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I received a Prosper Marketplace update via email. There were several interesting items, but it the last item stood out:

Legal Agreement Revisions
A minor change has been made to the following legal agreements, to clarify that selling or buying a recommendation or endorsement is not allowed. Please refer to the links below to view these changes.
Borrower Registration Agreement [PDF]
Lender Registration Agreement [PDF]
Group Leader Registration Agreement [PDF]

This portion of the update seems to directly target Lazy Man and Money’s post offering to sell an endorsement for p2p loans on Prosper. Although Lazy Man says that the post was satire and intended to point out flaws in the system, it caused a stir at prospers.org where the discussion of Lazy Man’s post reached 21 pages.

Knowing endorsements are valuable to judging loans, I am glad to see that Prosper made the changes to its TOS. However, enforcing this rule will be nearly impossible as Lazy Man pointed out with an example:

Quick scenario. I want to take out a loan. I think an endorsement would help. I call up my friend Chuck, tell him to meet me for beers. I tell him that I’m taking out a loan, and I’d appreciate his good word on my behalf. He says, he’d love to, but doesn’t have the $50 right now. I give him $50 and pick up the check for the beers. Chuck signs up and then lends me the $50 that I gave him. Did Chuck break the TOS? Did he accept a kickback of beers?

I am starting feel that P2P loans are like trading stocks. As soon as enough people are aware of a strategy for buying or selling, the strategy becomes useless. And so we may have seen the end of the value of endorsements in predicting defaults.