Loan Servicing Assets and Liabilities

3 Months Ended

Mar. 31, 2015

5. Loan Servicing Assets and Liabilities

Prosper accounts for servicing assets and liabilities at their estimated fair values with changes in fair values recorded in servicing fees. The initial asset or liability is recognized when Prosper sells Borrower Loans to unrelated third-party buyers and the servicing rights are retained. Prior to January 1, 2015, the initial fair value of such servicing assets or liabilities was amortized in proportion to and over the servicing period. Subsequent to January 1, 2015, the servicing assets and liabilities are measured at fair value throughout the servicing period. The total gain recognized on the sale of such Borrower Loans was $0.3 million for the three months ended March 31, 2014. The total gain recognized on the sale of Borrower Loans sold to unrelated third-party buyers was $1.9 million for the three months ended March 31, 2015.

As of March 31, 2015, Borrower Loans that were facilitated and subsequently sold but for which Prosper retained servicing rights had a total outstanding principle balance of $1,796 million, original terms between 36 and 60 months and had monthly payments with fixed interest rates ranging from 6.00% to 31.90% and maturity dates through March 2020. At December 31, 2014, Borrower Loans that were facilitated and subsequently sold but for which Prosper retained servicing rights had a total outstanding principle balance of $1.36 billion, original terms between 36 and 60 months and had monthly payments with fixed interest rates ranging from 6.05% to 31.34% and maturity dates through December 2019.

The fair value of the loan servicing assets and liabilities is determined using a discounted cash flow model that includes the market servicing rate, the default rate and discount rate as important inputs. For more details refer to Part IV - Item 15 – Exhibits, Financial Statement Schedules - Note 5 – Loan Servicing Assets and Liabilities Prosper’s Annual Report.

Significant Unobservable Inputs

The following table presents quantitative information about the significant unobservable inputs used for Prosper’s servicing asset/liability fair value measurements at March 31, 2015 and December 31, 2014:

	Range
Unobservable Input	March 31, 2015	December 31, 2014
Discount rate	15% - 25%	15% - 25%
Default rate	2.0% - 19.8%	2.6% - 26.3%
Market servicing rate	0.625%	0.625% - 0.70%

Loan Servicing Asset and Liabilities Activity:

The following table presents additional information about Level 3 servicing assets and liabilities measured at fair value for the three months ended March 31, 2015 (in thousands).

	Servicing Assets			Servicing Liabilities
Amortized cost at January 1, 2015	$	4,163		$	624
Adjustment to adopt fair value measurement	546				(29	)
Fair value at January 1, 2015		4,709			595
Additions		2,078			154
Less: Changes in fair value		(753	)		(81	)
Fair value at March 31, 2015	$	6,034		$	668

Servicing Asset and Liability Fair Value Input Sensitivity:

The following table presents the estimated impact on Prosper’s estimated fair value of servicing assets and liabilities, calculated using different market servicing rates and different default rates as of March 31, 2015 (in thousands, except percentages).

	Servicing Assets			Servicing Liabilities
Weighted average market servicing rate assumptions		0.625	%		0.625	%
Resulting fair value from:
Market servicing rate increase to 0.65%	$	5,594		$	(734	)
Market servicing rate decrease to 0.60%	$	6,487		$	(601	)
Weighted average default assumptions		13	%		13	%
Resulting fair value from:
100 basis point increase	$	5,930		$	(667	)
100 basis point decrease	$	6,152		$	(669	)

These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.

Prosper Funding LLC [Member]

Loan Servicing Assets and Liabilities

5. Loan Servicing Assets and Liabilities

Prosper Funding accounts for servicing assets and liabilities at their estimated fair values with changes in fair values recorded in servicing fees. The initial asset or liability is recognized when Prosper Funding sells Borrower Loans to unrelated third-party buyers and the servicing rights are retained. Prior to January 1, 2015, the initial fair value of such servicing assets or liabilities was amortized in proportion to and over the servicing period. Subsequent to January 1, 2015, the servicing assets and liabilities are measured at fair value throughout the servicing period. The total gain recognized on the sale of such Borrower Loans was $0.3 million for the three months ended March 31, 2014. Effective January 1, 2015, Prosper Funding elected to adopt the fair value method to measure the servicing assets and liabilities for all classes subsequent to initial recognition. The total gain recognized on the sale of the Borrower Loans sold to unrelated third-party buyers was $1.9 million for the three months ended March 31, 2015.

At March 31, 2015, Borrower Loans that were facilitated and subsequently sold, but for which Prosper Funding retained servicing rights had a total outstanding principal balance of $1,448 million, original terms between 36 and 60 months and had monthly payments with fixed interest rates ranging from 6.00% to 31.90% and maturity dates through March 2020. At December 31, 2014, Borrower Loans that were facilitated and subsequently sold, but for which Prosper Funding retained servicing rights had a total outstanding principal balance of $1,045 million, original terms between 36 and 60 months and had monthly payments with fixed interest rates ranging from 6.05% to 31.34% and maturity dates through December 2019.

Significant Unobservable Inputs

The following table presents quantitative information about the significant unobservable inputs used for Prosper Funding's servicing asset/liability fair value measurements at March 31, 2015 and December 31, 2014:

	Range
Unobservable Input	March 31, 2015	December 31, 2014
Discount rate	15% - 25%	15% - 25%
Default rate	2.0% - 19.8%	2.6% - 26.3%
Market servicing rate	0.625%	0.625% - 0.70%

Loan Servicing Assets and Liabilities Activity:

The following table presents additional information about Level 3 servicing assets and liabilities recorded at fair value for the three months ended March 31, 2015 (in thousands).

	Servicing			Servicing
	Assets			Liabilities
Amortized cost at January 1, 2015	$	3,116		$	624
Adjustment to adopt fair value measurement		399			(29	)
Fair value at January 1, 2015		3,515			595
Additions		2,078			154
Less: Transfers to PMI		(249	)		-
Less: changes in fair value		(562	)		(81	)
Fair value at March 31, 2015	$	4,782		$	668

Servicing Asset and Liability Fair Value Input Sensitivity:

The following table presents the estimated impact on Prosper Funding’s estimated fair value of servicing assets and liabilities, calculated using different market servicing rates and different default rates as of March 31, 2015 (in thousands, except percentages).

	Servicing Assets			Servicing Liabilities
Weighted average market servicing rate assumptions		0.625	%		0.625	%
Resulting fair value from:
Servicing rate increase to 0.65%	$	4,428		$	(734	)
Servicing rate decrease to 0.60%	$	5,135		$	(601	)
Weighted average default assumptions		13	%		13	%
Resulting fair value from:
100 basis point increase	$	4,694		$	(667	)
100 basis point decrease	$	4,870		$	(669	)

- Definition

The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows.

+ References+ Details