National Family Mortgage, a company who facilitates mortgage products between family members, announced they have originated over $30 million in mortgages.

Jerry Batoski, the owner of the up and coming site Lend Analyst, had two insightful posts this week.  In the first he gave a detailed overview of his p2p investment strategy, breaking down thirteen specific risk factors and providing guidance on acceptable metrics for each.  In the next post Jerry announced he would start sharing his Lending Club portfolio activity, allowing newbies to learn from his deicision-making process and giving a nod to the Follow the Leader investment strategy.

The emerging role of institutional investors was highlighted in an article in Alchemy, an online magazine by SecondMarket.  Peter Renton also had a post giving some insight into the options available to accredit investors, who are able to invest in peer to peer loans through private placement funds.  According to Peter, these institutional investors are given several perks, including not being limited by state regulations.  Mixed feelings have been expressed online about the growing role of these large investors in peer to peer lending, but in the end they should bring long-term viability to the both Proser and Lending Club.

WSJ had an article about a couple of self-directed IRA management firms, Equity Trust Co. and Entrust Group Inc., who have recently been sued by investors.  Of course, many investors are using these types of IRA accounts to diversify their retirement investments in peer to peer lending.

American Public Media’s radio show Marketplace had an interesting piece titled Financial Innovation and Social Lending.

Lastly, your truly made two posts this week, one on the effects loan default can have on your portfolio, as well as an article comparing Prosper vs. Lending Club.

Prosper and Lending Club are the two main peer to peer loan marketplaces available to US investors.  This post will evaluate both money lending sites to educate investors on their unique characteristics.

Key Performance Statistics

According to LendStats, the aggregate ROI of loans at Prosper has consistently outperformed Lending Club by at least a few percentage points since 2009.  The current average interest rate for loans on Prosper is 19.5% with a rate of loss (late / unpaid loans) at 5.31%, giving a return of investment of 12.12%.  Lending Club’s current average interest rate is 13.43% with a rate of loss at 2.58%, leading to an aggregate ROI of 9.99%.  Therefore, it appears that Prosper is issuing loans at higher interest rates and to riskier individuals, but properly setting interest rates for the amount of risk for investors to get a nice return.  However, it also implies that beginning investors better know what they are doing at Prosper, as they have an increased chance of getting into riskier loans.

Lendstats.com Prosper and LendingClub performance and lender statistics

Size and Growth

Currently, Prosper has originated only half of the amount of money’s worth of loans than Lending Club ($329M vs. $604M), but both have originated approximately the same number of loans (52,000).  So, you should find that the loans listed on Lending Club are for a larger amount of money.  Additionally, over the past two years, Lending Club has consistently originated about twice as many loans per month than Prosper.

Institutional Investors are playing a growing role in the p2p lending space.  One of the recent signs of this is Former Morgan Stanley CEO John Mack has joined Lending Club’s board of directors.  According to the WSJ, Mack has expressed interest in allowing financial advisors to offer Lending Club investments as part of the options they can offer their clients.  Some investors see these institutional investors as eroding the social nature of p2p lending and the appeal of removing the banks from the lending process.  Others see these big players as legitimizing the business and a great way to provide long term stability to the platforms.

Blenders and Repeat Lenders

Each site allows an individual to be both a borrower and a lender (aka blender) or borrow multiple loans over their lifetime.  What is unique is in Prosper this behavior is integrated into a single user profile, which allows them to publish information on these types of users.  As it turns out, statistically blenders and repeat lenders are less likely to default on their loans.  Savvy investors seek out loans issued to these types of individuals and make them  significant part of their Prosper investment portfolio.

To be a borrower and lender on Lending Club, you have to sign up for two accounts using two unique email addresses and go through the entire verification process each time.  Blender and repeat lenders are not identified on Lending Club and no data is published in their regard.

Availability Limitations in Certain States

Peer to peer lending is still in its infancy and is still limited by regulations in certain states which do not allow their citizens to invest directly in these types of loans.  In those states Prosper disallows the investor from investing directly in new loans and from investing in the secondary market, which is where lenders buy and sell notes on loans that already originated.  Lending Club blocks the same investors from investing in their primary market, but allow them to invest in the secondary market.  So, if you are unlucky enough to live in a state that puts this limitation on its citizens, Lending Club is your only choice.  The secondary market can be a bit more challenging since time has passed since the original credit report was pulled for the initial loan listing.  However, one of the benefits is you can find notes that have a proven track record of on time payments.

Accredited Investors, a designation defined by the SEC for high net worth individuals, can invest in private placement funds which then in turn invest in Lending Club or Prosper, and not be limited by these state regulations.

Social Network Aspects of Social Lending

Prosper really nails the social aspect of peer to peer lending.  The site is designed in a way that feels a lot like a social network.  Each lender and borrower are assigned a public alias, have a profile page, and can friend other members.

Sample Prosper Loan Listing Showing Investor Nicknames

When a borrower lists a loan, they can watch as specific users fund the loan.  Further, these transaction details are made available through data published to the investor community by Prosper.  With that information you can track who is investing in which exact loans, which allows for unique learning experiences and peer to peer investment strategies for rookie investors.

Conclusion

By comparing Prosper vs. Lending Club you can see that each site offers unique benefits to investors.  In my opinion, probably the best option for those who can, is to invest money in both marketplaces to personally experience the difference in each site and monitor to see how your investments perform.

When investing in peer to peer loans, loan default is the most significant risk factor that can erode your return on investment.   When a loan is issued to a borrower they agree to repay the money to investors at a fixed rate.  Investors expect to see that rate minus service fees equal their return on investment.  But, in reality that is wishful thinking.  Not every borrower is going to live up to their debt obligations, and when they don’t, you may not only see your profits dwindle, but could even lose a large chunk of your investment.

What is loan default?

Loan default is a term used to describe a loan in which a borrower is not living up to their obligations as specified in the contract for the loan.  In peer to peer lending we focus specifically on debt service default, which simply means the borrower missed one or more payments.

When a loan becomes late, Lending Club and Prosper will take care of attempting to recover the payments by contacting the borrower.  Individual investors are not allowed to perform this activity on these sites.

When it is determined that a loan is very unlikely of receiving any further payments, it is charged off.  This charge off is a declared for tax purposes, essentially letting you declare the loan investment a loss on bad debt.

The Effect of Loan Defaults on Your Return on Investment

As a lender, when a loan defaults, you may not only see the expected profits from your investment disappear, but you run the risk of losing the unpaid amount of your investment.  So potentially, if you invest $25 in a loan note for which the borrower never makes a payment, you not only lose the expected interest payments, but the entire $25 investment.

As another example, let’s say you have 100 loans, all with a 15% fixed rate and your portfolio has a default rate of 5%.  Your portfolio would see a return of investment of only 10%, minus any servicing fees.

Since the loan is set at a fixed rate, and the borrower will never volunteer to pay you a higher rate, the rate of the loan minus service fees is the maximum potential you will see from your investment.  And the only way you will get less is if the borrower doesn’t pay you in full.  So an effective peer to peer loan investment strategy sets out to invest in loans with the largest fixed rate and the lowest loan default rate.

Loan Defaults at Lending Club vs. Prosper

The following chart is from Nickel Steamroller and shows the historic default rates for Lending Club and Prosper.

Nickel Steamroller - P2P Lending Default Rates

Both Lending Club and Prosper publicize returns by credit grade, which are discounted by the historical default rates.  You can view those figures here and here, respectively.  Prosper explicitly lists a Loss Rate, where for Lending Club you can click the Performance link under the page header to see Average Interest Rate by Credit Grade.  Subtracting the expected return from the average rate will give you an estimated loss amount on LC.  You can also use a more powerful tool like LendStats to provide you average rate of loss for each site.

Minimizing Risk of Loan Default

Your first objective should be to diversify your portfolio, to spread the risk of default across many notes.  As an example, let’s see what happens when a single note becomes charged off on a $1,000 portfolio.  In one case we’ll pretend the note investment was $25 and in another we’ll say we invested $250.

• 25 / 1000 = 2.5% loss
• 250 / 1000 = 25% loss

Secondly, you should take a strategic approach for picking low risk loans by analyzing risk factors to look for in a listing.  According to Prosper, the following factors from a borrower’s credit report play the most significant role in determining the risk of loan default:

• Debt-to-income ratio
• Loan amount
• Now delinquent
• Inquiries in last 6m
• Bankcard utilization

Lastly, if all else fails, minimize your losses and sell a note when it is in the early stages of being late at a discount on FOLIOfn.  Lending Club investors are able to put late loans for sale on the secondary market for other investors to purchase.

So, you’ve logged in to check your peer to peer loans on Lending Club and find one of your borrowers missed a payment.  You’ve entered the dreaded late zone. Your heart pounds, palms sweat, and you try to start calculating how much of a hit this will be on your portfolio’s return on investment. Take a deep breath and don’t panic.

One of the first things you should do when a note becomes late is look at the Collection Log section towards the bottom of the Loan Performance page.  This section contains a summary of the activities the collection department has taken to seek payment from the borrower. Some of the most dreaded things to see in this section include the borrower filing from bankruptcy, email bouncing back when trying to reach borrower, or the collection group trying to reach the borrower by phone but the number is disconnected. Some of these collection notes happen rapidly, during the grace period. These notes are a critical indicator in the likelihood of your investment being recovered. To get there login to Lending Club and click the notes link at the top of the page. Then click the status of one of the notes.

And scroll down until you see the Collection Log section.

You should also then check out the Credit Score Change to see how the borrowers credit score has faired since you purchased the loan. If you see it taking a nose dive, then you can probably infer you have a risky asset. When browsing nots on FOLIOfn investors can see if the borrower’s credit rating has increased, stayed steady, or decreased. A note showing a decreasing credit score trend will likely reduce the number of people who would consider the loan and demand a higher discount rate.

After reviewing this information, let’s say I decided to sell my note on FOLIOfn.  When logged in to your Lending Club account, click the Trade Notes link under the Account Summary title. Then towards the top of the FOLIOfn screen click Sell Notes. This will list all notes in your portfolio. It is probably easiest to sort your list by status to find the late one you want to sell. Just click the check box in the first column to choose a note and then click the Sell Notes button.

Now you price your loan. By default you are provided with the current full value of the loan (Principal + Interest) which would be the sale price in which you would receive no gain no loss, other than the 1% transaction fee.

What you are probably wondering though, is just how much should you discount your loan.  When a borrower falls behind on payments they loan becomes increasingly more likely to default. As those odds increase, the market value of the loan, or the price another investor would be willing to pay, should decrease at a similar rate. There are four main stages of “lateness” for loans on Lending Club:

• Grace Period (1-15 days late)
• Late (16-30 days)
• Late (31-120 days)
• Default

Lending Club publishes a chart titled Recovery Rate by Loan Status (over 6 months) on their site under the statistics section, broken down by the stages above. The recovery rate represents the amount of loans that reach are fully or partially recovered. You can use this calculation to understand the increased risk of default on a loan as it becomes more and more late. Likewise, you can use this information to derive your expected discount rate that the market would dictate on a late note, which can guide you when you look to sell or even buy a loan in the secondary market that is not current.

Graph From LendingClub.com

Now you can review the current discount rates for loans in similar shape to yours. You probably want to start off by fishing – or putting a light discount on your note and throwing it out there just to see if anyone bites. Then you can reduce is by a few percentage points every few days until someone buys it.

Once you list your loan for sale, you can track the status and history of your note sales by visiting the My Account page.  Here you can view your open sell orders, canceled sell orders, and view all notes sold in the current month.

With the ability of liquidating late notes on the FOLIOfn secondary market, there is really little reason to hang on to a note until it defaults. If you do your due diligence and act early, you should be able to get a fair, market price from a buyer. Don’t rush to sell your loan at a heavily discounted price, be sure to protect your portfolio’s overall return and use your brain instead of acting on fear.

The WSJ reported that consumers increased their rate of borrowing for auto and student loans in February but reduced the amount charged to their credit cards, according to data from the Fed.

In a move to spur investments in large p2p loans, Lending Club announced they would waive service fees for investments made in loans over $20,000.  This is a limited time offer that was seemingly introduced to help some of the larger loans on the site secure funding more quickly.

SoFi, a peer to peer student loan site, was launched.  With SoFi, current students can obtain loans from school alumni interested in having consumer loans as part of their tax deferred retirement portfolio.  They are currently advertising expected returns from 5-8%.

The American Bankers Association reported that consumer delinquencies declined in all categories of loans for the first time since 2004.

Lending Club reach a new milestone with over $50 million paid to investors.

Here at Lucrative Lending, we had a post about a peer to peer loan investment strategy dubbed Follow the Leader, where beginner investors can study and track the investments made by the top earning investors on Prosper.

And lastly, on a personal note, I was able to secure my first peer to peer loan through Prosper and wrote up a final post on my experience as a borrower.

When starting out investing in peer to peer loans, beginners lack the experience needed to consistently pick the most profitable loan investments. Most people stumble in, make some investments by rule of thumb, and through trial and error begin to learn the signs of a good or bad borrower. There is a better way to learn loan investment strategy and build your initial portfolio. One that can save you time and money.

The alternative strategy that will let you earn and learn faster is something I call “Follow the Leader”, which is available to those using the Prosper peer to peer loan marketplace. Using Follow the Leader, you literally mimic the investments made by the top earning investors on the platform. Currently, the top 25 investors on Prosper earn a return of investment of 15 percent or more with over $3 million invested on the platform and include a mix of individual and institutional investors.

Prosper is designed very similar to a social network, where each investor and borrower has a nickname and associated profile. Prosper provides a lot of marketplace transparency to the investment community, including historical and current data showing information on loan performance and transaction history. With this information you can see the performance of a specific lender’s portfolios and, here’s the key, you can even see which loans a member is actively bidding on. Therefore, you can literally follow in their footsteps of the top performing lenders, investing in the same loans that they do.

While Prosper makes the data available to everyone on their website, it is much easier to use Lendstats.com, which is a site that takes the raw data and makes it available for analysis. On the LendStats home page you’ll see a table labeled “Prosper Top Ten Lenders by Rate of Gain”. Clicking on a lender nickname will bring you to a page showing a breakdown of their loan portfolio and towards the bottom of the page you can see a listing of their active bids. On the bottom of the table you can click View Complete List to see a deeper listing of the top investors, so you can figure out the top 25, 50, etc.

But, you don’t have to individually click on these lenders to figure out their active bids. The easier way to do this is to click “Top Lender Bids” in the “Quick Links” table on the home page. This will bring up the listing of all bids placed on active listings by the top 25 performing lenders on Prosper. Clicking on the listing number brings you directly to the Prosper website where you can place a bid for the loan.

Now, of course, I recommend that you study the investment strategies these top earners use by evaluating their portfolio. You should be able to see specific criteria they look for in a loan, such as a minimum amount of acceptable inquiries, loan reasons, etc. They’ll each have their own unique preferences, but you will certainly start to understand some general “rules” to keep in mind when evaluating loans. Also keep in mind that these lenders have a lot of cash invested on the platform. Some may diversify their portfolio by investing some money in high risk loans, and other money in conservative loans. Look at how much they put down on the loan compared to others they are bidding on and think about why it is more or less than what they normally bid. Be aware of what you are getting into. Don’t try and put as much down as these top earners do, just put down the minimum bid of $25.

Be smart with this technique you will gain knowledge faster and have a better chance of building a winning peer to peer loan portfolio on Prosper.

From Nov to Jan, consumer borrowing increased at the fastest rate in a decade, driven mostly from a combination of auto and student loans. During that same period, auto loans represented 5.0% of all loans originated on Prosper, or 3.4% of the value of all loans issued, and on Lending Club auto loans represented 2.46% of all loans issued or 1.44% of the value of all loans issued.

TransUnion released an updated study on the latest consumer “payment hierarchy” trends, which is the order of priority in which borrowers give their existing debt obligations when they begin having trouble making payments. Before the financial crisis in 2008, consumers paid their largest debt payments first, giving preference to keeping up with their monthly mortgage payments. Since then the trend has shifted where now 40% of consumers are paying their auto and credit-card obligations on time, but are delinquent on their mortgages.

Leading peer to peer lenders Prosper and Lending Club experienced record setting levels of loan initiations in March 2012, totaling $11.2m and $39.5m in value, respectively. Prosper seems to be struggling a bit with the fast growth rate, falling behind on their ability to verify borrower documentation within the allotted 14-day listing time.

Federal reserve data shows that between 1986 and 2011, the average return on consumer credit card debt was better than 10%, never producing a negative return during that timeframe. Forbes contributor Marc Prosser ran into this statistic, did some analysis on peer to peer lending’s entrance in the industry, and is bullish on the future returns for investors.

Prosper added thirteen new loan categories, which should provide investors more capability in seeing the performance of more specific types of loans, but will challenge them in the short-run due to lack of historic data.

By researching publicly available information from the two largest P2P loan marketplaces, Prosper and Lending Club, investors can lower their risk, increase profitability, and forecast future performance of their loan portfolio.  Both sites offer raw market data to investors for analysis.  By doing so, they gain investor trust and provide and incredible asset to those interested in coming up with a targeted investment methodology.  By statistically analyzing this data, investors can predict how profitable a borrower’s loan will be, based on whether they pay rent or mortgage, which state they live in, their income, and many other key factors.

In order to perform analysis on this raw data, investors need a medium to display the data in a way suitable for statistical analysis.  Lendstats.com is a popular, free site that provides all of this information in a powerful dashboard format, and is updated daily.  The site can be a bit daunting for the first time visitor.  In this guide I will break down each major section of the site to help make it clear how you can use the information for investment research.

The Lendstats home page is a dashboard with various charts showing aggregate loan statistics from Lending Club and Prosper.   The first graph shows Originations Per Month for both marketplaces.  One challenge in creating a well diversified P2P portfolio is the amount of time it takes to find notes that fit your investment strategy.  The more originations that exist, the greater chance you have of finding a suitable note.  Further, the origination rate can give insight into the health of each marketplace, showing whether the market is increasing or decreasing in available investments.  At this time it appears that LC is greatly outpacing Prosper in loan originations.

The next chart is a Performance Summary, where LC and Prosper aggregate note performance is compared by year and loan credit rating.  The average ROI for each P2P lending site can be affected by how well the site screens potential borrowers and the diligence of their collections efforts when a loan becomes late.  Further, the ROI gives you some indication of what type of return an investor in that market may receive.

Each site has their own grading system for rating the credit-worthiness of borrowers.  This section is most useful when comparing grades within a site instead of across sites.  Also notice that with Prosper you see metrics for Repeat Borrowers and “Blenders”, or borrowers who are also lenders.  These are typically highly sought after due to their good performance.  LC does not publish these two metrics – in fact if you want to borrow and lend on Lending Club, you have to create two separate accounts with two different email accounts.  Prosper’s site was created with more of a social network feel, where investors and borrowers are assigned anonymous nicknames and have their own public profile information available to all.  The remaining charts on the home page provide various “Top Ten” lender metrics from Prosper using this profile information.  These let you view the portfolios of the best and worst performers on the site, allowing you to look into some of the strategies these investors employ.

Now let’s move over to the Prosper Stats page.  On the top of the page the first thing you’ll see is a set of begin / end date parameters.  As you probably noticed on the first page, P2P investing was a lot more like the wild west before 2010, so its generally a good idea to set the begin date filter for something in 2010 or later to get results relative to today’s market conditions.  Once you’ve set that, you have a number of other criteria that let you slice and dice the entire portfolio of all loans within the date range specified.

Just to the right of the data parameters you’ll see a checkbox to “view complete performance breakdown by” and a dropdown box to the right.  This powers a detailed table that you can see if you scroll to the right of the browser window after submitting your filter criteria.  The default view breaks the information down by loan and credit criteria, but you can also view by state/city, occupation, and date.  Using the state/city filter, you can see how borrowers from specific locations in the US have performed for investors.  Of course, this is very relevant today since the recession and home loan crisis have affected regions across the country with different levels of severity.  Just be careful to check the Total Lent column when using the Complete Performance Breakdown table – you want to be sure enough loans appear within your results to be statistically significant.

Just below the filter criteria and beside the Enter button there is a radio button selection where you can tell the tool to show you active loans that fit your filter criteria.  This is a great way of being able to take direct action upon loans that fit your specific investment criteria.  These results appear below the Performance Summary section after you submit your filter conditions.

One very powerful tool on this page comes from the section labeled Loss Factors.  Once a loan becomes late, it decreases in value due to the increased risk of default.  Not only are you less likely as an investor to recover 100% of your expected proceeds, but if you were going to sell your note to another investor, the market would dictate you would have to sell it at a discount.  Lendstats looks at how late a loan is and automatically devalues it using these loss factors.  So, for a given portfolio shown by your filter criteria, you can see the overall Rate of Loss in the Loan Performance Summary.

The last, and perhaps most interesting, feature is Lendstats ability to analyze a specific investor’s portfolio.  For Prosper,  you can do this by searching for your lender name.  Just to the right of the data parameter filters, there is the word Find and a drop down which defaults to all_loans.  Switch that drop down to lender, put your lender name in the text box and press the enter button.  Now you can analyze your portfolio performance and see the impact late loans are having on your investments using the loss factors and other criteria.

The Lending Club Stats page works pretty much the same as the Prosper page, with some differences in the filter criteria.  Also, in order for Lending Club users to analyze their current portfolio, they need to look for the section labeled Data Options and click the Analyze your Portfolio option.

Then, login to your LC account, click Notes in the top navigation, then look in the lower right of the page for a link labeled Download All.  This exports your portfolio (with no personally identifiable information) into a .csv file which you upload to Lendstats.

I encourage you to spend time digging further into the loan information on Lendstats and create a strategic plan for your peer to peer loan investment portfolio.  Like any other type of investments, you shouldn’t just rely on your gut, but employ statistical analysis to help maximize your profit potential.

This year I decided to enhance my backyard by extending the patio and putting in an outdoor kitchen.  The drought last year also did some damage to my landscaping, so I need to do some replanting.  I put together my budget and got bids from a few contractors.  This will be a pretty sizable investment and while I have the cash on hand to pay for it, I really don’t want to have to let go of that much cash in one transaction.  Over the past few months I have been really diving into investing in P2P loans, so I decided to make this an opportunity to see what the borrowing experience was like.

First, I got my free annual credit report.  I didn’t want any incorrect information on my record to cause me to not get the best rate when applying for the loan.  For $8 I got my FICO score and was happy to see it is now over 850.  Over the past few years I focused on paying down debt, so now all I have is a mortgage.  Everything looked fine, so it was time to apply for the loan.

So far all of my P2P loans are invested through Lending Club, so that’s where I went first.  Their website was advertising rates as low as 6.78%.  Lending Club made me create a new borrower account with a different email address to apply for the loan, instead of allowing me to use my existing lender account.  That’s seemed a bit goofy, but not a big deal.  They asked how much I wanted to borrow, the purpose, and my credit score range.  Then they asked for my contact info, date of birth and income.  When I submitted everything they gave me confirmation of being pre-approved and offered a 8.99% rate for a 3 year loan or 12.12% for a 5 year loan.  I was disappointed to not get their advertised best rate, but I’m sure their rates differ according to loan purpose.  Most folks borrowing money from P2P sites are requesting debt consolidation loans, while mine was for home improvement.  The rate seemed OK for an unsecured home improvement loan, but I wanted to see if I could do better.

I went and created a Prosper account, filled out the basic information just like on Lending Club and they offered me 6.49% on the three year loan.  That was good enough for me, so I went ahead and continued to the next step.  I filled out a description to include on my listing for investors to read.  Prosper prompted to to supply extra information to convince lenders this would be a worthwhile investment.  Prosper then asked for my bank account information to make sure when the loan funded they knew where to send the money.

The loan listing includes a metric called Verification Stage, which signifies how much information about myself I have provided to the service.  The more information you provide, the higher the stage, and the more likely your will gain investor trust and have your loan fund.  Your loan listing is given 14 days to reach 70% funding for the loan to originate.  The listing has to go through a manual review before it is made live, so I’ll give an update once that is complete.

So far the process has been fairly simple and it looks like I’ll be able to get a reasonable rate for an unsecured home improvement loan without having to deal with a bank.

*Update March 26, 2012*

So, it has been almost two weeks after submitting my application for a loan on P2P lending site Prosper and have a few updates to share.  First, I received an email the afternoon after applying for the loan stating the following:

Thank you for posting your loan listing on Prosper.

To ensure compliance with fair lending laws, we do not allow borrowers to include references in their loan listings to their race, color, religion, national origin, sex, marital status, age, sexual orientation, military status, source of income, immigration / residency status or plans for having a family.  We have removed your listing description because it contained one or more of these prohibited references.
You can view your listing by signing in to your account. https://www.prosper.com/account/common/login.aspx Although the description has been removed, your loan listing’s other details will be available for viewing.
Thank you!
Prosper
www.prosper.com

I’m trying to think about what I wrote and it must have been that I referred to “my wife’s” income in the description, presumably giving away my sexual orientation.  Unfortunately, I was not given an opportunity to resubmit an edited version, so my listing was posted with no description at all.  I’m guessing that may give me less of chance of having my loan fully funded within the 14 day posting period.  Guess we’ll have to see how it goes.

The same day I received another email requesting additional documentation:

• Valid Government Identification Card with Picture (Driver’s License, State ID or Passport)
• Voided check or a statement from the bank account you entered on Prosper
• Form W-2 and pay stub

By submitting this information, my Verification Stage would improve, indicating to interested investors that I have provided additional documentation to back up the claims in my listing.  The email said I could just reply with scanned copies of the requested documentation, so that was easy enough.

The next day I received an email stating they needed a “current Pay Stub dated in the last 30 days, including your name, the business name, and both pay period totals and year-to-date totals”.  Well, that’s odd.  I went ahead and just sent it over again.  Later that week I received a post card with a secret code on it which I was told to go and enter onto the site as verification of address.

While your listing is in the funding stage, it is actually sort of fun to check it every once and while and watch the investors offer you their money for the loan.  You’re shown who offered to fund the loan, when they made the offer, and how much they committed.  Most of the usernames are nicknames so you don’t know who they are, but the site still has a social network feel, where you can visit their page and even “friend” them.

Well, here it is on day 13 and my loan is only 44% funded.  I doubt I’m going to get the loan since it has to reach at least 70% in the first 14 days.  Looking at my listing, it showing I’m still only at Verification Stage 2, but since I’ve submitted everything that has been requested, I should be at 3.  I’m sure that’s why a lot of people haven’t committed their funds to the loan.  Unfortunately, there is no checklist showing me the required documentation and what has been received versus what is outstanding.  So, I have no way of knowing what documentation is missing.  I’m going to have to call Prosper during business hours tomorrow and figure it out.

The help page says I will be able to resubmit the listing after the 14 days expires for no additional charge.  Fair enough, but that’s sort of a pain.  I’d recommend to anyone trying to get a loan on Prosper to make sure their verification stage hits 3 after they submit all of the documentation during the first 5 days or so after their loan is posted.  If it doesn’t call up there and figure out what’s going on.  I should have been more proactive to make sure of this.

I’ll throw up another post to update how this turns out.

*Update 3/27/2012*

So, I called Prosper yesterday about why my verification stage was still 2 and they basically said the verification staff was overrun with reviews and was not able to get to it yet.  They recommended that I withdraw the current listing and just put it back up again, which I have done.  I still have my verification stage 2 status and I see a lot of people jumping on funding the loan today.  I suppose the lesson is if you need the money quickly, this may put you in a crunch.

*Update April 6, 2012*

I’m excited to report I was able to finally get my first peer to peer loan funded through Prosper.  As discussed previously, my Verification Stage was stuck at 2 for more than two weeks.  I called Prosper support for a second time and the analyst told me they were missing one of my verification documents.  The frustrating part for me was I had already sent it to them 3 times, including the first time they asked for it a few days after I applied for the loan.  He stayed on the phone with me and had me send it again and verified receipt while on the phone.  Within a half hour my Verification Stage moved up to 3.

The rate of investments in my loan increased pretty dramatically once that happened and within a few days my loan reached 100% funding.  I also noticed some investors start making heavier investments in the loan ($1,000+), so presumably these are investors with pretty large sums of money on the platform.

After reaching 100% funding, the money only took a couple of days to reach my bank account, minus a $60 origination fee, via electronic transfer.  By default, Prosper set me it so that every month my payment will be automatically drafted from my checking account.  Undoubtedly this helps to reduce to their loan delinquencies, and something I liked to see as a p2p loan investor.

Overall, I was pretty satisfied with my experience borrowing money from Prosper and would recommend this service to others who are seeking a small to mid-sized loan.  Of course things would have gone a lot smoother if they would have processed my verification documents faster.  I found it sort of fun to be able to login and watch investors bid on my loan during the listing period.  Prosper’s website was intuitive and I found their communications via email stepping me through the loan process easy to follow.  Both times I called into their help desk the support analysts were friendly, though the second person I talked to seemed much more helpful.  Now I’m excited to complete my home improvement project, which should be done by the end of the month.