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[Fred93]

Fred93 has unfortunately updated his blog again.

Not many words.  Mostly an update of the late loan stats chart.

[Mark12547]

Many thanks for keeping this chart updated!

It looks like we have remarkable improvements starting with the Nov 2007 loans, about the time the improved bidding guidance kicked in!

[Urbi_et_Orbi]

Still a bit too early to rejoice, but I do think the more recent months are off to a potentially good start.

I wonder if it's too little and too late.

[Mark12547]

Still a bit too early to rejoice, but I do think the more recent months are off to a potentially good start.

I wonder if it's too little and too late.

If Prosper believes it needs approval of the SEC to offer a secondary market¹, and they know the SEC will require certain metrics to be reported for standard periods, it could be that, now that default rates look much better (lower), maybe Prosper wants to delay a few more months so at least the 6-month numbers will look good, and they can hand-wave the longer period of numbers as being before a number of changes in the platform and thus not as pertinent as the newer numbers. The rate of return of the aggregate of investors may also be another metric they would have to report, again a reduced default rate and the bidding guidance, as well as the Portfolio Plans, might improve those numbers. (I haven't analyzed those numbers so I don't know.)

Note1:

There appears to be some discussions on whether or not what Prosper sells us are securities. If we were the ones making consumer loans, this issue would be clear: we are making loans and likely not require any SEC oversight but instead fall within the lending laws of the individual states. However, because Prosper Marketplace, Inc., originates the loans and then sells the Note to one or more investors ("Lenders"), it appears to me that we have securities, i.e., bonds that pay exclusively by the performance of the underlying loan. Prosper's S-1 filing for a secondary market invites SEC scrutiny and it wouldn't surprise me if the SEC has stated that such securities require a whole lot more disclosure of average loan metrics, not just on the secondary market, but also with current operations. Not everyone shares this suspicion, that readily trading such instruments is one additional test that this may be a security, so this might not have an impact until there is a secondary market. In any case, there is the possibility of regulatory risk, either from the SEC or the consumer protection agencies and security enforcement agencies of the individual states, in interpreting the lending structure, determining what laws apply because of the technical situation, what may apply because of the "look and feel" of what is going on ("If it looks like a consumer loan..." certain regulations regarding consumer loans may apply to us), and some of it is uncharted territory and might end up being charted only when complaints arrive at the regulators and lawsuits arrive at the courts.

But, in any case, the last three curves (bottom right of Fred93's chart) do look encouraging.

[Staneslav]

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[Mark12547]

Many thanks for keeping this chart updated!

It looks like we have remarkable improvements starting with the Nov 2007 loans, about the time the improved bidding guidance kicked in!

I will say this one last time.

The average credit grade has improved. The default rate per credit grade has not changed .

Yes, that is likely a side effect of the bidding guidance and Portfolio Plans. But anything that improves the average lender experience will likely help draw more lenders to Prosper Marketplace, Inc. If reducing the originations of risky loans does it, so be it; seeing high interest rates on lower credit grade listings and not realizing the magnitude of the risk didn't do the lenders (in aggregate) any good. While some may quibble over how good the bidding guidance is, I think most of us lenders agree that it was a definite step in the right direction that will help Prosper in the long run. And with that improvement, the more recent lender experience should be better and thus more attractive for reporting SEC-required metrics.

[Staneslav]

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[Mark12547]

The ROI has not changed much with any of their policies.

Do you have a place where I can see what the average ROI of Prosper "Lenders" have been for the past couple of years, not just what it is broken out by credit grade? That may prove interesting to potential lenders as well as to me. I know the rates on "quality loans" have gone down as many lenders have started bidding on them instead of  the riskier loans, but I would like to see if, in aggregate, lender ROI had improved, gone down, or remained rather flat.

Thank you!

--Mark
Who would rather learn from cognitive dissonance  than from Hard Knocks. 

[Staneslav]

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[nonattender]

Hey Mark, what was the first rule of fight club, again?...

-t

[Staneslav]

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[Mark12547]

Let me see what I can do, this may take some time...

Thank you, Staneslav! I'll appreciate it!

Hey Mark, what was the first rule of fight club, again?...

Don't make work for ferrix! No, wrong first rule.¹

Pay attention to what users do, not what they say. No, that was first rule of program development.¹

Keep it clean! Oops, that was first rule of home food preparation.

Above all else, do no harm. Nah, too medical.¹

Understand your threat model!  that was for security analysis.

Don't insult the customer.  First rule of business.¹

Maybe this is it: Do not discuss Fight Club!

I don't think I disclosed anything that wasn't already publicly available or publicly speculated, either on Prosper's site, or from the Securities and Exchange Commission, or had been speculated about on Prosper's now defunct original (SpreeBB) forums, or even here at .org in non-verified locations. For example, I remember posting shortly after Prosper's S-1 filing was discovered and posted in a public forum that I don't see how the current selling of notes to "Lenders" does not make them a security but the trading of them does.

Note 1: Prosper Marketplace, Inc., seems to have violated the tagged "First Rules":

• Created work for ferrix by complaining passwords were passed in clear text. (Reality: passwords are one-way hashed before transmission over the Internet and the bbs software doesn't provide a way to recover those passwords.)
• Prosper often seems to not pay attention to what we say or do, e.g., implementing community payments over overwhelming poll to not offer them, yet not offering flexible payment schedules to mesh with borrowers' (or lenders') pay cycles. Also, too many reports of self-confessed fraud seem to fall on deaf ears.
• Do no harm seems to be violated by the forum bannings, the suspended accounts, and purging of member pages, the latter in direct violation of the Lender Agreement, and using lies about this site as the excuse.
• In many cases, Prosper Marketplace, Inc., has practiced hostile customer relations, especially to the segment of their customers that bring cash to the table. Doctored screen shots to misrepresent the marketplace, miscalculating some fundamental metrics like default rates, data mining for coming up with "good" returns and comparing them to a non-equivalent index, all are received as insults by those of us who have been investing in stocks and other assets for some time. And how heart-warming is it to be told that lenders have helped detect fraud and then turn around and suspend a member that found a FBI news release of an impending indictment of loan fraud, and then immediately take away all information that can be used by lenders to help find fraud?

Sorry, but I think Prosper has violated several First Rules. 

[Mark12547]

Mark,

What do we want to set the time periods as? We need a before and after for prosper's lending guidance. I need to make sure I pick appropriate time periods.

The Improved Bidding Guidance and Portfolio Plans started October 30, 2007.

If I had to pick two periods to compare, I would like to see:

• September 1, 2007 through October 29, 2007
• November 1, 2007 through December 31, 2007

Does that sound about right to you?

Again, I am thinking of the average ROI of all loans whose listings closed in a period, so that would include the unlucky lenders as well as the super-lucky lenders in calculating the estimated ROI. Unfortunately, for most of those loans, we don't know how (or if) they fulfilled their 36 months of payments, just because the history on those specific loans are so short.

[Staneslav]

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[Fred93]

Essentially, what we do is:

1. Assume a constant default rate for both time periods by credit grade
2. Compare Interest rates at origination to determine which group has the higher ROI (by credit grade)

Sound ok for you?

Assumption #1 is bad.  You see, as prosper issues better guidance, this (may, and most likely does) change the way lenders bid.  Within a credit grade, there are a range of borrowers, with a range of other characteristics (delinquencies, home ownership, spelling, etc).  If lenders responded to prosper's improved guidance with something as simple as being more skeptical of borrowers with high delinquencies, that would change the default rate of the loans within a given credit grade.  Hence, assuming the default rate stays the same seems like a bad assumption.

When the conditions change, seems to me that you have to observe the default rate, to see if it changes as a result.