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EX-32.1 - EXHIBIT 32.1 - PROSPER MARKETPLACE, INCprospercert32d10k12312010.htm
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EX-31.2 - EXHIBIT 31.2 - PROSPER MARKETPLACE, INCprospercert31d210k12312010.htm
EX-31.1 - EXHIBIT 31.1 - PROSPER MARKETPLACE, INCprospercert31d110k12312010.htm
 
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
 
or
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
 
Commission File Number: 333-147019
 
Prosper Marketplace, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
73-1733867
(I.R.S. Employer Identification No.)
   
111 Sutter Street, 22nd Floor
San Francisco, CA  94104
(Address of principal executive offices)
 
94104
(Zip Code)
(415) 593-5400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
None
 
None
Securities registered pursuant to Section 12(g) of the Act:  None
 
    Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

    Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer o
(Do not check if a smaller reporting company)
 
Smaller reporting company þ
 
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
As of March 24, 2011 there were 4,498,667 shares of the registrant’s common stock outstanding.
 



 
PROSPER MARKETPLACE, INC.
 
TABLE OF CONTENTS
 
       
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Forward-Looking Statements
 
     This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “intend,” “anticipate,” “plan,” “continue” or similar expressions. In particular, information appearing under “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations of our management, expressed in good faith and is believed to have a reasonable basis.  Nevertheless, there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors that could cause actual results or events to differ materially from those anticipated:
 
·  
the performance of the our Borrower Payment Dependent Notes or “Note”, which, in addition to being speculative investments, are special, limited obligations that are not secured, guaranteed or insured;
 
·  
our ability to make payments on the Notes, including in the event that borrowers fail to make payments on the corresponding loans;
 
·  
the reliability of the information about borrowers that is supplied by borrowers;
 
·  
our ability to service the loans, and the ability of Prosper or a third party debt collector to pursue collection against any borrower, including in the event of fraud or identity theft;
 
·  
credit risks posed by the credit worthiness of borrowers, the lack of a maximum debt-to-income ratio for borrowers, and the effectiveness of Prosper’s credit rating systems;
 
·  
actions by some borrowers to defraud lender members and risks associated with identity theft;
 
·  
our limited operational history and lack of significant historical performance data about borrower performance;
 
·  
the impact of current economic conditions on the performance of the Notes and loss rates of the Notes;
 
·  
payments by borrowers on the loans in light of the facts that the loans do not impose restrictions on borrower and do not include cross-default provisions;
 
·  
our compliance with applicable local, state and federal law, including the Investment Advisers Act of 1940, the Investment Company Act of 1940 and other laws;
 
·  
the application of federal and state bankruptcy and insolvency laws to borrowers and to Prosper;
 
·  
the impact of borrower defaults and prepayments on the return on the Notes;
 
·  
the lack of a public trading market for the Notes and the ability to resell the Notes on the Note Trader platform;
 
·  
the federal income tax treatment of an investment in the Notes;
 
·  
our ability to prevent security breaches, disruptions in service, and comparable events that could compromise the personal and confidential information held on our data systems, reduce the attractiveness of our platform or adversely impact our ability to service loans;
 
·  
the resolution of pending litigation involving Prosper, including any state or federal securities litigation; and
 
·  
our ability to compete successfully in the peer-to-peer and consumer lending industry.
 
       There may be other factors that may cause our actual results to differ materially from the forward-looking statements in this Annual Report on Form 10-K. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them does, what impact they will have on our results of operations and financial condition. You should carefully read the factors described in the “Risk Factors” section of this Annual Report on Form 10-K for a description of certain risks that could, among other things, cause our actual results to differ from these forward-looking statements.

     All forward-looking statements speak only as of the date of this Annual Report on Form 10-K and are expressly qualified in their entirety by the cautionary statements included in this Annual Report on Form 10-K. We undertake no obligation to update or revise forward-looking statements that may be made to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events, other than as required by law.


 
Item 1. Business
 
ABOUT PROSPER
 
Overview
 
Prosper’s peer-to-peer lending platform was designed to allow people to lend money to other people in an open transparent marketplace, with the aim of allowing both lenders and borrowers to profit financially as well as socially. We believe peer-to-peer lending represents a new model of consumer lending, where individuals can earn the interest spread of a traditional consumer lender but must also assume the credit risk of a traditional lender.   It is people that are the drivers of credit formation in peer-to-peer lending, not institutions. Prosper launched its platform to the public in 2006 and has attracted over one million members and facilitated over $210 million in consumer loans as of December 31, 2010.

As one of the first companies in this newly emerging industry, Prosper believes peer-to-peer lending presents an enormous opportunity to create a more transparent form of consumer lending.  Key drivers of peer-to-peer lending include:
 
· The possibility of lower rates and better terms for borrowers compared to traditional sources of consumer credit, such as credit cards;
 
· A new asset class for investors with the possibility of attractive risk adjusted returns that are not directly correlated to the performance of the stock market;
 
· An opportunity to combine social networking with financial services in a manner that allows users that help fund loans to feel they are directly helping other people while also potentially earning attractive returns;
 
· Growing acceptance of the Internet as an efficient and convenient forum for consumer transactions.
 
How Prosper Works

Our platform is an online marketplace that matches individuals who wish to obtain consumer loans, whom we refer to as “borrowers” or “borrower members”, with persons who are willing to help fund those loans, whom we refer to as “lender members”.  A borrower member who wishes to obtain a loan through us must post a listing on our platform.  Our lender members can review all the loan listings on our platform and make a commitment towards any listing they wish to help fund.  A commitment is a commitment to purchase a promissory note, or “Note”, from Prosper, the payments on which will be dependent on the payments Prosper receives from the borrower member on the loan requested in the listing.  If a listing receives enough lender member commitments to be funded, our partner WebBank, an FDIC-insured, Utah industrial bank, will originate the loan requested to the borrower member and then sell it to us and, at the same time, we will sell a Note to each lender member that made a commitment towards the loan in the principal amount of that commitment.
 

 
In order to post a listing a borrower member must first complete a loan application. We then obtain a credit  report for the borrower and use data from that report as well as data supplied by the borrower to assign a risk grade to the listing, which we call a “Prosper Rating”. The listing is then posted on our web site.   The format for listings is shown below. The actual images are from a hypothetical listing we created and not an actual listing.  Each listing includes the Prosper Rating, selected items from the borrower’s credit report, intended use of the potential loan, plus information regarding any previous loans obtained by the borrower through Prosper.
 
          
 
Lenders members can bid on listings in amounts ranging from the entire loan amount requested to as little as $25. Thus, it is typical to have multiple lender members bid on a single listing.  As the listing is funded, the listing will show the amount of commitments made towards that potential loan by lender members.
 
     
 


One unique aspect of peer-to-peer lending is that it allows lender members who are friends and family of a borrower member to bid on that borrower member’s listing. Friends and family bids can signal that a stronger social bond exists that could influence repayment rates. Friends and family can also vouch for the borrower member’s character. These bids are also shown on the listing page for all lender members to review, as shown below.
 
 
Our registration, processing and payment systems are automated and electronic.  We have no physical branches, no deposit-taking and interest payment activities and limited loan underwriting activities.  Our website provides detailed information about our platform, including detailed fee information, the full text of our member legal agreements, help pages and white papers.  In addition to the customer support materials available on our website, we make additional customer support available to members by email and phone.  Our customer support team is currently located at our headquarters in San Francisco, California.
 
We attract lender members and borrowers to our website, www.prosper.com, through a variety of sources.  We also drive traffic through referrals from other parties (which include online communities, social networks and marketers), through search engine results and through online and offline advertising.  We are not dependent on any one source of traffic to our website.  As of December 31, 2010, our website was receiving an average of approximately 140,800 unique visitors per month.
 
We generate revenue by charging lender members ongoing servicing fees on the Notes they have purchased, and from transaction fees paid by borrower members on borrower loans.  For the fiscal year ended December 31, 2010, we originated $26,940,486 of loans. Because we collect small fees and other revenue from thousands of borrowers, no single borrower has accounted for more than 1.0% of our revenue during our fiscal year ended December 31, 2010.
 
Platform Participants, Registration Requirements and Minimum Credit Criteria
 
All platform participants must register with Prosper and agree to our platform rules and terms of use, including consent to receipt of disclosures electronically.  At the time of registration, individuals or authorized institutional agents must provide their name, address and an email address.  After responding to an email verification, registrants must agree to the terms and conditions (including the applicable registration agreement) for the specific role for which they are registering.
 
Borrower Members
 
A borrower member may be any natural person at least 18 years of age who is a U.S. resident in a state where loans through the platform are available, with a bank account and a social security number.  After passing Prosper’s anti-fraud and identity verification process, borrower members can request unsecured borrower loans at interest rates which are set by Prosper.  We set minimum credit and other credit guidelines for borrower members as discussed in the risk grading section
 
When a borrower member requests a borrower loan, we first evaluate whether the borrower meets the underwriting criteria we have established with our origination partner, WebBank.  WebBank makes loans to borrower members and then sells and assigns the promissory notes evidencing those loans to us.  The underwriting criteria apply for all borrower loans originated through our platform and may not be changed without WebBank’s consent.  The underwriting criteria require that borrowers have a minimum credit score of a specified threshold amount (currently 640, except that the minimum is 600 for borrower members who (1) previously obtained a borrower loan and paid off the loan in full, or (2) are seeking a second loan and are otherwise eligible for a second loan), and have no prior charge-offs on borrower loans originated through our platform. In connection with our identity and anti-fraud verification of borrower members, we verify the deposit account into which the loan proceeds will be deposited, to determine that the borrower member is a holder of record of the account.  Even if a listing receives bids that equal or exceed the minimum amount required to fund, Prosper will cancel the listing without funding the requested borrower loan if we are unable to verify the borrower member’s account.  While we attempt to authenticate each platform participant’s identity, our fraud checks could fail to detect identity theft, fraud and inaccuracies.  See “Risk Factors—Risks Related to Borrower Default” for more information.
 


Lender Members
 
Our lender members are individuals and institutions that have the opportunity to buy our Notes.  Lender members must register on our website.  During lender registration, potential lender members must agree to a credit profile authorization statement for identification purposes, a tax withholding statement and the terms and conditions of our website.  Lender members must also enter into a lender registration agreement with us, which agreement governs all sales of our Notes to lender members.  Lender members are not required to give credit information to the same extent as borrower members.  An individual lender member must be a natural person at least 18 years of age and a U.S. resident, must provide his or her social security number and may provide his or her state driver’s license or state identification card number.  Institutions must provide their taxpayer identification numbers to us.  At the time a lender member registers with Prosper, the lender member must agree to the rules, limitations, processes and procedures established by Prosper for originating, servicing and collecting borrower loans, and for purchasing Notes from Prosper through our platform.  In addition, the lender member must satisfy any minimum financial suitability standards and maximum investment limits established for the platform or the Note Trader platform, as then in effect, by the state in which the lender member resides.  Prior to bidding on a listing, lender members must transfer funds to an account maintained on our platform, which we refer to as a “funding account.” The funding account holds all funds supporting a lender member’s bids and all Note payments payable to the lender member are deposited in the funding account.
 
Our Relationship with WebBank
 
WebBank is an FDIC-insured, Utah-chartered industrial bank and direct lender that makes loans to borrower members and sells and assigns the promissory notes evidencing borrower loans to Prosper.

Risk Management

Prosper’s risk management has evolved from its inception.  Prosper has consistently worked to improve the information provided to lenders in order to help them make sound investment decisions.  This evolution has incorporated the historical performance of loans originated by Prosper in a progressive manner as data has become a available. It is Prosper’s intention to continuously refine our proprietary rating system.
 
The timeline below shows the evolution of Prosper’s scoring methodology as we gathered more and more data on P2P market dynamics.
 
 

 
Prosper Rating Assigned to Listings

Each listing is assigned a Prosper Rating. The Prosper Rating is a letter that indicates the level of risk associated with a listing and corresponds to an estimated average annualized loss rate range for the listing. This rating system allows Prosper to maintain consistency when assigning a rating to a listing. There are currently seven Prosper Ratings, but this, as well as the loss ranges associated with each, may change over time as the marketplace dictates. We intend to regularly update the loss rates associated with the Prosper Ratings to reflect the ongoing actual performance of historical borrower loans.  The updates will occur at least annually.
 
The current Prosper Ratings and the estimated loss ranges associated with them are as follows:
 
Prosper Rating
 
Est. Avg. Annual Loss Rate
AA
 
0.00% - 1.99 %
A
 
2.00% - 3.99%
B
 
4.00% - 5.99%
C
 
6.00% - 8.99%
D
 
9.00% - 11.99%
E
 
12.00% - 14.99%
HR
 
>=15.00%
 
The loss rate is based on the historical performance of Prosper borrower loans with similar characteristics and is primarily determined by two scores: (1) a custom Prosper score, discussed below, and (2) a credit score obtained from a credit reporting agency (currently, the Scorex PLUS score from Experian). The use of these two scores will determine an estimated base loss rate for each listing. Adjustments can then be made to the base loss rate based on variables like the presence of a previous Prosper loan.  Any adjustments are added to the base loss rate to get the final loss rate, which then determines the Prosper Rating.
 
The following table provides an example of how the system works. Each of the two scores is divided into multiple segments and each cell indicates an estimated loss rate based on the intersection of the two scores. The score ranges were chosen based on loss rate differentiation.  The loss rates will be updated at least annually based on the performance history of the borrower loans. Estimated base loss rates for the cells in the chart below are based on performance of historical Prosper borrower loans as of November 30, 2010, that fall into given cells; cells are combined due to small volumes or similar behavior, or both.  For example, a borrower listing with a Prosper score of 9 and a credit agency score of 715 has an estimated base loss rate of 5.95%, as shown below.
 

 
 
         Experian ScorexPlus Score
        600-619       620-639       640-649       650-664       665-689       690-701       702-723       724-747       748-777       778+  
Prosper Score
      1       2       3       4       5       6       7       8       9       10  
1       36.60 %     36.60 %     36.60 %     36.60 %     36.60 %     36.60 %     36.60 %     36.60 %     36.60 %     36.60 %
2       24.00 %     24.00 %     24.00 %     24.00 %     24.00 %     24.00 %     24.00 %     24.00 %     24.00 %     24.00 %
3       24.00 %     24.00 %     24.00 %     24.00 %     24.00 %     24.00 %     24.00 %     24.00 %     24.00 %     18.30 %
4       24.00 %     18.30 %     18.30 %     18.30 %     18.30 %     18.30 %     14.70 %     14.70 %     14.70 %     14.70 %
5       18.30 %     18.30 %     18.30 %     18.30 %     14.70 %     14.70 %     14.70 %     10.80 %     10.80 %     10.80 %
6       14.70 %     14.70 %     14.70 %     10.80 %     10.80 %     10.80 %     10.80 %     10.80 %     10.80 %     8.70 %
7       10.80 %     10.80 %     10.80 %     10.80 %     10.80 %     10.80 %     10.80 %     10.80 %     10.80 %     8.70 %
8       10.80 %     10.80 %     10.80 %     8.70 %     8.70 %     8.70 %     8.70 %     5.95 %     5.95 %     5.95 %
9       10.80 %     10.80 %     10.80 %     8.70 %     8.70 %     5.95 %     5.95 %     3.50 %     3.50 %     3.50 %
10       10.80 %     10.80 %     10.80 %     8.70 %     8.70 %     5.95 %     5.95 %     1.55 %     1.55 %     1.55 %
 
Adjustments can be made to the base loss rate that will increase or decrease the loss rate.  The adjustments are additive and are used to determine the final loss rate.  The final loss rate then determines the Prosper Rating.  Adjustments are currently made for the presence of a previous Prosper loan (i.e. the borrower has already taken out at least one Prosper loan).  The value of the adjustments are based on historical Prosper data, where available, and observed industry performance.  Adjustment values will be updated at least annually as more historical data is obtained and more adjustment variables may be added over time.  Current adjustment variables and their values are:
 
   
Previous Prosper Loan
Base Loss Rate
 
Yes
 
No
0.00 – 1.99%
 
-0.25%
 
-
2.00 – 3.99%
 
-0.25%
 
-
4.00 – 5.99%
 
-1.00%
 
-
6.00 – 8.99%
 
-1.00%
 
-
9.00 – 11.99%
 
-1.00%
 
-
12.00 – 14.99%
 
-
 
-
15.00+%
 
-
 
-
 
Here is an example of how the final loss rate and Prosper Rating for a loan listing would be calculated:
- Borrower credit bureau score = 715 and Prosper score = 9
- Borrower has a previous Prosper loan
 
Base Loss Rate:
5.95%
Adjustments:
 
 
- Previous Loan:
-1.00%
Final Loss Rate:
4.95%
Prosper Rating:
B
 
 

Maximum Loan Amount
 
An individual’s maximum loan amount is determined by the borrower’s Prosper Rating.  The table below shows the maximum loan amount for each Prosper Rating:
 
Prosper Rating
 
Maximum Loan Amount
AA
 
$25,000
A
 
$25,000
B
 
$15,000
C
 
$15,000
D
 
$15,000
E
 
$7,500
HR
 
$4,000
 
Determining Estimated Loss Rates

To calculate the estimated loss rates over the life of the loan, a loan model was developed to simulate the future performance of loans based on past performance data.
 
Average Balance. To calculate the average balance for each period, we used the amount of loan principal on loans that are still open and have not been charged-off or paid off. As loan payments are made, the principal balance of each loan declines over time. It is assumed that borrowers that are making scheduled payments on these loans do so according to their amortization schedule.
 
When the loan is paid off early, it is no longer included in the outstanding balance for subsequent periods. Historical payoff rates were used to project the monthly payoffs and these rates were assumed to remain constant throughout the life of the loans. Similarly, once a loan has been charged-off, the principal associated with this loan is considered a credit loss and is no longer included in the outstanding periodic balance.
 
Delinquent and Charged-Off Loans.  To estimate the number of current and delinquent accounts on a monthly basis, we applied roll rates to each group of given loans. We first calculated the historical roll rates of accounts in particular cells and then applied the historical rate to the given loans. A roll rate measures the percent of loans within a particular payment status that "roll" to the next late payment status if the loan is not paid. For example, a current account that is not paid "rolls" to a new payment status defined as 1 to 30 days past due. Similarly, an account that is already 1 to 30 days past due and does not make the next payment then "rolls" to a status of 31 to 60 days past due. An account is considered to be a loss, or charged-off, when it reaches 121+ days past due. The average historical roll rates were assumed to be constant for the life of the loan term.
 
Loss Rates.  The estimated monthly dollar charge-offs are calculated by multiplying the estimated number of accounts that reach 121+ days past due in that month by the average balance of loans in that month.
 
Collection expenses and recovery payments are applied to gross losses to calculate net losses. When an account becomes more than 30 days past due, it is referred to a collection agency. Collection agencies are compensated by keeping a portion of the payments they collect based on a predetermined schedule. Payments collected by the collection agency reduce the amount of principal that is repaid to lenders. This expense is added to losses in the month the payment is made.
 
In addition, once an account has been charged-off, any subsequent payments received or proceeds from the sale of the loan in a debt sale are considered recoveries and reduce the amount of principal lost. Recovery assumptions are based on historical recoveries through November 2009 on accounts that were 121+ days past due in 2008. The recovery rate assumptions were:
 
·  
Prosper Rating AA-D = 6.0% annual recovery rate

·  
Prosper Rating E-HR = 2.0% annual recovery rate

 
 
To calculate the estimated average annualized net loss rate:
 
 
1.
Calculate monthly net loss rate = (Net principal charge-offs in month X) / (Outstanding principal balance in month X)
 
2.      Calculate average annualized net loss rate:
 
·  
monthly net loss rate x 12
 
·  
balance-weighted average of the monthly rates over the life of the loan
 
For each group of loans, the average loan amount for charged-off accounts was compared to that for total loans; if there was a significant difference, the ratio of average charged-off loan amount to average total loan amount was applied to the expected loss rate to account for this differential.  Estimated loss rates determine the Prosper Rating.
 
Prosper Score
 
The Prosper score predicts the probability of a borrower loan going “bad,” where “bad” is the probability of going more than 60 days past due. The output of the model to Prosper users is a Prosper score which ranges from 1 to 10, with 10 being the best or lowest risk score and 1 being the worst or highest risk score. To create the Prosper score, Prosper developed a custom risk model using historical Prosper data. The Prosper score was built specifically on the Prosper borrower population, so it incorporates behavior that is unique and inherent to this population. In contrast, the credit score obtained from a credit reporting agency is based on a much broader population, of which Prosper borrowers are just a small subset. As such, the credit reporting agency score should, and does, rank default risk on the Prosper population, but Prosper does not believe it is as discriminating as the Prosper score.  Prosper uses both the Prosper score and the credit reporting agency score together to assess the level of risk associated with a listing and determine estimated loss rates reflected by the Prosper Rating.
 
Loans booked from April 2007 through October 2008 were used to build the discrete additive scorecard model, with the performance measured for the following fifteen months. The scorecard was verified and results validated on an independent sample of loans booked during the same time period, with the performance measured for the following fifteen months.  Potential variables available at the time of listing, including those from the credit report and listing details provided by the borrower, were analyzed for potential inclusion in the final scorecard.  Transformations to refine the variables were performed on variables during the development process. Variables were dropped or kept in the final scorecard based on their contribution and stability over time. Many scorecard iterations were completed and analyzed in order to determine the final scorecard.
 
The score is calculated by adding weights assigned to ranges of categorical variables for the predictors included in the scorecard.  The variables in the scorecard primarily include:
 
- Total Inquiries
- Inquiries last 6 months
- Total Trades
- Trades opened <= 6 months
- Trades Never Delinquent or Derogatory
- Trades with Delinquent Balance
- Available Credit on Open Bankcards
- Debt-to-Income Ratio
- Bankcard Utilization

The raw score represents a rank order of the likelihood (a log-likelihood function) of a Prosper borrower loan with similar characteristics becoming more than 60 days past due.  This score is then transformed by mapping it into a probability of bad.  The higher the probability of bad the more likely the loan is to become more than 60 days past due, based on observed Prosper borrower loan repayment history.  The probability of bad is then mapped to a Prosper score, which is displayed on each borrower listing.  The Prosper score ranges from 1 to 10, with 10 being the best, or lowest risk value.  The probability of bad ranges for the Prosper score are as follows, and are also shown in the table in the “Prosper Rating Assigned to Listings” section above.  These ranges will change over time as more historical performance is observed.
 

 
 
Probability Bad
 
Prosper Score
> 24.84%
 
1
20.33 < x <=24.84%
 
2
17.05 < x <= 20.33%
 
3
14.42 < x <= 17.05%
 
4
12.00 < x <= 14.42%
 
5
10.00 < x <= 12.00%
 
6
8.17 < x <= 10.00%
 
7
5.98 < x <= 8.17%
 
8
4.50 < x <= 5.98%
 
9
0.00 < x <= 4.50%
 
10
 
For example, a probability of bad of 3.29 equates to a Prosper score of 10; a probability of bad of 12.00 equates to a Prosper score of 6; and a probability of bad of 37.54 equates to a Prosper score of 1.
 
The following table shows the historical performance of the loan samples used to build and validate the Prosper score, loans booked from April 2007 through October 2008.  The cumulative average annualized dollar loss rate is shown by loan age and Prosper Rating as of December 31, 2010.
 
Cumulative Average Annual Loss % for Loans Originated April 2007 to October 2008
       
as of December 31, 2010
                       
                             
   
Prosper Rating
Age in Months:
 
AA
 
A
 
B
 
C
 
D
 
E
 
HR
  1  
0.00%
   
0.00%
 
0.00%
   
0.00%
 
0.00%
   
0.00%
 
0.00%
  2  
0.00%
   
0.00%
 
0.00%
   
0.00%
 
0.00%
   
0.00%
 
0.00%
  3  
0.00%
   
0.00%
 
0.00%
   
0.00%
 
0.00%
   
0.00%
 
0.00%
  4  
0.00%
   
0.00%
 
0.00%
   
0.00%
 
0.00%
   
0.00%
 
0.00%
  5  
0.00%
   
0.00%
 
0.47%
   
0.43%
 
0.75%
   
0.52%
 
1.81%
  6  
0.00%
   
0.55%
 
1.56%
   
1.75%
 
1.08%
   
2.03%
 
4.80%
  7  
0.00%
   
1.43%
 
1.93%
   
1.54%
 
1.39%
   
4.31%
 
7.57%
  8  
0.00%
   
1.28%
 
1.79%
   
1.94%
 
2.39%
   
5.29%
 
10.53%
  9  
0.00%
   
1.17%
 
2.27%
   
1.77%
 
3.12%
   
7.30%
 
13.45%
  10  
0.67%
   
1.18%
 
3.03%
   
2.03%
 
4.51%
   
8.33%
 
15.44%
  11  
0.62%
   
1.10%
 
3.11%
   
2.67%
 
5.67%
   
9.38%
 
17.45%
  12  
0.59%
   
1.12%
 
3.56%
   
3.06%
 
6.75%
   
9.36%
 
19.20%
  13  
0.79%
   
1.93%
 
4.32%
   
3.53%
 
7.27%
   
10.18%
 
20.52%
  14  
0.75%
   
1.85%
 
4.34%
   
4.57%
 
7.64%
   
10.75%
 
21.74%
  15  
0.73%
   
1.77%
 
4.38%
   
5.11%
 
8.23%
   
11.53%
 
22.78%
  16  
1.38%
   
1.85%
 
4.55%
   
5.05%
 
8.74%
   
11.73%
 
23.51%
  17  
1.34%
   
2.10%
 
4.95%
   
5.20%
 
9.41%
   
12.63%
 
24.51%
  18  
1.30%
   
2.49%
 
5.56%
   
6.20%
 
9.90%
   
13.10%
 
24.95%
  19  
1.38%
   
2.76%
 
5.83%
   
6.25%
 
10.21%
   
13.39%
 
25.26%
  20  
1.35%
   
2.69%
 
6.13%
   
6.75%
 
10.66%
   
13.97%
 
25.76%
  21  
1.32%
   
3.00%
 
6.11%
   
7.85%
 
10.74%
   
14.18%
 
26.25%
  22  
1.57%
   
3.35%
 
6.20%
   
8.29%
 
10.93%
   
14.31%
 
26.53%
  23  
1.55%
   
3.30%
 
6.25%
   
8.73%
 
10.99%
   
14.32%
 
26.67%
  24  
1.53%
   
3.36%
 
6.41%
   
8.70%
 
10.99%
   
14.66%
 
26.85%
  25  
1.51%
   
3.60%
 
6.45%
   
8.70%
 
11.13%
   
14.76%
 
26.97%
  26  
1.53%
   
3.56%
 
6.55%
   
8.95%
 
11.24%
   
14.88%
 
27.03%
  27  
1.52%
   
3.78%
 
6.61%
   
9.11%
 
11.34%
   
14.94%
 
27.12%
  28  
1.51%
   
3.78%
 
6.64%
   
9.40%
 
11.41%
   
14.89%
 
27.16%
  29  
1.50%
   
3.76%
 
6.65%
   
9.34%
 
11.40%
   
15.05%
 
27.16%
  30  
1.50%
   
3.82%
 
6.66%
   
9.41%
 
11.42%
   
15.01%
 
27.15%
  31  
1.49%
   
3.81%
 
6.69%
   
9.38%
 
11.45%
   
14.96%
 
27.15%
Note: The data above makes no adjustments for the loan amount, which is expected to decrease loss rates or previous Prosper loans and product term.
 


Credit Score Range

In addition to the Prosper Rating, each borrower listing will also show the borrower’s numerical credit score range. The numerical credit score range is determined based on the credit score provided to Prosper by a consumer reporting agency, which is the same credit score used to determine the Prosper Rating.

Borrower listings will indicate the credit score range at the time of the listing. Listings on the Note Trader platform will show the score range at the time of listing, if a score is available. The numerical credit score is not displayed or disclosed to anyone (including the borrower).
 
When a borrower initiates the process of posting a borrower listing on our platform, we check to see if we have a credit score on that person. If we have a credit score on file and it is not more than thirty days old and it meets the minimum threshold (currently 640, except that the minimum is 600 for borrower members who (i) had previously obtained a Prosper loan and paid off the loan in full, or (ii) are seeking a second loan and are otherwise eligible for a second loan), the borrower may post the listing. If the credit report we have on file for such borrower is more than 30 days old, we initiate an inquiry to retrieve a credit report and credit score on the borrower to determine whether the borrower’s credit score meets the minimum threshold for posting a listing and to enable us to compute the Prosper Rating when the borrower creates the listing.
 
Criteria for Posting a Second Loan on Prosper
 
Borrower members may have up to two borrower loans outstanding at any one time, provided that the aggregate outstanding principal balance of both borrower loans does not exceed the then-current maximum allowable loan amount for borrower loans (currently $25,000).  Currently, to be eligible to obtain a second borrower loan while an existing loan is outstanding:
 
·Borrower members must be current on their existing borrower loan, and must not have been more than fifteen days past due in making their most recent monthly borrower loan payments for a specified number of months (between six and twelve, depending on the borrower’s credit score range at time the existing loan was obtained);
 
·Borrower members may not post a listing for a second borrower loan within six to twelve months (depending on the borrower’s credit score range at time the existing loan was obtained) following the date of origination of their existing borrower loan; and
 
·Borrower member’s credit score must be 600 or more, and must not have dropped more than a specified number of points (currently twenty to forty points, depending on the borrower’s credit score range at time the existing loan was obtained) below the borrower member’s credit score at the time its existing borrower loan was obtained.
 
 Our underwriting requirements for borrower loans, including eligibility requirements for second loans, are subject to change from time to time.
 
Borrower Identity and Financial Information Verification
 
We reserve the right in our member agreements to verify the accuracy of all statements and information provided by borrower members and lender members in connection with listings, commitments and borrower loans.  We may conduct our review at any time before, during or after the posting of a listing, or before or after the funding of a borrower loan.  If we are unable to verify material information with respect to a borrower member, listing or commitment, we cancel or refuse to post a listing, or cancel any or all commitments against the listing.  We may also delay funding of a borrower loan in order to enable us to verify the accuracy of information provided by a borrower member or a lender member in connection with the listing or commitment, and to determine whether there are any irregularities with respect to the listing or commitments.  We may also cancel the funding of a borrower loan, if material misstatements or inaccuracies are found in the listing or in other information provided by the borrower member.
 


We verify the identity of every borrower member who obtains a loan through our platform using a variety of methods including credit bureau data, other electronic data sources and offline documentary procedures.  If a borrower member is unable to provide documentation that is sufficient to verify her identity, we will cancel the loan listing or pending loan.
 
We verify income and employment information for a subset of our borrower members based on a proprietary algorithm.  The intention of the algorithm is to identify instances where the self reported income of the borrower member is highly determinative of the borrower member’s Prosper Rating.  The algorithm gives greatest weight to the following factors:
 
·Prosper Rating;
 
·loan amount;
 
·stated income; and
 
·debt-to-income ratio.
 
Between July 14, 2009 and December 31, 2010 (based on start time of the applicable bidding period), we verified employment and/or income on approximately 39% of the loans we originated on a unit basis (3,046 out of 7,781)  and approximately 66% of our originations on a dollar basis ($23,950,006 out of $36,495,732). Breaking these numbers down by Prosper Rating:
 
·  
for loans with a Prosper Rating of AA, A or B, we verified income and/or employment information on approximately 56% of the loans we originated on a unit basis (1,719 out of 3,094) and approximately 79% of our originations on a dollar basis ($15,373,778 out of $19,436,349);
 
·  
for loans with a Prosper Rating of C or D, we verified income and/or employment information on approximately 32% of the loans we originated on a unit basis (872 out of 2,709) and approximately 56% of our originations on a dollar basis ($6,048,597 out of $10,796,467); and
 
·  
for loans with a Prosper Rating of E or HR, we verified income and/or employment information on approximately 23% of the loans we originated on a unit basis (455 of 1,978) and approximately 40% of our originations on a dollar basis ($2,527,631 out of $6,262,916).
 
It is our intention to continue to verify income and employment on roughly the same proportion of loans in the future.
 
If a borrower member fails to provide satisfactory information in response to an income or employment verification inquiry, we will (a) request additional information from the borrower member (b) cancel the borrower member’s listing or (c) refuse to proceed with the funding of the borrower loan.  Where we choose to verify the income, employment or other information provided by borrower members in listings, the verification is normally done after the listing has already been posted.  This allows Prosper to focus its verification efforts on the listings most likely to fund and increases the percentage of funded loans that are subject to verification.  In such cases, the results of Prosper’s verification are not reflected in the listings themselves.  When a listing fails verification, Prosper cancels the listing.  This automatically triggers a notice to the borrower member and the lender member who made commitments that the listing was cancelled, and an adverse action message is sent to the borrower indicating the reasons for cancellation. The funds committed by the lender members on the cancelled listing are then made immediately available to them for further bidding.
 
We generally do not verify information included by borrower members in their loan listings other than identity, income and employment information. For example, if a borrower writes that he will be using the money from a loan to purchase a new Vespa motor scooter, we do not verify that the borrower actually uses the proceeds of the loan to buy a Vespa specifically or a scooter generally. Similarly, we do not verify the information in a borrower member’s answers to questions posted by lender members or the information in any recommendations from a borrower member’s Prosper friends. We derive the borrower member’s debt-to-income ratio, or “DTI,” from a combination of the borrower member’s self-reported income and information from the borrower member’s credit report.  The credit data that appears in listings is taken directly from a credit report obtained for the borrower member from a consumer reporting agency. Although borrower members may provide proof of homeownership to establish homeownership status, in most instances, homeownership status is derived from the borrower member’s credit report.  For example, if the credit report reflects an active mortgage loan, the borrower member is presumed to be a homeowner. Lender members should not rely on unverified information provided by borrower members.
 

 
We are continuously looking for ways to improve our verification procedures in a cost-effective manner in order to increase the repayment performance of loans.  See “Risk Factors—Risks Related to Borrower Default—Information supplied by borrowers may be inaccurate or intentionally false” and “—Your recourse will be extremely limited in the event that borrower information is inaccurate for any reason” for more information.
 
Prosper’s Note Repurchase and Indemnification Obligations

Under the lender registration agreement, in the event of a material default under a series of Notes due to verifiable identity theft of the named borrower’s identity, Prosper will repurchase the Note and credit the lender members’ account with the remaining unpaid principal balance of the Note.  The determination of whether verifiable identity theft has occurred is in our sole discretion.  We generally recognize the occurrence of identity fraud upon receipt of a police report regarding the identity fraud.  This remedy for identity fraud only provides an assurance that our borrower identity verification is accurate; in no way is it a guarantee of a borrower’s self-reported information (beyond the borrower’s identity) or a borrower’s creditworthiness.  We expect the incidence of identity fraud on our platform to be low because of our identity verification process. As of December 31, 2010, we had experienced 23 cases of confirmed identity fraud affecting 36 loans since our inception, although we have not experienced any cases of confirmed identity fraud during the year ended December 31, 2010.  In these cases, we received a police report and identity theft affidavit from the victim of the identity fraud, evidencing that identity fraud had occurred.
 
Prosper has the exclusive right to investigate claims of identity theft and determine, in its sole discretion, whether verifiable identity theft has occurred.  As Prosper is the sole entity with the ability to investigate and determine verifiable identity theft, which triggers its repurchase obligation, a conflict of interest exists as the denial of a claim under Prosper’s identity theft guarantee would save Prosper from its repurchase obligation. There are, however, three factors that mitigate the risk of this conflict.  Without the protection offered by this guarantee, fewer potential lenders will have the confidence to participate on the site, limiting Prosper’s growth and long term profitability.  In addition, Prosper’s relationship with WebBank includes a requirement – and accompanying audit function – to insure that claims of identity theft are thoroughly investigated and accurately reported.  Finally, California statutes include severe penalties owed to the victim of identity theft if it is shown that a claim of identity theft was not adequately investigated or frivolously dismissed.

In the event we breach any of our other representations and warranties in the lender registration agreement pertaining to the Notes, and such breach materially and adversely affects a series of Notes, we will either indemnify the lender members, repurchase the series of Notes or cure the breach.  The limited circumstances where this may occur include the failure of the corresponding borrower loan to comply at origination in material respects with applicable federal and state law or if the listing describing the Note contains a Prosper score different from the score calculated by Prosper for that listing, or Prosper incorrectly applied its formula to determine the Prosper score, resulting in a Prosper Rating different from the Prosper Rating that should have appeared in the listing.  Prosper is not, however, under any obligation to cure, indemnify or repurchase a series of Notes because of the Prosper score or Prosper Rating for any other reason.  In addition, Prosper is not obligated to repurchase a Note or indemnify the lender member that purchased the Note if the lender member’s investment is not realized in whole or in part due to fraud (other than verifiable identity theft) in connection with the listing for the underlying borrower loan, or due to false or inaccurate statements or omissions of fact in the borrower’s listing, whether in credit data, borrower’s representations, user recommendations, group affiliations or similar indicia of borrower intent and ability to repay the borrower loan. If Prosper repurchases a Note, only the outstanding principal balance will be returned to the lender member.
 


Historical Performance of Prosper Borrower Loans

The performance of borrower loans is a function of the credit quality of our borrower members and the risk and return preferences of our lender members.  Lender members can choose to pursue a variety of bidding strategies, including strategies that may or may not maximize the return on their investment.  When making commitment decisions, lender members consider borrowers’ Prosper Rating, credit score, debt-to-income ratios and other credit data and information displayed with listings.   Prior to 2009, borrower loans did not have a Prosper Rating.  We have assigned a Prosper Rating retroactively to these loans in certain of the following tables in order to provide more meaningful historical performance data.  These retroactive Prosper Ratings were assigned based on the credit bureau data available at the time of the loan listing and the Prosper score in place on July 10, 2009.  The portions of the historical information below regarding the performance of loans to which we have assigned a Prosper Rating retroactively should not be used in determining how Notes with the same Prosper Rating can be expected to perform in the future. See “Risk Factors—Risks Related to Borrower Default.”
 
The following seven graphs show loan performance through December 31, 2010 by delinquency rates and cumulative principal default rates.  Loans originated prior to July 13, 2009 were not assigned a Prosper Rating at the time of origination.  In order to view performance on a comparable basis, we have retroactively assigned a Prosper Rating to these loans based upon their applicable listing characteristics.  The “N/A” category includes loans with a credit score of less than the minimum score now required as well as loans for which we could not generate a Prosper Rating because the credit variables needed to determine the rating were not available.

The graph below shows 1-30 and 31-120 day delinquency rates for loans originated prior to July 13, 2009 by quarter.  This graph shows delinquencies as a percentage of total outstanding principal balance. We consider loans more than 30 days past due to be severely delinquent due to the significant decrease in the likelihood of receiving future payment once a loan has missed two payments.  
 




The table below shows 1-30 and 31-120 day delinquency rates by quarter for loans originated between July 13, 2009 and December 31, 2010.  This graph shows delinquencies as a percentage of total outstanding principal balance.  We consider loans more than 30 days past due to be severely delinquent due to the significant decrease in the likelihood of receiving future payment once a loan has missed two payments.  

 
The following graphs show cumulative principal default rates for borrower loans originated by year.  The cumulative charge-off rate is calculated as the sum of the cumulative principal balance charged-off divided by the original amount borrowed.  The vertical axis shows the percentage of principal charged-off.  The horizontal axis shows the age of the loan in monthly cycles.  We only include data for a point along the x axis if at least 70% of the original amount borrowed in that vintage has been outstanding for at least that number of cycles.  For example, in our graph for Loans Funded During 2009, 70% or more of the original amount borrowed in that vintage has been outstanding for 13 or more cycles, but less than 70% of the original amount borrowed has been outstanding for 14 or more cycles. So, that graph includes a data point for cycle 13 but not for cycle 14.
 
The following table shows cumulative principal default rates for loans originated from January 1, 2006 to December 31, 2006.   Loans originated during this period cannot be assigned a Prosper Ratings because the requisite credit variables needed to determine the Prosper Score were unavailable.
 


The following table shows cumulative principal default rates for loans originated from January 1, 2007 to December 31, 2007.   The “N/A” category consists of loans originated during this period that cannot be assigned a Prosper Rating because the requisite credit variables needed to determine the Prosper Score were unavailable.
 
 
The following table shows cumulative principal default rates for loans originated from January 1, 2008 to December 31, 2008.   The “N/A” category consists of loans originated during this period that cannot be assigned a Prosper Rating because the requisite credit variables needed to determine the Prosper Score were unavailable.
 


The following table shows cumulative principal default rates for loans originated from January 1, 2009 to December 31, 2009.
 
 
The following table shows cumulative principal default rates for loans originated from January 1, 2010 through June 31, 2010.
 

 
 
The following table presents additional aggregated information as of December 31, 2010 regarding delinquencies, defaults and borrower payments, grouped by Prosper Rating, for all loans originated on our website from November 2005 through July 12, 2009.  With respect to delinquent borrower loans, the table shows the entire amount of the principal remaining due (not just that particular payment) as of December 31, 2010.
 
 Loan Originations
 November 2005 - July 12, 2009
(as of December 31, 2010)
     
Total Loan Originations
   
Current Loans
   
1-30 Days Past Due
 
Prosper Rating
 
Number
   
Amount
   
Number
   
Origination Amount
   
Outstanding Principal
   
Number
   
Origination Amount
   
Outstanding Principal
 
AA
     
           1,148
   
$
5,610,741
     
212
   
$
1,298,556
   
$
215,214
     
1
   
$
3,600
   
$
  464
 
 
A
     
           1,241
     
6,315,414
     
323
     
1,771,856
     
294,897
     
7
     
28,900
        7,904
 
 
B
     
              319
     
2,254,565
     
66
     
420,450
     
72,860
     
3
     
29,000
        6,956
 
 
C
     
           1,448
     
11,287,831
     
388
     
2,777,648
     
477,726
     
19
     
147,700
        38,593
 
 
D
     
           2,048
     
14,156,042
     
581
     
3,782,864
     
675,578
     
21
     
170,600
        37,177
 
 
E
     
              622
     
3,750,560
     
185
     
1,017,997
     
180,669
     
5
     
30,600
        4,354
 
 
HR
     
           6,914
     
67,881,305
     
1,161
     
9,350,693
     
1,640,523
     
62
     
585,950
        113,717
 
 
N/A
1
   
         15,273
     
67,881,166
     
1,285
     
3,966,695
     
786,450
     
67
     
191,045
        48,392
 
                                                                     
         
29,013
   
$
179,137,624
     
4,201
   
$
24,386,759
   
$
4,343,917
     
185
   
$
1,187,395
   
$
257,557
 
       
avg loan size:
   
$
6,174
                                                 
                                                                     
percent of total
                     
14.5
%
 
13.6
%
           
0.6
%
   
0.7
%
       
                                                                     
       
Paid In Full
   
31+ Days Past Due
   
Defaulted 2
 
Prosper Rating
 
Number
   
Origination Amount
   
Number
   
Origination Amount
   
Outstanding Principal
   
Number
   
Origination Amount
   
Net Charged Off Principal
 
AA
     
              892
   
$
3,938,631
     
2
   
$
6,000
   
$
1,810
     
39
   
$
355,954
   
$
  200,254
 
 
A
     
              797
     
3,878,208
     
2
     
21,000
     
4,687
     
109
     
609,700
        337,340
 
 
B
     
              213
     
1,507,115
     
2
     
18,000
     
1,533
     
35
     
280,000
        157,207
 
 
C
     
              748
     
5,654,149
     
18
     
108,100
     
23,974
     
266
     
2,529,134
        1,619,921
 
 
D
     
           1,008
     
7,050,739
     
22
     
113,459
     
29,632
     
413
     
3,030,580
        1,942,253
 
 
E
     
              274
     
1,581,438
     
7
     
54,500
     
14,773
     
150
     
1,065,025
        686,082
 
 
HR
     
           2,817
     
26,536,310
     
75
     
739,848
     
186,443
     
2,787
     
30,456,304
        20,745,369
 
 
N/A
1
   
           7,356
     
33,992,188
     
110
     
332,454
     
88,652
     
6,408
     
29,127,232
        19,456,849
 
                                                                     
         
14,105
   
$
84,138,778
     
238
   
$
1,393,361
   
$
351,504
     
      10,207
   
$
67,453,930
   
$
  45,145,275
 
                                                                     
percent of total
     
48.6
%
   
47.0
%
   
0.8
%
 
0.8
%
           
35.2
%
   
37.7
%
       
                                                                     
                                                                     
       
Repurchased
                           
Default due to Delinquency:
         
Prosper Rating
 
Number
   
Origination Amount
                                     
9,136
   
$
39,864,073
 
 
AA
     
2
   
$
8,000
                                                 
 
A
     
3
   
 
5,750
                                                 
 
B
     
0
   
 
0
                           
Default due to Bankruptcy3 :
         
 
C
     
9
   
 
71,100
                                     
1,071
   
$
5,281,202
 
 
D
     
3
   
 
7,800
                                                 
 
E
     
1
   
 
1,000
                                                 
 
HR
     
12
   
 
212,200
                                                 
 
N/A
1
   
47
   
 
271,552
                                                 
                                                                     
         
77
   
$
577,402
                                                 
                                                                     
percent of total
     
0.3
%
   
0.3
%
                                               
1 includes loans with Credit Score<640 or insufficient credit data to determine Prosper Rating
2 includes all loans >120 days past due
3 Only includes loans where the bankruptcy notification date is prior to the date the loan became 121 days past due.  If we were notified of a bankruptcy after the loan reached 121 days past due, it is included in the "Default due to Delinquency"

From November 2005 through July 12, 2009, we facilitated 29,013 borrower loans with an average original principal amount of $6,174 and an aggregate original principal amount of $179,137,624.  As of December 31, 2010, 14.5% of the borrower loans were current, 48.6% were paid in full, 0.6% were 1 to 30 days past due, 0.8% were more than 30 days past due, and 35.2% had defaulted.  A borrower loan is considered to have defaulted when it is more than 120 days past due or has been discharged in bankruptcy.  Of these 29,013 borrower loans, 13,161 loans, or 45%, have been greater than 15 days past due at any time, 12,056 loans, or 42%, have been more than 30 days past due at any time, and 11,366 or 39%, have been more than 60 days past due at any time. We repurchased a total of 77 of these loans, with an aggregate original principal amount of $577,402 (0.3% of total), due to identification theft or operational issues. 
 
Of loans originated prior to July 13, 2009, 10,207 had defaulted as of December 31, 2010, equaling a total net defaulted amount of $45,145,275.  Of these 10,207 defaulted loans, the borrowers of 1,071 of the loans have filed for bankruptcy, resulting in a net defaulted amount of $5,281,202.

 
The following table presents additional aggregated information as of December 31, 2010, grouped by Prosper Rating, for all loans originated on our website from July 13, 2009 through December 31, 2010.  With respect to delinquent borrower loans, the table shows the entire amount of the principal remaining due (not just that particular payment) as of December 31, 2010.
 
  Loan Originations
 July 13, 2009 - December 31, 2010
 (as of December 31, 2010)
     
Total Loan Originations
   
Current Loans
   
1-30 Days Past Due
Prosper Rating
 
Number
   
Amount
   
Number
   
Origination Amount
   
Outstanding Principal
   
Number
   
Origination Amount
   
Outstanding Principal
AA
   
958
   
$
6,381,115
     
795
   
$
5,498,032
   
$
4,319,754
     
6
   
$
60,700
   
$
48,700
 A
   
1454
     
7,978,959
     
1,265
     
7,090,586
     
5,541,803
     
13
     
69700
     
           50,151
 B
   
648
     
4,726,175
     
588
     
4,303,685
     
3,760,951
     
10
     
97,500
     
87,886
 C
   
1008
     
4,080,442
     
822
     
3,166,295
     
2,433,241
     
20
     
93,925
     
76,492
 D
   
1663
     
6,527,925
     
1416
     
5,646,377
     
4,923,840
     
32
     
116,000
     
100,460
 E
   
834
     
2,720,331
     
703
     
2,324,363
     
2,069,442
     
22
     
83,250
     
74,026
HR
   
1121
     
3,411,835
     
948
     
2,831,250
     
2,482,875
     
31
     
111,800
     
102,334
                                                                   
         
7,686
   
$
35,826,782
     
6,537
   
$
30,860,588
   
$
25,531,906
     
134
   
$
632,875
   
$
540,048
       
avg loan size:
   
$
4,661
                                               
                                                                   
percent of total
                     
85.1
%
   
86.1
%
           
1.7
%
   
1.8
%
     
                                                                   
       
Paid In Full
   
31+ Days Past Due
   
Defaulted 1
Prosper Rating
 
Number
   
Origination Amount
   
Number
   
Origination Amount
   
Outstanding Principal
   
Number
   
Origination Amount
   
Net Charged Off Principal
AA
   
146
   
$
730,483
     
4
   
$
33,500
   
 $
24,852
     
7
   
$
58,400
   
$
53,113
 A
   
142
     
674,886
     
13
     
73,488
     
59,147
     
21
     
70,299
     
61,193
 B
   
37
     
241,440
     
6
     
48,000
     
39,210
     
7
     
35,550
     
32,175
 C
   
115
     
574,972
     
20
     
76,900
     
64,223
     
31
     
168,350
     
155,834
 D
   
125
     
443,589
     
39
     
141,679
     
125,320
     
51
     
180,280
     
163,860
 E
   
62
     
182,633
     
18
     
46,735
     
41,948
     
29
     
83,350
     
77,351
HR
   
72
     
244,532
     
27
     
92,253
     
84,421
     
43
     
132,000
     
123,653
                                                                   
         
           699
   
$
3,092,535
     
                 127
   
$
512,555
   
$
439,120
     
189
   
$
728,229
   
$
667,179
                                                                   
percent of total
     
9.1
%
   
8.6
%
   
1.7
%
   
1.4
%
           
2.5
%
   
2.0
%
     
                                                                   
                                                                   
       
Repurchased
                           
Default due to Delinquency:
       
Prosper Rating
 
Number
   
Origination Amount
                                     
179
   
$
629,475
AA
 
$
               -
   
 $
                   -
                                               
 A
   
               -
     
                   -
                                               
 B
   
               -
     
                   -
                           
Default due to Bankruptcy2 :
       
 C
   
               -
     
                   -
                                     
10
   
$
37,704
 D
   
               -
     
                   -
                                               
 E
   
               -
     
                   -
                                               
HR
   
               -
     
                   -
                                               
                                                                   
       
$
               -
   
 $
                   -
                                               
                                                                   
percent of total
     
0
%
   
0
%
                                             
1 includes all loans >120 days past due
2 Only includes loans where the bankruptcy notification date is prior to the date the loan became 121 days past due. If we were notified of a bankruptcy after the loan reached 121 days past due, it is included in the "Default due to Delinquency" totals.
 
From July 13, 2009 through December 31, 2010, Prosper facilitated 7,686 borrower loans with an average original principal amount of $4,661 and an aggregate original principal amount of $35,826,782.  As of December 31, 2010, 85.1% of the borrower loans were current or had not reached their first billing cycle and 9.1% were paid in full, 1.7% were 1 to 30 days past due, 1.7% were more than 30 days past due, and 2.5% had defaulted.  A borrower loan is considered to have defaulted when it is more than 120 days past due or has been discharged in bankruptcy.  Of these 7,686 borrower, loans, 511 loans, or 7%, have been greater than 15 days past due at any time, 354 loans, or 5%, have been more than 30 days past due at any time, and 298 or 4%, have been more than 60 days past due at any time.

Of loans originated after July 13, 2009, 189 have defaulted as of December 31, 2010, equaling a total net defaulted amount of $667,179.  Of these 189 defaulted loans, the borrowers of 10 of the loans have filed for bankruptcy, resulting in a net defaulted amount of $37,704.
  
Because of our limited operating history, the data in the preceding tables regarding loss experience may not be representative of the loss experience that will develop over time as additional borrower loans are originated through our platform and the borrower loans already originated through our platform have longer payment histories.  In addition, because of our limited operating history, the data in the preceding tables regarding prepayments may not be representative of the prepayments we expect over time; as additional borrower loans are originated through our platform and the borrower loans already originated through our platform have longer payment histories.
 

The following table presents aggregate information, as of December 31, 2010 on the results of our collection efforts for loans originated prior to July 13, 2009 that became more than 30 days past due at any time, grouped by Prosper Rating.  For purposes of this analysis, we have excluded the 77 loans that we repurchased due to identity theft or operational issues.
 
Prosper Rating
   
Loans In Collections
 
Origination Amount
 
Aggregate Amount Sent to Collections
 
Gross Amount Collected on Accounts sent to Collections
 
Number of Loans Charged-off
 
Gross Aggregate Principal Balance of Loans Charged-Off
   
Gross Amount Recovered on Loans Charged-Off
 
Net Aggregate Charge-Off
 
AA
      51   $ 424,454   $ 27,622   $ 17,087     39   $ 208,487     $ 8,232   $ 200,254  
 A       139     784,133     51,286     29,580     109     364,851       27,511     337,340  
 B       42     326,800     21,494     4,687     35     160,502       3,295     157,207  
 C       327     3,040,377     205,288     87,373     266     1,705,018       85,097     1,619,921  
 D       509     3,732,460     257,608     154,265     413     2,023,760       81,507     1,942,253  
 E       174     1,215,224     87,469     35,682     150     719,951       33,869     686,082  
HR
      3,125     34,023,803     2,461,207     1,165,997     2787     21,538,604       793,236     20,745,369  
 N/A1       7,204     32,639,151     2,453,980     1,327,834     6408     20,656,846       1,199,998     19,456,849  
                                                         
Totals
      11,571   $ 76,186,403   $ 5,564,954   $ *2,822,504     10,207   $ 47,378,020     $ 2,232,745   $ 45,145,275  
       
* This amount excludes collection agency payments that were subsequently returned by the bank
                           
        1 includes loans with Credit Score<640 or insufficient credit data to determine Prosper Rating                            
 
The following table presents aggregate information, as of December 31, 2010 regarding the results of our collection efforts for loans originated after July 13, 2009 that became more than 30 days past due at any time, grouped by Prosper Rating.  
 
Prosper Rating
   
Loans In Collections
 
Origination Amount
 
Aggregate Amount Sent to Collections
 
Gross Amount Collected on Accounts sent to Collections
 
Number of Loans Charged-off
 
Gross Aggregate Principal Balance of Loans Charged-Off
   
Gross Amount Recovered on Loans Charged-Off
 
Net Aggregate Charge-Off
 
AA
      17   $ 118,400   $ 7,853   $ 2,632     7   $ 53,113     $ -   $ 53,113  
 A       48     198,312     12,913     2,881     21     61,193       -     61,193  
 B       16     101,550     7,042     1,345     7     32,483       308     32,175  
 C       65     293,050     22,494     6,876     31     155,834       -     155,834  
 D       111     386,209     31,604     10,840     51     164,325       465     163,860  
 E       57     159,830     14,045     3,614     29     77,708       357     77,351  
HR
      92     284,103     25,010     7,651     43     124,701       1,048     123,653  
                                                         
Totals
      406   $ 1,541,454   $ 120,960   $ *35,839     189   $ 669,357     $ 2,178   $ 667,179  
       
* This amount excludes collection agency payments that were subsequently returned by the bank
                           
 
Prosper has not altered the terms or made any principal reductions on any loans prior to charge-off except as required by law (such as in situations were the Servicemembers’ Civil Relief Act requires interest rates to be reduced to 6% while a borrower in the armed forces is on active duty).  In order to comply with the Servicemembers’ Civil Relief Act, Prosper has elected to make “pre-refunds” of the interest differential to the affected borrower for the period of deployment.  The borrower then continues to make their regular payments.  In these cases, Prosper has refunded the interest to the borrower from Prosper’s own funds and, as a result, the payments received by the applicable lenders are unchanged.
 


Loan Originations Prior to July 13, 2009
 
The following table presents aggregated information about borrowers for loans originated over the period from our inception to October 16, 2008, grouped by credit grade.  These loans did not have a Prosper Rating, and were initially only assigned credit grades.  Therefore, all loans presented in the below table are grouped by credit grade rather than Prosper Rating. This table does not include the 77 loans repurchased by Prosper due to identity theft or operational issues.
 
Credit Grade
 
Number of Borrowers
 
Average Interest Rate
 
Average APR
AA
 
3512
 
11.5%
 
12.2%
A
 
3312
 
14.2%
 
15.2%
B
 
4386
 
16.5%
 
17.5%
C
 
5643
 
18.8%
 
20.0%
D
 
5151
 
21.2%
 
22.4%
E
 
3289
 
25.5%
 
26.8%
HR
 
3505
 
25.5%
 
26.9%
NC
 
141
 
23.3%
 
24.2%
 
The following table presents aggregated information for loans originated from the period from March 1, 2007 to October 16, 2008 reported by a consumer reporting agency about Prosper borrowers at the time of their loan applications, grouped by credit grade, and does not include the 77 loans repurchased by Prosper due to identity theft or operational issues.  These loans did not have a Prosper Rating, and were initially only assigned credit grades.  Prosper has not independently verified this information.
 
 Credit Grade
 
Average Experian Scorex PLUS
 
Average Number Current Delinquencies