Lots of cancelled loans on Prosper.com?
August 11th, 2007 | by mbhunter |For those of you who are lenders on Prosper.com: Have you noticed that listings are get cancelled more often after they are completed?
Maybe I’m just hitting a run of bad fortune and having my money tied up for a week or so while Prosper.com tries to close the loop with the borrower after the auction has completed, fully funded. About half of the loans I’ve bid on recently, and won, have been cancelled because of problems verifying the borrower’s information.
Which makes me wonder: Are the borrowers doing this on purpose? Did they ever intend to borrow the money through Prosper.com?
I recently made the decision to bid only on loans put up by people with good credit scores (A or AA). People in this situation generally have more options available to them to obtain financing. Or, in some cases, they don’t need to finance things, but instead want to in order to take advantage of leverage and have their cash work elsewhere. (Why not?)
People with financing options may be using Prosper.com as inexpensive market research, an avenue for loan comparison shopping, or an avenue for loan negotiation. The Prosper.com listing may be only part of the big picture for the savvy borrower, but the lender only sees the listing. If the borrower has a line of credit at 6% already in place, and he aims to borrow $20,000, and the Prosper.com listing ends at 8%, he can walk away from the Prosper.com loan for the cost of the listing fee.
There could be other reasons that the loan “falls through” after being fully funded. The borrower could decide for whatever reason that the money isn’t needed anymore, or the borrower could balk at the request for personal information required to draw up the promissory note.
In any case, it’s mildly frustrating as a lender to have this many loans get aborted. Frankly, Prosper.com doesn’t really stand to gain anything by being too hard on the borrowers that abort their loans, because Prosper.com collects the listing fee each time. Why chase away a paying customer? It costs the lenders in that their money is tied up during the biding process and up to several days after the listing ends.
It would be nice if the borrowers were obligated to be bound to a loan that they list, should it be fully funded. (They actually are, according to Prosper.com’s terms and conditions, but that may not stop a lot of borrowers.) It would also be nice if borrowers were charged up front an additional $50 deposit, which is refunded if they enter the loan agreement, and distributed among the bidding lenders should the borrower back out, to compensate the lenders for their time and lost use of their money.
If you lend on Prosper.com, have you seen this as well?
One Response to “Lots of cancelled loans on Prosper.com?”
By Internyet on Aug 11, 2007 | Reply
I’ve noticed this as well. My impression, without having really dug into it, is that it’s catching more bogus loan requests. Maybe identity fraud, maybe just those borrowers who thought they could pad their income and panicked when prosper started asking for documentation.
Either way, it’s bumming me out. I’m trying to eek out my %. When money gets tied up for two-three days (for bidding to end) and one week (for prosper to vet the loan and cancel it), I’m losing %. Money sitting there not making interest.
It’s bad enough that new lenders are driving down the % below sustainable limits.
By the way. I’m looking into opening a secondary prosper market. Resale of loans. Any interest from this saavy group?