zcommodore

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.

Exactly 1 year ago today, I made my first post to this blog.  Actually, it looks like I posted twice.  At the time, I was seeing my first group loans go late but still thinking/hoping that at least some of them would cure.  As it turned out, none of them did and I apparently didn't learn anything from them because I subsequently helped several more borrowers fund who have since gone late and will likely default.

I was also still very bullish on lending but was starting to experiment with much tighter standards regarding those not in my group that I would lend to.  For the most part, those tighter standards have resulted in much better performance.  Unfortunately, I've had so many bad results overall, both within my group and prior to tightening my standards, I've mostly quit lending.

As of now, one year later, I'm withdrawing funds every time I get $25 in my account.  Since my last loan in early March of this year, I've already gotten nearly half my initial investment back out, partly due to referral fees.  Once I get my initial investment out, I may relend using "house money" but I may change my mind by then too.

One other effect of my slowed lending has been a slowed number of blog posts.  Since I'm spending less and less time thinking about Prosper, I have less to say about it as well.  I probably won't go away for a long time but I won't be posting a whole lot either.

One thing I may post about is Prosper performance.  In my mind, I've come up with some interesting ideas for software tools to study/analyze performance of loans on Prosper over time.  Given that my real-life job is software, actually doing something about my ideas seems too much like work so I haven't actually sat down and done anything about it.  If I ever do come up with something, I'll post about it and let everyone know.  It would certainly simplify making some of the graphs that I've posted here over the last year so there is some incentive there.

It occurred to me on the way in to work this morning that I hadn't hardly even thought about Prosper all weekend.  Of course, I've been busy getting ready to go on vacation starting tomorrow but still, I used to think about it often throughout the day.  I guess you could say I'm over it now.  I've moved on for the most part.

I see that the latest controversy about Prosper involves whether or not Prosper will sell the bad debts.  At this point, I guess I don't really care one way or the other.  I'm sure someone will figure out something.  In the end, if I get anything, it will be more than I expect right now so that will be nice.  I've mentally written all my 1+ Late loans off so if any of them result in any further returns, I'll be happy.

In the end, I've had a nice peaceful weekend NOT thinking about Prosper.  And I look forward to a couple more weeks of vacation not thinking about Prosper as well.

Later all...

"Loans go late over time."  So says Fred93 and others who have studied delinquency rates of loans on Prosper.  The question in my mind has always been, at what rate? and does that rate change?  Well, I've compiled a lot of data from Prosper's performance page and now have some interesting graphs to present.

First, I want to tell you that I've gone through and collected information from eric's on repurchased loans as I mentioned in a previous blog post. I have subsequently added all repurchased loans and their "late history" back in to all my graphs.  I will be updating some wiki pages as I get time with my updated graphs.  In the mean time, I wanted to share my findings of this study.

First, here's a graph showing what the percent of unpaid loans go late relative to the previous month. (Note that you can click on each graph to bring up a larger version.)

This graph shows all loans since March 2006 through March 2008.  The X-axis is the age of the loans in months.  The graph starts at 1 month and includes all loans 1-2 months old.  The red line is an average of all new lates in a given month as a percent of all current loans in the month.  As time goes on, some loans are paid in full or go late are subtracted out.  Also, lates tend to accumulate so each prior month late totals are subtracted from the current month's late totals resulting in the number of "new lates".

You will notice there are a small handful of months where the datapoint is actually below zero.  These are months where the total number of lates actually went down from one month to the next.  It doesn't seem to happen often but it does happen once in awhile.

One thing I was curious about was whether changes to the Prosper platform, particularly changes related to lender information, made any difference in the rate at which loans went late.  So I broke down the total data set into three different segments: Early loans (March 2006-February 2007), New Extended Data (March 2007-October 2007) and Lender Guidance (November 2007-March 2008).  Here are those graphs:

Keep in mind that the last graph, Lender Guidance, is really too new to draw many conclusions from since there are only ~5 months of data available.  Really, this is true for all the last 6-8 months of data from any of the graphs.  The last data point on any of the graphs is from only one month's worth of data (the oldest month in the data set) so as those loans age and I have time to update the information, the average may change.

Ok, so those graphs are nice but how do they compare with one another?  Well, here's my final graph that shows each of the "average" lines superimposed on one another with the same scale for all of them.

So, what can we learn from all this?  Well, looking at the oldest set of loans, it appears that over time, even considering the fact that the number of current loans is going down, the rate at which they go delinquent seems to go down as well.  The peak rate of going late seems to happen in the first 6 months of the loans age.  Some loans still go late over time but not at the same rates seen in the first 6-12 months.

The earliest loans seemed to go bad at a much higher rate out of the gate but as more information became available to lenders the rate went down initially.  However after a certain period of time, it appears that all loans start to behave in a similar fashion.  Two different things could be at work here: Prosper could be doing a better job of weeding out ID theft and other fraudsters and/or lenders may have enough new information in order to weed out the borrowers who will default right out of the gate.

I intend to track this over time and may post about it again sometime.  I don't anticipate things changing a whole lot but I'm especially interested in how the "Lender Guidance" loans behave so I'll be watching those for sure.  Unfortunately, it will be at least a year before we have enough data to start to make many conclusions about those.

Feel free to comment on this blog or, if possible, I'm hoping to get a thread started in the lobby of the .org forums about this as well.

ETA: After a little bit of discussion on the .org forums, I found a mistake in some of my calculations.  I've made corrections and have updated the graphs above.  It appears that the conclusions are still the same though despite the error.  I've also modified the text of this post to reflect the changes.