The market will be limited to California at first, but Prosper will initially provide an open market for bankers to resell loans they want to get off their books, a first among peer-to-peer lenders, and will eventually include loans made through its online trading system, which a rival is already doing.
"The open market now, for the first time, allows other financial institutions to list loans they have already made," said Chris Larsen, Prosper's founder and chief executive. "We're trying to make this be sort of a new way that you can get liquidity. This enables things you could never do before."
The peer-to-peer loan facilitator said that it was developing such a market for bank-issued loans in a filing with the Securities and Exchange Commission in December, but at the time the company would not discuss its plans.
In a follow-up SEC filing this month, Prosper said that banks could resell loans with fixed interest rates and terms of up to seven years. The loans can be secured or unsecured, but they cannot be for real estate.
The loans must be current, and the borrower must have made at least three payments.
Larsen said lending banks would continue to service the loans and could sell them at a premium or a discount.
At least one banking company is already planning to use the system, he said, though he would not name it.
Prosper's main business is facilitating loans between individuals; prospective borrowers create online posts explaining why they want the money. People with money to lend select the borrowers they want to fund.
The San Francisco company stopped accepting loan requests in October, and the SEC raised questions over whether the loans were securities and therefore subject to more regulation.
As Prosper and others in the peer-to-peer market became more interested in offering users a secondary market to buy and sell the notes, it became clear that regulators viewed the instruments as securities.
The company is still waiting for regulatory approval for the secondary market for loans made through its site, but got the go-ahead from California officials to start the open market for bank loans in the state.
"We can be a little bit more nimble than the SEC," said Preston DuFauchard, the commissioner of the California Department of Corporations. His office oversees lending and securities regulation in the state, providing him "a different regulatory field of vision" than counterparts in other states.
Larsen said he expects to resume operations nationwide once he receives approval from the SEC; though he could not say when that might happen.
For now, consumers in any state may request a loan through Prosper, but lenders must live in California and banks that want to sell a loan through the open market must be based in California.
Edward Kountz, a senior analyst for e-business and channel strategies at Forrester Research Inc., said a new way to resell loans will be appealing to bankers.
"Institutions may be somewhat cagey up front about doing that, but I think that in the current environment, too, when it becomes clear that there is an opportunity to differentiate effectively, we'll see a willingness to try," Kountz said. "It'll probably take some time, because things are relatively new."
In addition to earning Prosper fees on the bank loans sold through its site, Larsen said, the open market could make his company better known among mainstream banks.
