By Ryan Weeks on Friday 10 June 2016
Prosper has published performance data as a means of highlighting the continuing appeal of its loan assets.
The headline stat is that the platform’s expected return on forward production tops 7%, thanks to the platform’s recent rate hike. Prosper raised rates by 0.29% on average across its loan book a couple of weeks ago, prompting one of its institutional partners Blue Elephant Capital Management to resume purchasing loans from the platform, after pausing its activities in 2015. Prosper’s estimated IRR stands at 7.58%.
Charge-offs increased on a vintage-by-vintage basis due to Q3/Q4 2015 delinquency, which Prosper attributes to “environmental changes” – which created a “pronounced uptick” on younger vintages. The 2015 loan vintages are seeing charge-offs come in more quickly than the 2013 or 2014 vintages, but they remain “well below” 2009-2012 levels. Delinquency rates were more pronounced in the Q2 and Q4 2015 cohorts, while Q1 and Q3 delinquencies were comparable to 2013 and 2014 levels. The 2015 delinquency curves are cited as a key driver of Prosper’s higher pricing.
Prosper’s portfolio gross loss estimates relative to FICO ("Conservatism") remain at or above 2013 levels. Coupon relative to FICO ("Price to Risk") is now between 2013 and 2014 levels and significantly above 2015 levels – one assumes as a direct result of the platform’s recalibrated pricing.
These results would appear to chime with our assertion that the return delivered by the underlying assets in marketplace lending is not the root cause of the present turmoil in the US market. Prosper’s Chief Risk Officer Brad Pennington said “our core product remains very attractive” in a blog post that accompanied the platform’s performance update. But it is notable that the returns delivered by Prosper, while seemingly improving, have been achieved through successive raises to the rates charged by the platform to borrowers. The platform has seen an uptick in loss rates per unit of FICO, but appears to be more than compensating for that uptick in its pricing, meaning that estimated returns are on the up.
Pennington went on to write: “At Prosper, we are extremely focused on offering a product that remains a strong relative value through multiple credit and interest rate scenarios. We will continue to publish performance updates and summarize elements of the more granular API and loan tape information on our blog.”
Prosper has turned off the taps with borrower origination websites LendingTree Inc. and Credit Karma Inc. in recent weeks, according to the Wall Street Journal. The platform – and indeed the sector – has been scaling back in attempt to cope with waning investor demand. The hope will be that these performance updates will instill renewed confidence in the market.