Good summary of the situation from Scott at Marketwatch.  Social Lending sites will adjust and monitor the market and the risk.  The distinction however, between Banks and these sites, is that Banks attract other pressures that influence their risk tolerance, in particular liquidity, banks solency, and actions of the Federal Reserve/ Bank of Canada/ Bank of England. 

Social Lending is purely focussed on the borrowers, their circumstances, and their ability to repay.  This is lending in its purest form, and thats why it will succeed.

Direct lending sites are drawing interest – MarketWatch

Lending Club has put a number of conservative constraints on borrowers. In order to apply for personal loans of $500 to $25,000, with interests rates of 7% to 17%, borrowers must have credit scores at or above 640. That’s typically considered the near-prime to prime lot, a good score that defies high risk. But even borrowers with prime credit are finding it difficult to qualify for a loan with banks now, and many people may find it easier to borrow through this site.

A rival site, Prosper, which raised $20 million in venture capital in July, originally set no floor for who could make a request for loans up to $25,000. The site later changed the minimum credit score for borrowers to 520, eliminating 45% of its loan listings, but still low enough to attract higher-risk borrowers in the sub-prime range.

Tiffany from Prosper commented on the piece and noted these statistics, indicating that  following elimination of high risk borrowers, greater activity has resulted.

Scott,
Thanks so much for your timely commentary. 

One clarification worth noting…When
Prosper announced its 520 credit score minimum at its Prosper
Days community conference (www.prosperdays.com) in February 2007,
we noted that at that point in time 45% of our loan listings consisted
of borrowers with scores below 520.  However, since implementing
the minimum credit score requirement, the number of active loan listing
requests on Prosper has actually more than doubled as have funded
loans… funded loans have increased by over 130%, growing from $36
million in February 2007 to $84 million today.

Best,Tiffany Fox at Prosper

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