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Autofund, inquiries the biggest red flags
Prosper now has 54 segments (see graph at bottom of the linked page) that they've subdivided their credit grades into. Based on the way they've divided it, it appears that autofund loans followed by high numbers of inquiries and then currently delinquent accounts are the biggest red flags for lenders to avoid or, at least, take into account when bidding. I thought this was interesting since most discussions I see about red flags for lenders to avoid start with current and past delinquent accounts and public records. Autofund loans usually get mentioned as well but inquiries seem to not be understood or are rarely taken into account. Often, it seems that DTI is considered higher as well although it does appear to be a factor in some of the higher credit grades as a differentiator.
Prosper did say that over time they may change the segments and/or add to them once more data is available. I wonder if/when public records, past delinquencies, size of credit balances or utilization percentage will come into play.
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2 comments
the other criteria are pretty much fixed, how does changing a listing from auto fund to regular way make it a better risk?
(from an analysis/full dataset in mid-july)[See Below for Column Definitions]
AA CWF 208 3 1.42%
AA OFD 1081 7 0.64%
A CWF 225 10 4.26%
A OFD 901 15 1.64%
B CWF 365 23 5.93%
B OFD 1041 24 2.25%
C CWF 670 57 7.84%
C OFD 1301 43 3.20%
D CWF 826 96 10.41%
D OFD 1287 44 3.31%
E CWF 842 208 19.81%
E OFD 880 78 8.14%
HR CWF 898 349 27.99%
HR OFD 967 181 15.77%
(ALL LOANS) CWF 4083 780 16.04%
(ALL LOANS) OFD 7499 412 5.21%
column definitions (seperated by font):
First Column is Prosper Credit Grade
Second is Funding Option chosen where:
CWF = Loan was set to "CLOSE WHEN FUNDED"
OFD = Loan was set to "OPEN FOR DURATION"
("CLOSE WHEN FUNDED" loans are autoloans)
Third is current loans in the category
Fourth is # of loans late or worse
Fifth is total percent late in the category
Loan ages tend to be more or less equivalent across credit grades.
As a rule of thumb, they're at least twice as likely to go bad as the non-autoloans within their credit grade.
Conclusion:
This is one of those rare factors where I really don't even need to run a statistical test to see that this is a huge red flag.
Initially I was surprised at this. In retrospect though, autofunding seems like a great proxy for desperation -- "Give me my money NOW, I don't care so much about the rate"
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