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Dear Zopa,

Your product for "lenders" is no longer competitive.3.75% one year CD isn't in the ballpark with other internet rates.

The novel idea of Zopa just isn't worth it when last week,WAMU had a 5% one year CD on offer.Several rates above 4.5% are still out there. 

Here is an updated graph of the 12-month moving average of Prosper's loan originations, with August 2008 added. 

(Click here for larger image.) 

As can be seen, the trend is now down again (which is due to the fact that August 2008 originations were down over half a million dollars from August 2007). 

It will be interesting to see what happens this month.  Because September 2007 was Prosper's worst month for originations in 2007, it should be relatively easy for Prosper to show a year-over-year increase this month, which will, of course, raise the 12-month moving average. 

Although Prosper rates an F for most of what it does, its marketing department clearly deserves an A for its ability to get articles published that read as if they were Prosper press releases.  There have been a bazillion articles published about Prosper, and they almost all may as well have been written by Prosper.  Typically, they uncritically regurgitate Prosper's misleading statements about its default rate, lender performance, etc. 

But finally, there is a hard-hitting article on The Motley Fool, a well-respected financial site --  http://www.fool.com/investing/value/2008/08/29/avoid-this-company-like-the-plague.aspx.

"If [online person-to-person lending] worked, it would have been a tremendous win for all involved. It's too bad that online-lending pioneer Prosper.com botched the execution of that concept. Sure, any start-up will have growing pains. It's how a company responds and adapts to those pains that really matters.

On that count, Prosper has earned an F."

The Motley Fool article (which mentions both Fred93 and me) spends most of its time on Prosper's federal bankruptcy court filing in the Oakland Gaerke case, in which Prosper makes the startling (and ridiculous) claim that "it is denied that Prosper loaned any money directly to the Plaintiff or Defendant, Ashley Gaerke."  Prosper's position in that case is that it merely facilitated separate loans made directly from lenders to the borrower.  This is, of course, 100% contradicted by Prosper's various legal agreements, including the Lender Registration Agreement, the Prommissory Notes, Prosper's FAQ, and its SEC filing.  Fred93 blogged about this issue in depth here, building on a prospers.org thread started by xraider (who discovered this case) here.

The Motley Fool article also spends some time on the performance of Prosper's loans, noting that "[f]ully 18.5% of all dollars loaned on Prosper between its inception and the end of June 2008 have gone delinquent. Some individual months look substantially worse: More than 35% of the dollars loaned in February 2007 are in some stage of evaporating."  The article also describes several of my complaints about Prosper, apparently taken from my long-running (and soon to be updated and blogged about here) thread on prospers.org titled My Summary of Prosper's Problems. 

Kudos to The Motley Fool and its author Chuck Saletta!

Today is the last business day in August so all the data is in for the month and it ain't pretty.  Prosper has originated 25% less in loans this month than last, from ~$8 million down to ~$6 million.

I don't know what their recovery plan is but this is not good.  As you can see there has been a peak over the last few months that can be attributed to a significant amount of advertising but something has changed because whatever it was, it hasn't lasted.

Looking at some other statistics, a lot of other things have been going down too.

It's interesting that lenders are focusing more and more on smaller loans as the above graph shows.

Here's a graph I've posted before that shows the total number of loans broken down by credit grade:

Finally, a graph that I find most curious:

Based on this graph, it appears that lenders are funding a lot more HR loans than they used to.  I haven't really looked at the breakdown of what borrowers are requesting but for whatever reason, lenders are funding more and more E/HR loans than they have in quite some time.  AA & B grades have dropped at about the same rate as HRs have risen this past month.  After the super high default rates of these lower grades, I have no idea why so many of them are still funding.  It's not like it was back in their heyday at the end of 2006, still I find it amazing they are still getting loans.

Using March 1 2006-March 1 2008 to screen out early loans from Prosper employees to themselves on the early date & the later date to give the loans a few months to age returns information that only AA loans are not negative return when you factor in late loans.Keep in mind when you view the link that you also need to subtract at least 85% of the loans that are 1 month late or more because historically on Prosper,loans that go one month late ,go on to default 85% of the time.

http://www.prosper.com/lend/performance.aspx?af=0&esba=63&gm=0&gr=0%2c1%2c2%2c3%2c4%2c5&hw=0&iba=255&ibid=0&iwatch=0&lc=0%2c1%2c2%2c3%2c4%2c5%2c6%2c7&lq=&maxAmt=25000&maxDTI=1000000&maxFund=1&maxGrpTLC=1000000&minA=0&minAA=0&minAmt=0&minB=0&minC=0&minD=0&minDTI=0&minE=0&minFund=0&minGrpTLC=0&minHR=0&minNC=0&occ=&od=08%2f23%2f2008&oer=03%2f01%2f2008&osr=03%2f01%2f2006&plcgd=&plp=0&sf=10&sh=0&sn=&tg=0