Prosper.com has been able to get passed its legal trouble with the SEC, but there’s still one looming problem that the peer-to-peer lending industry has yet to find an answer for—extremely high rates of delinquency amongst its borrowers.
Depending on whose statistics you believe, Prosper.com’s default rate is anywhere from 10-40%, much higher than that of traditional banks. The losses from these loans have left many investors gun shy about putting in new investment money into Prosper.com and its primary competitor, Lending Club.
Prosper.com has recently announced that they have begun offering hardship arrangements for borrowers that get delinquent on their loan. Borrowers that contact the Prosper before they are 30 days past due are able to receive alternative payment arrangements. If the borrower stays with alternative payment schedule and doesn’t miss a payment, Prosper.com will report the borrower as current with the three major credit bureaus.
The arrangements that Prosper has been making with delinquent borrowers typically involved the borrower paying lower payments for some period of time, often 3 or 4 months, then returning the borrower to a higher payment once that period is complete.
Prosper.com explains their strategy on their website, “Even at a reduced amount, if we can keep them paying, it is dollars flowing to lenders. In addition this can build goodwill with borrowers and improve the future payment performance on loans.”
Since beginning to offer workout arrangements last December, Prosper.com has setup 327 workout arrangements. Of those, Prosper.com reports that 251 of them are still active. The company says that it believes the program has had an “excellent retention rate.”
