zcommodore

Bama thinks Prosper is "churning loans".  He seldom lets facts get in the way of a good conspiracy theory, but lets look and see if there's any merit to his assertions.

Here's a graph showing the actual number of loans Prosper approved each business day and a 10-day trailing average to help smooth things out.

As you can see, there's a little uptick at the end of the month.  I haven't been watching the number of listings on Prosper too much but it is a bit curious.  However, if you look at the end of all the previous months in the graph, there's not any strong evidence of an uptick at the end of any of the other months. Fortunately, I have data for each business day for the last 13 months.

I took all 13 months and averaged each calendar day so that I could create a graph with the average number of loans created each day for an entire month.  If Prosper is "churning loans" at the end of the month, we should see an uptick in the number of loans near the end of the month where they approve more loans than the rest of the month.  So, here's what I found:

Well, I suppose there is a slight upward trend as the month progresses but it doesn't seem exceedingly large. At the beginning of the month, there appears to be ~49 loans approved per day up to the end of the month where there seems to be ~56 loans approved per day.  Most of the month appears to be fairly flat though, right around 50.  Note that the "5-day Avg" line is an average of each average plus the two days before and after, wrapping around from beginning to end.

So, why is there an increase near the end?  Prosper may actually be "churning" loans to some extent so that is possible.  Honestly, I can't really think of any other good reason for the increase either.  Still, a 6-10 loans-per-day increase doesn't really strike me as strong evidence of significant "churning" either.

One thing I do know and that is the 2nd business day of any given week has a significant increase in the number of loans approved.  I attribute that to the fact that all funded loans that end between late Friday evening until some time Monday afternoon can potentially originate on the following Tuesday.  For this reason, I like to track loans by the week rather than by the day since this smoothes out the data much better.

Based on this graph, it's unclear exactly which direction Prosper's loans are going in the near term.  If anything, it looks like Prosper has peaked and is going down.  However, I do remember Prosper had a big advertising push a couple of months ago that corresponded to the spike in loans, in addition to going (almost) nationwide with a common interest rate.  Those two things contributed significantly to the spike I believe.  The question is whether or not Prosper is planning any more advertising.  Ultimately, Prosper can't "churn" loans if they don't have at least a few willing borrowers and lenders unless they're creating fake loans and/or bids.  Now *that* would be the ultimate conspiracy theory.

Yes, it happens once in awhile.  A borrower comes to Prosper and asks for the maximum at a high rate and actually pays it off.

This morning, I had one borrower do just that.  About a year and a half ago, in IRC, Bama told me he wouldn't pay for another 6 months, that he would default.  I didn't save the log so I can't prove it but, suffice it to say, he was wrong.  At any rate, since pensioner had over $18K of that loan, I'm sure he's happy with the results.

I did a bit of checking on ericscc.com and found that between Prosper's launch and the end of February 2007, 24 borrowers were successful in getting $25K loans at rates 25% or higher.  Of those, 10 are current, 5 are paid and 9 are 1-month late or worse.  Obviously, with rates even 25% or higher, if 37.5% default, you're not going to make any money.  And, incidentally, I was on one of those defaulted loans as well.  In that case, the borrower declared bankruptcy and it was recently finalized.

Oh, and one other thing, the borrower I had who paid in full got a new loan for nearly $22K at 35% about a month ago.  I have no idea how he's going to make any money paying those kinds of rates but he seems to think it's possible.  I wasn't aware he was seeking a loan until just the other day when I saw his previous one was paying off.  All I can say is, "good luck" to his new lenders.

If you need any more evidence that Prosper does NOT have your best interests in mind if you're a lender, you need go no further than this loan.  It has "Nigerian Lottery Scam" written all over it.  The borrower was either a sucker or, more likely, a victim of ID theft.  A little over a week ago, Prosper repurchased this loan as you can see here on Ericscc.com.  So, in the end, Prosper made the lenders whole.  Still, they should never have originated the loan in the first place.

I did a bit of searching on the old archived forums at prosperreport.com and here on prospers.org and found numerous mentions of this loan.  Several lenders indicated they had reported the listing prior to it's end so there is plenty of evidence Prosper was warned.  Yet they let it pass anyway.  Now they're stuck paying most of the $10,000 originally borrowed back to the lenders and they've lost most of the money.

How many other times has Prosper been warned about loans that they've let go through that turned out to be fraud and the lenders lost money?  I don't know but let this example be a warning.  I don't believe Prosper really has lender's best interests in mind and I have no reason to believe they've changed anything in the last year since that loan first went through.  Prosper's interest seems more along the lines of, if lender's bid on it, it's their problem.

Once again, lenders on Prospers.org have come up with another complaint against Prosper; this time in regards to a possible ID theft.  You can read about it here in the lobby if you're interested.

One of the pervasive notions on .org is that the only time Prosper really honors it's guarantee is when the lenders cause a big ruckous in the forums.  They usually cite the storm raised by Leporello over one particular loan, or the Victoria Crawford case where one borrower managed to steal the identities of a number of coworkers and obtained loans through Prosper with them.  Looking at the facts, I think they portray a different story about Prosper.

If you look at the catalog of repurchased loans on the wiki hosted by this site, you will see there have been a total of 49 loans in the list of "typical repurchases" including one added only a week ago.  Separately listed are the 10 Victoria Crawford loans.  Notice that the "Leporello ID theft loan" is indicated in the list.  Of all 59 repurchased loans, I'm only aware of a huge discussion of those repurchases in two cases covering 11 loans.  This leaves 48 loans that have been repurchased by Prosper without hardly any mention of this fact by lenders until after the fact, if at all.

During Prosper Days 2008, a couple of Prosper employee's discussed what they are doing about collections and ID theft.  You can watch the video yourself but it is rather long and the part about ID theft is buried quite a ways in.  Fortunately, while it was happening live, a couple of attendees of the presentation posted about it live on IRC.  Here is the part about ID theft they mentioned:

<Gogmagog> Every loan goes through filters to check for theft, if there is a no-first payments
<beerbud1> collectionsw account disputes hey this account is not me
<Gogmagog> they investigate customer reported frauds
<Gogmagog> also pre-debt sale they have to investigate all of them
<Gogmagog> They can only have a valid ID theft claim, if they can contact the victim
<Gogmagog> The victim has to sign an affidavit that the loan isn't their
<beerbud1> statement of unauthorized loan request
<Gogmagog> They also have to file a police report and FTC report
<beerbud1> prsecution to the fukllest extent possible
<Gogmagog> because lots of people will sign things, but they won't file a police report :-)
<Gogmagog> PRosper will only rebuy if the Victim does all this stuff
<beerbud1> ing local and state authoritiesu
<beerbud1> state fbi and us postal service
<Gogmagog> because the victim is sometiems lying. :-)
<beerbud1> they say there all workiong together
<Gogmagog> 30 laons repurchased via guarantee

Basically, what this says is that Prosper has fairly high standards that have to be met before they will actually repurchase a loan.

• They have to contact the victim
• The victim must sign an affidavit that the loan isn't theirs
• The victim must file a police report
• The victim must file a FTC report

Given these high standards, I'm not surprised that there haven't been a lot of loans repurchased.  Also, I'm not sure that all the loans in the "typical repurchases" list met those standards.  Prosper seems to have a limited number of ways they can report the status of loans.  In the IRC chat log, it says only 30 loans have been repurchased due to the guarantee and the list has 49 (59 if you count the Victoria Crawford loans.)

At any rate, my point is that Prosper repurchases loans, not because of what is said in an anonymous forum, which is a good thing, but rather when certain standards have been met.  I don't know if their standard is really set too high or not but that is not my concern.  Really, there are a lot of other reasons loans are going bad on Prosper and the ID theft guarantee is not going to cover most of them.  I think there are a lot of less-than-honorable borrowers out there who know ways to game the system and that's the real problem Prosper faces and that lenders need to be aware of.