Peer to peer lending is a new product available to investors. The offering allows potential borrowers to post their request for a loan online and then lenders bid on whether to lend money and at what rate. I analyze a 22 month history of these loans at one major site. Thus far the default rate has been close to 8% at Prosper.com. Most of the borrowers are subprime, making this topic a timely one. I use logit and probit estimation to show the determinants of default. I estimate the determinants of the risk premium with OLS. This will determine if the market is efficient in terms of return on investment increasing with added risk.on PTP loans is higher than the expected rate for traditional loans in most of the assigned credit categories. Table 1 Credit Score Characterisics Sources: Experian, Fair Isaac, Prosper.com PTP borrowers have lower credit scores than do traditional borrowers. In all categories other ... The borrowers may not be truthful about the use of the loan, introducing a moral hazard problem. If the funds are used foranbsp;...
|Title||:||Failure to Prosper: Risk Premia in Peer to Peer Lending|
|Author||:||Charles Ramon Christensen|
|Publisher||:||ProQuest - 2007|