zcommodore

A few weeks ago, I laid the blame for a lot of the performance problems with collections on Prosper on a few group leaders and large lenders. Here is another look that also makes my point.

This graph shows how loans 1+ month late and defaulted loans increase over time for the time period shown. I believe the outliers on these graphs make my point.

Honestly, I don't have a good explanation for why May 2006 loans are going bad at a much lower rate overall. I believe it corresponded to a time on Prosper when the maximum interest rate was around 23% so that may have had something to do with it but I think April 2006 was also in that category and it doesn't have a similar graph.

My main point centers around the months of August 2006 and October 2006 through February 2007.

First, August 2006 happens to correspond to the time pensioner was at his peak in bidding according to Lendingstats. I will let the readers verify this for themselves. Notice how it seems that August 2006 loans are going bad at a much higher rate than similar months around it. A large lender can get loans funded that many small lenders may not be interested in, particularly if they are autofund loans. This tells me that a single person with a lot of cash might make decisions that many smaller lenders might not as a whole.

October 2006 is similar to August in that a large lender was bidding a lot of cash on loans many smaller lenders wouldn't have otherwise been interested in. In this case, it was MuleShoes. Notice how the loans in October 2006 are continuing to go bad at a much higher rate than others from months before.

Finally, November 2006 to February 2007 are the months when two of the most disliked groups on prosper were at their peak. FinancialAssistanceNetwork and mayans (also known as TwoMillionaires or First Choice) were bidding on a lot of high risk borrowers during this time and doing what many refer to as "pump and dump" where they bid a lot near the beginning at the maximum rate available and then lenders who didn't know what was going on followed their bids such that the group leaders were mostly knocked out of these loans. One could blame the lemnders (lemming lenders) for making bad decisions but ultimately I believe the blame lies with the group leaders who gave a false impression of the borrowers by suggesting with their bids that these borrowers were better than others not in their groups.

Prosper changed a lot of bidding patterns in mid-February 2007 when they gave lenders more credit information on borrowers. Even though several "pump and dump" groups remained near the top of the lists it seems that many of them were not as effective with their tactics since lenders were starting to get smart by this time. The new expanded credit data has been shown to have helped lenders make better bidding decisions. Also, there are a lot more experienced lenders on the site now compared to the newbies than there were at the beginning. It seems the newbie lenders are the ones most likely to get suckered into a bad loan by a sleazy group leader. Now that rewards have been removed from groups, even the sleazy ones are less likely to be so active.