zcommodore

I saw a comment on Bama's most recent blog post that made me go look at the numbers again. First, let's look at the performance data for all loans originated on Prosper as of today, Feb. 10. Keep in mind that even though it says there have been 18,673 loans, the actual number is over 18700 due to repurchased loans that Prosper has removed from their statistics. 1 in 6 of those loans are late (>15 days late or defaulted).

The comment on Bama's blog asked what it was for loans at least 60 days old. The number is worse. Here is the performance data for all loans at least 2 months old. It comes out to 18.5% are late or defaulted or more than 2/11.

Now, many experienced lenders suggest loans need at least 6 months of aging before you can start to see accurate statistics. So, let's see what the numbers are for all loans at least 6 months old. As you can see, the numbers are even worse. 22.5% or more than 1 in 5 of all loans at least 6 months old on Prosper are late or defaulted.

Anyone reading Fred93's blog knows that loans at least 1-month late have about a 80% chance of defaulting. I don't know that the numbers have changed a whole lot but none of them look too good.

My point is, Bama needs to stop pulling punches. Tell it like it really is, Bama. :-)

Would someone at Prosper please explain what it is that they have against Prospers.org?  I realize there are a few members there who are pretty down on Prosper but I also happen to know quite a few people at Prosper have accounts there as well.

A couple of months ago, Prosper deleted a bunch of lender's profiles that included references to Prospers.org and later claimed Prospers.org is dangerous because they collect e-mail addresses and screennames of members of Prosper.com. This is just a silly excuse in my opinion.

For all of you who are attending Prosper Days 2008, I hope you will get some answers regarding Prosper's attitude towards Prospers.org.  As Fred93 so eloquently stated in a comment on Bamalucky's blog, it's "One of the great mysteries of the universe."

It seems to me, the more they fight the knowlege of Prospers.org getting out, the more the knowlege of it will spread--just like the Streisand effect mentioned numerous times in relation to this.  On the one hand, I could sort-of understand them getting rid of references to prospers.org from their website but it is still there in numerous places.  If they removed it universally, it would make more sense but they haven't and it's not going away--so why fight it?

I have a saved search and standing order with some very strict (IMO) criteria for selecting loans.  Until recently that saved search found no loans 1-month late or defaulted between the credit grades of AA-B.  Unfortunately, recently, when I checked the performance, I noticed an AA loan for $14K had gone late.  This perplexed me a bit since it would have been nice to set an interest-rate range on the performance tab to see if it would have met my minimum rate and if I would have bid on it but the performance page doesn't have such a thing.

Well, thanks to the third-party site, ericscc.com, I can find the loan and look it over.  This is a capability that has been around for awhile but I just made good use of it once again and decided to tell everyone about it in case they missed it.

It was fairly simple to do.  I could see from the performance page that the loan in question was AA, was 1-month late, and was for $14K.  I went to the loans page on ericscc.com (under the Borrower Stats tab titled "Loan Search & Analysis) and entered those numbers.  There was only one loan that met those criteria so it was easy to find.

After looking it over, I am not sure if I would have bid on it or not.  I think my standing order would have hit it but if I had had a chance to look ahead at what might be upcoming, I may have blocked it from my standing order based on a couple of phrases in the description.  Either way, it is nice to know I can look at old listings again and do research on my saved searches based on historical performance data.

Today, Prosper will begin verifying loans that will originate on February 1st.  This means that for all practical purposes, January, 2008 is over, which means we can take a look at the performance numbers for how many loans originated this month already.  So, what do we find?

First, here's a graph of total dollars of loans originated each month:

And now a graph showing the number of loans originated along with the distribution of grades:

As you can see in each one, there has been a big spike in the month of January.  Both in numbers and in total dollars, there were more loans originated in January, 2008 than there have been since May 2007.

I don't know what has changed but from Prosper's perspective, I'm sure they're happy to see the increase.  On the other hand, I'm somewhat curious if they've relaxed some standards relating to their approval procedures.  I participated in 2 loans this past month and both of them were approved very soon after they ended.  I'm not really worried because in both cases I've interracted with the borrowers for many months before bidding on their loan so I'm sure they will pay it back.  I don't know about any of the other 1048 loans though.

I've said it before and I'll say it again, Prosper has a long way to go before they reach profitability.  From my discussions with other lenders, it is estimated they need $30-40 million per month of business if they hope to break even.  $7 million is a long ways from that amount.  Showing a 1-month increase is a good start.  In addition, they've raised origination fees on most grades of borrowers so that will help lower the total needed per month.  Prosper may be coming out with a resale service at some point so that should help increase revenue as well.  In the mean time, an increase in total loans is a positive sign in the right direction.  It's a whole lot better than being flat month after month.

I was recently looking over my loans on Prosper recently and made a few observations.  I've made a total of 33 loans so I broke them up in groups and noted the following:

• 4 of my first 5 loans are current
• 4 of my next 16 are current (one paid, the rest late or defaulted)
• 11 of my most recent 12 are current

As you can see, there were some very bad lending decisions made there in the middle.  Looking back, when I first found out about Prosper, I saw loan rates in the teens and couldn't get in fast enough.  Once I got funds in my account, I started looking and saw loans in the 20's and couldn't get my bids in fast enough.  Unfortunately, that became my undoing.

I got very lucky on my first 5 loans (all made during my first month on Prosper) such that 4 of those 5 are still current.  That led to my thinking I could pick the winners from the wasteland of high-risk borrowers so I didn't even look at loans unless they were at least 20%.  I thought that by lending to borrowers paying 300% on payday loans, they would save money and I would make money.

The only good thing about the whole situation is that I didn't have a lot of money available to lend so I didn't get in too deep.  Also, over the summer, I stopped transferring in money and came to somewhat of an epiphany where I realized that lending to borrowers offering 29%+ wasn't going to make me anything at all if they stopped paying.  29% of 0 is just 0.  On the other hand, if I could find a set of borrowers paying 10% and actually paying it, I would be much better off.

Ultimately, I can't say for certain that my new strategy is going to work a whole lot better but the early returns are promising.  I set up a standing order based on a set of criteria that in the past has had very good results.  I set the minimum loan rates so that I would only pick off the loans that paid the highest in those categories and then let them run.  Most of the listings my standing order bid on got outbid but I can watch the performance on eric's what-if page.  Not all the loans on that page were picked by my standing order but some of them were and I can see how they turn out.  I also can check the performance from the link on my standing order page to see if my criteria are still holding up (thank-you Urbi-et-Orbi).

My main concern at this time is Prosper's long term survival.  I will say that I'm seeing positive signs in that direction though but those can wait for another post.

One final note.  I'm still cash-positive on Prosper (barely) even if I write off all my Late or worse loans.  However the only reason for this is that I've received some group leader fees and some referral fees.  If it weren't for those, I'd be way under.