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[ira01]

Right on Prosper's home page, is a gigantic banner at the top stating "Become A Lender. Earn 9.28% returns¹."  (footnote 1, burried halfway down the page on the right, describes the cherry-picked collection of loans that supposedly generates this return.)  Wouldn't a reasonable person reading that think that most lenders can earn 9.28%, or at least that the "average" lender can?  Let's see how lenders REALLY are doing.

As can be seen on this Lendingstats.com page, there are 7,121 moderately seasoned lenders (those with more than 20 loans and an average loan age of more than 6 months [which is only 1/6 of the 3 year Prosper loan term]).  The median (i.e., half of all such lenders are doing better and half are doing worse) projected Return On Investment ("ROI") for those lenders is a mere 5.16%.  After subtracting Prosper's lender servicing fee from that (1% on all A-HR loans), that is less than what anyone can obtain from E-Loan (or many other banks) on an FDIC-insured (i.e., zero-risk), fully liquid (take your money out whenever you want it) savings account (E-Loan currently pays 4.5%, although there is a $5K minimum). 

And that doesn't even take into consideration the facts that your Prosper money is locked up for three years (unless your borrowers choose to repay earlier), your Prosper investment is tax-inefficient, and your Prosper money spends a portion of its time earning 0.0% interest (while it is being transfered to Prosper, while a lender decides what to bid on, while the listing remains open, and during Prosper's post-funding verification (which sometimes takes as long as two weeks).  And whenever your borrowers decide to repay early, your money gets to sit idle at 0.0% interest again while you repeat the investing process on a new loan. 

For example, I originated 49 loans, of which 5 have already paid in full (generally after about 2 months).  So my money on those 5 loans might have earned my average interest rate of 17% for, let's say, 8 weeks, and 0.0% for perhaps as long as 3 weeks.  That would make my "real" interest rate on those loans about 12.4%, more than 25% less than the stated rate.  Another 5 of my loans are in various stages of lateness, including 1 that is 4+ months late (and almost certain to default) and 1 that is 2 months late (and highly likely to default).  And don't even get me started on this 1 month late gem -- http://www.prosper.com/lend/listing.aspx?listingID=208191 -- a $24K loan by a 0/0/0 (IIRC) "B" rated borrower with a 14% DTI that didn't even bother to make his very first payment. 

So how many moderately seasoned lenders actually do make 9.28% on Prosper?  Out of the 7,121 such lenders, only 1,063 (less than 15%) do.  And since we're looking at how the top 1,063 lenders fare, for balance let's see how the bottom 1,063 lenders do.  The projected ROI for the 1,063rd worst lender is -1.2%.  That means that there are as many moderately seasoned lenders making a negative 1.2% (or WORSE) on Prosper as there are making at least the 9.28% misleadingly trumpeted by Prosper.  1,314 of the 7,121 moderately seasoned lenders (18.5%) have negative projected ROI's.

ETC: footnote reference

[ccat]

FNBO is paying 5.05% fully liquid savings.

[LoanChimp]

As can be seen on this Lendingstats.com page, there are 7,121 moderately seasoned lenders (those with more than 20 loans and an average loan age of more than 6 months [which is only 1/6 of the 3 year Prosper loan term]).  The median (i.e., half of all such lenders are doing better and half are doing worse) projected Return On Investment ("ROI") for those lenders is a mere 5.16%.  After subtracting Prosper's lender servicing fee from that (1% on all A-HR loans), that is less than what anyone can obtain from E-Loan (or many other banks) on an FDIC-insured (i.e., zero-risk), fully liquid (take your money out whenever you want it) savings account (E-Loan currently pays 4.5%, although there is a $5K minimum). 

Zopa only offers 5.1% (of course, Zopa CD's are 1 year).

But you heard it here, the average (median) Prosper lender beats Zopa!

 

[Greebo]

Bet if we posted this at .com it wouldn't pass moderation...

Maybe some of our newer members should give it a try and see how much Prosper likes the real numbers getting posted these days.

[Greebo]

Right on Prosper's home page, is a gigantic banner at the top stating "Become A Lender. Earn 9.28% returns¹."  (Although, as I noted, there is a superscript 1, there is no footnote anywhere to be found on the home page; nor is there one on the page you go to if you click the link.) 

Actually, yeah, there is.

1 Rate of return shown is the average annual return on Prosper loans originated between 6/1/06 and 10/26/07 to borrowers with AA credit grades who have 0 delinquencies and 0 to 2 inquiries on their credit record, as of 11/26/07. For more information click here.

[ira01]

Right on Prosper's home page, is a gigantic banner at the top stating "Become A Lender. Earn 9.28% returns¹."  (Although, as I noted, there is a superscript 1, there is no footnote anywhere to be found on the home page; nor is there one on the page you go to if you click the link.) 

Actually, yeah, there is.

1 Rate of return shown is the average annual return on Prosper loans originated between 6/1/06 and 10/26/07 to borrowers with AA credit grades who have 0 delinquencies and 0 to 2 inquiries on their credit record, as of 11/26/07. For more information click here.

Drat it, I looked all over for that when I originally posted this, but apparently not carefully enough.  Silly me, I thought the footnote would be at the bottom of the page, not halfway down on the right.

[lhsbandnurd]

So putting a footnote somewhere that even someone who knows it's there has a hard time finding it is considered misleading? Go figure.
[/sarcasm]

[Greebo]

No, I think ira was taking the blame for missing the note.

[GLeaderAccountantsChoice]

I wish we could have a platform that doesn't try to use advertising fluff.  For example, imagine an optimized platform created by the nation's top universities for research and social development purposes.  Which would you join, Prosper, or a responsible platform...?

[Erasmus_Darwin]

1 Rate of return shown is the average annual return on Prosper loans originated between 6/1/06 and 10/26/07 to borrowers with AA credit grades who have 0 delinquencies and 0 to 2 inquiries on their credit record, as of 11/26/07. For more information click here.

Curious.  I tried to reproduce their 9.28% figure via the performance tab (here), but I keep getting 9.26%, instead.

[SGriff]

That's because the loan performance of their cherry-picked list is deteriorating as we speak...

[Caladia]

That's because the loan performance of their cherry-picked list is deteriorating as we speak...

No, he used the same observation date they did (Nov. 26, 2007). 

ETA:  In fact, I just changed the observation date to today (Dec. 19 2007), keeping the other parameters the same, and the return was 9.30%.  Interesting.

[Xenon481]

That's because the loan performance of their cherry-picked list is deteriorating as we speak...

No, he used the same observation date they did (Nov. 26, 2007). 

Prosper never has been one for details.

[ira01]

Right on Prosper's home page, is a gigantic banner at the top stating "Become A Lender. Earn 9.28% returns¹."  (footnote 1, burried halfway down the page on the right, describes the cherry-picked collection of loans that supposedly generates this return.) 

Well, as if this gigantic ad wasn't already misleading enough, Prosper has outdone itself.  The new ad states:

Become A Lender. Earn 9.49-12.81% returns¹.

 
The footnote (still burried halfway down the page off on the right) states:

Rates of return shown are the average annual returns on Prosper loans originated between 7/1/06 and 10/30/07 to borrowers with AA - C credit grades who requested automatic funding, have 0 - 1 current delinquencies and 0 inquiries in the last 6 months on their credit record, as of 11/30/07.

 
Talk about your carefully cherry-picked collection of loans!  0-1 CDQ, 0INQ, AF loans.  Unbelievable.  Moreover, when I just attempted to duplicate their results, I got 9.25%-12.49%.  The 9.25% is for AA's, of which there are only 71 loans.  The 12.49% is for C's, of which there are only 116. 

So aside from the fact that I bet that these loans (especially the C's) will default at rates considerably higher than what Prosper's performance page is currently predicting (thereby lowering the returns), once newbies see the ad and figure "I've got to get a piece of that," the rates on this basket of loans will get bid way down, thereby substantially decreasing the returns.

[tash]

So aside from the fact that I bet that these loans (especially the C's) will default at rates considerably higher than what Prosper's performance page is currently predicting (thereby lowering the returns), once newbies see the ad and figure "I've got to get a piece of that," the rates on this basket of loans will get bid way down, thereby substantially decreasing the returns.

+1