportunity to invest in the consumer credit asset class. In light of recent news that LendingClub is closing its Notes platform effective December 31, 2020, investors can be assured that Prosper remains committed to growing its retail Notes offering. In addition, as investors look to Prosper to invest in consumer credit and re-allocate across platforms, we are committed to matching the supply of Prosper Notes available for investment with investor demand.

As the needs of investors continue to evolve, two things remain consistent – they want to put their money to work quickly and easily, and see solid returns. Over the past several years, we’ve continued to invest in our retail notes platform, including launching an investor app for both iOS and Android to make it easier than ever for investors to manage and monitor their portfolio and returns. In addition, the credit quality of recent origination vintages continues to be strong on the Prosper platform.  With average historical platform returns of 5.2%1, Prosper provides an attractive fixed-income investment option in this low interest rate environment. Investors can access monthly Prosper Performance Updates through the Prosper Blog, with the latest August 2020 update available here.

Investors who are new to Prosper and would like to begin investing can sign-up here or reach out to our customer support team at invest@prosper.com or (877) 646‑5922 with any questions.

  1. Weighted average historical return for loans originated through Prosper as of September 30, 2020. To be included in the historical return (“Historical Return”) calculation, the loan must have originated (a) on or after July 1, 2009, and (b) at least 12 months prior to the calculation date. Historical Returns are based on actual payments (other than principal) received by the investor net of fees and losses (including from charged-off loans). We calculate the Historical Return for loans originated through Prosper as follows. First, loans are separated into distinct “Groups” based on the specific month and year in which they were originated and their Prosper Rating at origination. For each Group, we calculate: (a) the sum of the interest paid, plus late fees, minus servicing fees, minus collection fees, in each case on active loans, plus net recoveries on charged-off or defaulted loans, plus net debt sale proceeds on sold loans, minus gross principal losses; divided by (b) the sum of the principal balances outstanding on active loans at the end of each day since origination. We then annualize the result to get the “Historical Return” for the Group. Once this calculation is performed for every Group, we compute the cumulative-outstanding-principal-dollar-weighted average of their Historical Returns. This gives us the “weighted average Historical Return” for loans originated through Prosper. For purposes of this calculation, “active” means loans that are current in payments or delinquent less than 120 days; loans that have paid off, charged-off or are in default are not considered active.

The Historical Return calculation excludes the impact of servicing related corrective non-cash adjustments that may modify the outstanding balance or status of a borrower loan. The actual return on any Note depends on the prepayment and delinquency pattern of the loan underlying each Note, which is highly uncertain. Individual results may vary. Historical performance is no guarantee of future results and the information presented is not intended to be investment advice or a guarantee about the performance of any Note.

Prosper’s borrower payment dependent notes (“Notes”) are offered pursuant to a Prospectus filed with the SEC. Notes are not guaranteed or FDIC insured, and investors may lose some or all of the principal invested. Investors should carefully consider the risks, uncertainties, and other information described in the Prospectus before investing.

Prosper’s COVID-Relief Programs Help Borrowers Impacted by the Pandemic

Over the past several months, as Americans across the country stayed home to help slow the spread of COVID-19, unemployment numbers have skyrocketed. Many people have been laid off or furloughed, making it difficult and stressful to stay on top of their finances.

In response to the pandemic, Prosper has been actively working with its customers who have been impacted by COVID-19. The company established a specialized help line and has a dedicated customer service team ready to help. Since March, Prosper has received nearly 40,000 requests for relief. Today, we’re happy to share that 99.9% of those who requested relief have been eligible for hardship benefits, and almost all of those who qualified have received relief.  

“The economic impact of this virus has been real and immediate for many,” said David Kimball, CEO of Prosper Marketplace. “Prosper’s priority has been to ensure the health and well-being of our employees, and to provide relief options with exceptional customer service for our customers. We are grateful to have extended relief to so many who need it and to hear from our customers about the positive experience they have had with our service agents.  We are thankful for our customers’ patience and feedback as we work to continue to serve them better during this difficult time.”

Applying for Assistance

Prosper customers who have been impacted are encouraged to reach out to Prosper to apply for assistance by calling 1-800-843-1662 (6am to 5pm Pacific Time, Monday – Friday) or sending an email to covidhelp@prosper.com.

*Customer quotes are from internal customer surveys.

Prosper Investor Update

The last several weeks have been unprecedented for our country and the world.  More than 22 million Americans have submitted applications for unemployment benefits and that number will continue to increase in the coming weeks. At Prosper, we have been closely monitoring the rapidly changing environment and the impact that COVID-19 will have on overall unsecured credit performance.

Since 2017 Prosper has been tightening credit and focusing on borrowers’ ability and intent to pay in order to generate sustainable and attractive risk-adjusted returns for our investors. Over the last month, in light of the economic environment due to COVID-19, we have taken additional actions to actively manage investor returns and adapt to this rapidly changing environment. The changes outlined below are a continuation of our focus on driving consistent risk-adjusted returns for investors through the cycle.

  • Credit: We tightened credit policies and loan amounts based on recent credit seeking activity, employment status, credit scores and monthly loan payment to income (PTI) ratios.
  • Verification: Overall, we increased income verification requirements based on prior relationship with Prosper, credit rating, loan amount, occupation and recent credit inquiries.  We have also tightened operational procedures around eligible paystubs and income sources.
  • Pricing: We increased the borrower rate by approximately 200 bps for all ratings, except AA and HR rated loans. For AA rated loans, the average borrower rate has increased by approximately 100 bps since January.  The APR on HR rated loans was already at our platform rate cap of 36%.
  • Servicing:  To help our COVID-19 impacted customers, we are offering up to three months of payment relief (skip pay). We have added collections capacity to handle potential incremental volume.  Additionally, we will be offering payment reduction and loan extension options to our borrowers. Borrowers can reach out to us through a dedicated email (covidhelp@prosper.com) or by phone (1-800-843-1662).

As a result of our disciplined risk management, over the last three years, our overall vintage asset quality has improved significantly. The average FICO score is currently at 723 compared to 703 at the beginning of 2017.  Similarly, average borrower income is trending at the highest level of $116K since 2017, and the median monthly payment to income (PTI) ratio is trending at the lowest level of 5.3% since 2017. 

Prosper has helped facilitate the origination of personal loans through its platform for 14 years and we have served over one million borrowers. We’re proud of our track record of providing customers access to affordable credit so they can improve their financial well-being. Over the years, we’ve seen that many of our customers return to Prosper for a second loan. These repeat customers have demonstrated significantly better credit performance than new customers. Over time, the mix of these repeat customers in originations on our platform has increased significantly thus providing more resiliency in our credit performance.

While we are committed to delivering solid risk-adjusted returns for our investors, we also understand that many of our borrowers are facing financial hardship as result of COVID-19, and we’re making every effort to assist these borrowers with relief options. Our team of dedicated customer experience agents is working one-on-one with borrowers who need assistance through these challenging times, implementing the servicing programs outlined above as needed.  

We’ll continue to actively monitor the evolving economic environment and take necessary actions as needed, and provide with more investor updates when necessary. 

An Update on Pricing and Credit Changes

As one of the largest online marketplaces for consumer credit, Prosper regularly calibrates its credit and pricing models in order to maintain a balanced and sustainable marketplace that is equally appealing to both borrowers and investors.

Today, we are providing an update on the credit and pricing changes on Prosper’s platform in 2018. These changes are expected to drive an improvement in overall platform returns and a more predictable rate of return to investors on the platform.

Credit Changes

Over the last few months, we have implemented multiple credit tightening actions focused on a borrower’s ability-to-pay.  As an outcome of these changes, we expect the overall asset quality of new loans to improve materially.  As of Q3 2018[1], the loan weighted average borrower’s income on the platform is trending at $104,395 vs $86,546 a year ago (Exhibit A).  The monthly scheduled payment to income (PTI) ratio, a key measure of a borrower’s ability to make payments on their loan, is trending at 5.7% for the average borrower as of Q31 vs. 6.6% a year ago (Exhibit B).

We believe the timing of these changes is critical given that we think we are in the latter part of the credit cycle and overall revolving debt in the US is higher than prior to the financial crisis in 2008[2].

Pricing Changes

On the pricing front we have been increasing borrower rates on our platform since March of this year to stay in-line with changes in the interest rate environment (Exhibit C).  On a mix-adjusted basis, we have increased overall platform interest rates by 133 basis points (bps) since the beginning of the year.  Today, the Federal Reserve announced an increase in the Fed Funds rate.  In light of this development, the rates offered to borrowers through the Prosper platform will be increased by an average of 14 bps, translating to an overall increase of 147 bps on a mix-adjusted basis since the beginning of the year.

Table 1 below summarizes the simulated impact of the Prosper rate increase on the loan portfolio originated through the Prosper platform in September 2018.

Table 1:  Borrower Rate on Prosper Platform*

* Table reflects the simulated impact of borrower rates changes.

Summary

Prosper’s mission is to advance financial well-being for both borrowers and investors on the platform. This requires regularly calibrating our credit model to ensure we are extending credit to borrowers who have the ability to pay back their loan through Prosper, as well as ensuring that we meet investors’ expectations related to platform returns.

[1] Q3 includes July 1 – September 20, 2018

[2] Source: Federal Reserve Bank of St. Louis

 

Notes & Disclaimers:

The data, statements and figures in this article are based on Prosper’s analysis and calculations which, in turn, are based on various data sources compiled and analyzed by Prosper with all reasonable care to ensure they contain no omission likely to affect their import. Neither the analysis nor the underlying data sources have been verified by an independent third party.

This article includes forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of our management and is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. All forward-looking statements speak only as of the date of this article and are expressly qualified in their entirety by the cautionary statements above. We undertake no obligation to update or revise forward-looking statements that may be made in this article to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events.

All personal loans are made by WebBank, a Utah-chartered Industrial Bank, Member FDIC. All personal loans through Prosper are unsecured, fully amortized personal loans. Neither Prosper Funding LLC nor Prosper Marketplace, Inc. are registered as an investment adviser with any federal or state regulatory agency. The information contained in this article is for informational purposes, and should not be construed as individually tailored investment advice or as a recommendation with respect to any security or investment approach. Each individual should consider the appropriateness of any investment decision having regard to his or her own circumstances, the full range of information available and appropriate professional advice.

Prosper’s borrower payment dependent notes (“Notes”) are offered pursuant to a Prospectus filed with the SEC.

Prosper to Introduce Historical Return Data

In August, Prosper will be changing the way we present the return information on our website and will begin providing historical return data for each Prosper rating. This move from estimated returns to historical data is intended to give our investors even greater insight into the Prosper platform’s performance as they make their investment decisions.

Prosper was the first peer-to-peer lending platform to launch in the U.S. and remains one of the few platforms that gives individual investors access to the consumer credit asset class. When Prosper started underwriting loans in 2009, estimated returns were a transparent way to help our investors make their investment decisions. Over the last nine years, we have steadily built a track record underwriting loans through the Prosper platform. As a result, now is the right time to shift the return conversation and highlight the solid returns this asset class has generated for our investor community. We believe this change will also make it easier for our investors to compare our asset class to others that they hold in their portfolio.

What to Expect:

Beginning the evening of August 8th, estimated returns, estimated losses, and effective yield information will no longer be shown on the Prosper website, and Loan Listings will show a historical return range based on the loan’s Prosper rating. For Notes purchased prior to this time, the Loan Listing information will not change.

Additionally, the estimated return and estimated loss filters for the recurring investment tool will be disabled. If you are using these filters, you will need to remove them to ensure that your recurring investment order continues without interruption.

Moving forward, each Prosper rating will have a range of historical returns. You will be able to view the latest historical return information for each rating type, and select the Prosper rating that corresponds with the return that comes closest to what you are looking for.

Our return information is based on historical information and is intended to give investors more valuable insight into how this asset class has performed in the past.

Thank you to our investors. We continue to be committed to providing both individual and institutional investors access to the consumer credit asset class.

 

Prosper Announces Pricing Changes

Earlier this week in anticipation of the Fed Rate hike, we discussed Prosper’s approach to portfolio pricing in a rising rate environment. Our goal with rate-setting is to deliver value for both sides of the Prosper platform by providing a fair price for borrowers and a reasonable return for investors.

In order to deliver on this objective, the borrower rates offered in our marketplace must react to rate changes in the economy at large.  Today, the Federal Reserve announced a 25 basis point (bps) increase in the Fed Funds rate.  In light of this development, the rates offered to borrowers through the Prosper platform are being modified.

Pricing Change Impact Simulation

The table below summarizes the simulated impact of the rate increase on the portfolio originated through the Prosper platform in March month-to-date (MTD) 2018.  Overall borrower rates on the platform are increasing by 26 bps.

Prosper Rating 

Current Borrower Rate   (March 2018 MTD) Proposed Borrower Rates Variance I/(D)
AA 6.46% 6.46% 0.00%
A 8.93% 9.23% 0.30%
B 11.43% 11.73% 0.30%
C 16.03% 16.33% 0.30%
D 23.38% 23.68% 0.30%
E 29.14% 29.40% 0.25%
HR 31.82% 31.82% 0.00%
Total 14.27% 14.53% 0.26%

Federal Reserve policymakers expect to increase rates three times this year; but, compared with December, more officials believe rates need to increase at least four times in 2018 if the economy performs in line with their expectations. We will continue to closely watch interest rate changes and evaluate the need to make further rate increases. We anticipate that this could be as early as the second quarter of 2018. As one of the largest online marketplaces for consumer credit, maintaining a balanced and sustainable marketplace that is equally appealing to both borrowers and investors remains our highest priority.