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[Fred93]

No, I think there was another attempt in between.  IIRC, Prosper purported to use its own historical data to calculate expected default rates -- perhaps as part of its bidding guidance?  And average lender performance suggests that this wasn't a whole lot more accurate than the Experian data.

Oh yea.  I don't think we've captured that so that we could go back and check how good the guidance was.  They've removed the "ROI" calculation from the performance page, for example.

[onthefence]

Second, the chance that actual losses are different than expected losses is the primary risk that lenders should consider when pricing their bids on loans. In my opinion lenders are now pricing in appropriate cushions to compensate for the risk.

And how are lenders supposed to price in the risk that Prosper will go south (bankrupt or closes it's doors) leaving the lenders to prosper out the money owed on loans?

[NewHorizon]

And how are lenders supposed to price in the risk that Prosper will go south (bankrupt or closes it's doors) leaving the lenders to prosper out the money owed on loans?

B-b-b-but my Lender Registration Agreement still says:

If for any reason Prosper is unable to service your Loans, Prosper will assign and transfer the Servicing Rights to an unaffiliated third party loan servicer with at least three (3) years' experience servicing receivables similar to the Loans.

So I'm still good, right?   

[bamalucky]

Shouldn't the 3rd party be disclosed if one were in place?

[Senator]

Shouldn't the 3rd party be disclosed if one were in place?

Riiiiiiiiiiiiiiiiiiiiiiight 

[HollowOak]

Hmmm

First, the Prosper Rating System incorporates both national credit bureau scores and the most robust historical performance data in the peer-to-peer industry. In addition, the historical performance that underlies the Prosper Rating System is derived from a poor economic environment. As a result the estimates of loss are biased higher than if the economic environment had been more benign. The variance between actual performance and estimated performance (for better or worse) will be significantly lower than what we saw with the pure score driven rating system.

First. That "robust historical data" IS NOT BASED ON LOANS THAT REPRESENT THE CURRENT LOANS! Get that though your heads. Prosper has several times in the 3 years of its operation changed the criteria for loans. An AA borrower now and a HR borrower now is not what they used to be. Prosper changed the ratings bounds for each category a few times and has recently revamped the entire rating system.  THe only thing that has stayed constant is that loans have been defaulting at about 40% over the life of the loan portfolio.  We will need another year or so to see if the current rating system (and the current crop of lenders) are having better results.

Second. On what planet has the "poor economic environment" ended to allow you to expect better results based on improved economic circumstances of borrowers?

[Faithful_Steward1]

As pointed out, this doesn't take into account Prosper default risk. Loan default is only one piece of the default risk. Even assuming Prosper's numbers of a 10% return on loans, what is the probability of originator default? Probably north of 50% in the next year based on their own filings of cash position and lack of new originations to keep the scheme going. If we assume a 50% recovery as an unsecured creditor after Prosper default, the true lender ROI is likely -15% (negative 15%) for new loans even using that optimistic loan default rate.

[Urbi_et_Orbi]

As pointed out, this doesn't take into account Prosper default risk. Loan default is only one piece of the default risk. Even assuming Prosper's numbers of a 10% return on loans, what is the probability of originator default? Probably north of 50% in the next year based on their own filings of cash position and lack of new originations to keep the scheme going. If we assume a 50% recovery as an unsecured creditor after Prosper default, the true lender ROI is likely -15% (negative 15%) for new loans even using that optimistic loan default rate.

Don't tell that to JDUGGAN who now thinks he (or she) is making above 20%... 

http://blog.prosper.com/2009/10/13/up-to-2-cash-rebate-for-lenders/