credit grades

Bondora Ratings Create a Single Eurozone Lending Marketplace

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This is a guest post by Pärtel Tomberg, CEO of Bondora.

This month we started the roll-out of Bondora Ratings, a loan application rating system based on the proprietary credit scoring model, with the aim to bring better predictability and consistency of the returns for investors active on Bondora platform.

Our initial aim for developing a credit scoring model was to bring the best banking practices to peer lending. Banks might have failed at providing people with affordable credits, but they have done a few things right, such as developing strong credit scoring models, that have helped them generate premium returns for their investors. With Bondora Ratings we are bringing credit scoring model to individual investors so they could maximize their returns in the same way banks do.

Being a platform that facilitates the exchange between lenders and borrowers, we believe it is our responsibility to bring the best practices, such as credit scoring, to peer lending; thus, making it an effective, efficient and mutually beneficial process for both parties. Eventually, Bondora Ratings will allow credible borrowers get a better rate for a loan, while investors will receive a predictable return level.

On top of bringing banking practices to peer lending, we saw a need for a simple, transparent and unified way to represent the risks and potential returns associated with a particular loan. Until recently, our investors used their own sophisticated models to evaluate the risks and plan their investments at Bondora. We have supported the initiative by offering a wide range of filters and providing extensive data export sets, and we will continue to support those investors in the future by providing a Trading API.

However, as the platform grows, we see an increasing inflow of investors that do not have a need or desire to engage into extensive number crunching. The historic performance of peer lending platforms, and Bondora in particular, indicates that peer lending provides premium returns compared to other assets classes and investors want a simple and easy way to earn those premium returns. Continue reading →

Auxmoney Now Sets Interest Rates Based on Own Score Classes

wiseclerk

Auxmoney introduced a major change to the way interest rates are set. Instead of letting borrowers select the interest rate they are willing to pay, p2p lending service Auxmoney sets interest rates based on self-computed credit scores starting today. Auxmoney says it uses over 300 factors to grade borrowers either AAA, AA, A, B, C, D, E or X. The model now resembles the models Lending Club and Prosper use to set interest rates. In an earlier article I had compared different models p2p lending services use to set interest rates.

Near-term I expect borrower demand to rise due to this change since for most borrowers interest rates will be lower. However lower interest rates will lessen attractiveness for lenders and probably reduce funding percentage (in the weeks before this change approx. 30 to 40% of loan request got funded).

(via P2P-Kredite.com)

What changed on Prosper?

wiseclerk 1 Comment

Following up on my last post here are the largest operational changes  at the new Prosper.com:

  1. Minimum credit score requirement is now 640 (up from 520)
  2. Prosper calculates expected defaults (‘loss rate’) now by using the two factors: the credit score obtained by an external agency and the internal Prosper score (in the past the fore-casted value was based only on external data and way to low)
  3. There is a hard bid floor (a minimum interest rate set by Prosper) on each loan listing
    ‘The bid floor is the minimum yield a lender can bid on a listing. It’s not possible to bid any lower. This also affects the minimum rate a borrower can possibly receive.The bid floor for each listing is calculated by adding the national average 3yr CD rate to the minimum estimated loss rate assigned to each Prosper Rating. For example, a B-rated listing with a minimum estimated loss rate of 4.0% is added to a national average CD rate of 2.27%*, resulting in a bid floor of 6.27%.‘
  4. Minimum bid amount is now 25 US$, instead of 50 US$
  5. There are several legal changes affecting lenders (e.g. ‘In the unlikely event that we receive payments on the corresponding borrower loans relating to your Notes after the final maturity date, you will not receive payments on your Notes after maturity.‘ – this seems to mean that, if a late borrower who paid more than a year after the date the loan was supposed to be paid back in full, the lender is not credited that amount – but check yourself I might be misinterpreting the meaning)

New Lenders should read the SEC prospectus. Some disclosures might make them wary. Quotes:

  • You assume the risk that information provided by borrowers may be intentionally false.
  • Status information given on loans between inception and March 31, 2009 shows 31.3% of loans had been at least 15 days late at least once, and 20.1% had defaulted.
  • The fact that Prosper will have the exclusive right and ability to investigate claims of identity theft in the origination of loans creates a significant conflict of interest between Prosper and the lender members

That might we necessary legal disclaimers – but if Prosper performs in future like in the past, the risk for lenders will be high and by the prospectus Prosper will exclude liability for all risks spelled out.

I read that Prosper makes all lenders re-sign 6 new legal agreements.

German Smava opens to lower credit grades

wiseclerk

The German site for social lending Smava.de today allowed borrowers of the lower credit grades G and H to participate. Previously only borrowers of credit grades A through F could participate. According to information published by Smava, 80% of the German population have credit grades in the range A-F, while credit grade G accounts for 10% and credit grade H accounts for 5% of the population.

This move is contrary to the development at Prosper.com which started with a very broad range of credit grades and only later restricted borrower access tighter.

However Smava, so far has experienced not one late payment. Three payment cycles have been completed with 100% of borrowers paying on time.

Other changes at the Smava site today included a lower minimum bid of 250 Euro (down from 500 Euro) and a higher interest rate ceiling (maximum interest rate 18%; up from 15%).

Two Millionaires becomes the largest group on Prosper.com ever!

twomillionaires1

With the click of a mouse late Thursday night March 1, 2007, the leader of the Two Millionaires Group on Prosper.com admitted the 5,509th member and created the largest group on Prosper ever! The one remaining challenge at the time was to beat PsychDoc's record number of loans created….

Asked about how his group succeeded in growing so large so rapidly, "TwoMillionaires1" the group leader replied that he did a lot of internet marketing in the beginning to bring new members in, and it grew from there to the point where today word of mouth from contented borrowers brings in probably hundreds of new members each week.

 "It didn't hurt either to have a private website that has attracted more than 300,000 hits and 10,000 unique visitors," the group leader added.

An upcoming press release is likely to bring in a huge influx of new members over the next few weeks.

As of the date of this report, more than one and a half million dollars has been loaned to members of this popular people-to-people online borrowing and lending group, almost 400 individual loans.

Details are available at:

http://www.prosper.com

and

http://www.2mils.org