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[xraider]

NA, I had hoped that at some point in time the defaults would end.  I had hoped that the loans that paid off would offset those that defaulted at 6 months or otherwise defaulted sticking me with a loss.  As I posted, even with a very well seasoned portfolio, and with loans that have paid for 30 or 31 months, they are STILL defaulting and, as a result, I will end up negative with my Prosper "investment."   

Even though my Experian predicted ROI is 14%+ my actual actual ROI will be negative.  Fortunately, I stopped in time and worst case won't be negative by much.  BEST case, I may make $5 on a $3,000 investment over 3 years.  I'm just grateful I didn't dump more into Prosper, as I had intended to do when I started. 

You're right; late loans don't give me warm and fuzzies.  I don't blame Prosper for the lates per se; I blame Prosper for failing to take reasonable steps to collect on the lates, for failing to sell defaulted loans to junk debt buyers as my contract with Prosper said Prosper would do, and for failing to take steps to protect the investors/lenders.  I have no confidence that Prosper is doing anything to protect my interests in the loans that have filed for ch 11 or 13 bankruptcies, as well.

However, I'm beating the same drum I've been beating for 30 months now so I'll stop.

I'm glad those kids are OK....

[regeneration]

Wait, NA, you lost me there.  Can you please explain this thing about time corresponding with interest?

[bamalucky]

Wait, NA, you lost me there.  Can you please explain this thing about time corresponding with interest?

He's basically saying "don't bitch about loans that paid you more than you loaned"

Meanwhile ignoring the ones that don't

[nonattender]

Wait, NA, you lost me there.  Can you please explain this thing about time corresponding with interest?

Sure...  Highest level, it's as simple as:  The more payments a loan makes, the more money you'll get.

If a loan defaults after 9 payments, you're going to lose principal - but not as much principal as you'd
have lost if it defaulted after, say, 3 payments.  If it defaults after making, say, 24 payments (2 yrs),
you've probably recovered most of the principal and it might only be a small loss, or even a small gain.

So, it matters WHEN loans default.  It's functionally not about "principal" or "interest" as they are not
frontloaded loans, they're fully amortized over 36 months, so, it doesn't matter what you call it really.

Me, I just call it money.

The object of the game is, first, to get back the money you lent, then to get back the money you're
owed (interest/profit) for having lent that money.  Breakeven on principal depends on the rate of the
loan, but, generally it occurs somewhere in the 24-32 payment range - lower the rate later it occurs.

We're dealing with 36 month instruments, fully amortized, so, excluding edge cases where late fees or
whatever cause the very last payment to balloon slightly, each payment is 1/36th of the loan amount.
By "loan amount", I mean the fully amortized, over three years, "cost of the loan" to the borrower, so:

http://www.prosper.com/loans/calculator_results.aspx?share=1&grpmbr=False&product=1&rate=10.0&schd=False&amount=10000&csco=0

There's a $10k loan fully amortized over 36 payments (click "view payment schedule" for the table).

I'm speaking from the lender perspective, so, we subtract out Prosper's origination fee (charged to
borrowers), and the "loan amount" (ie, the total the lender expects to see, given 36 full payments)
is $10,000 + $1,616.20 = $11,616.20, which, magically, is $322.67/mo times 36 monthly payments.

For a $10k loan at 10% interest, breakeven on principal occurs during monthly payment number 31,
where you get your first $2.77 of "interest" (profit).  The math is very easy:  $10,000 / $322.67 =
30.991xyz, so, you need 31 payments to break even on that loan.  Backwards, $322.67 * 31 mo.'s
works out to $10,002.77, so, you'll have "made" $2.77 after receiving your 31st loan payment here.

Now, if this $10k loan had been at 15% interest, you'd break even around payment 28 and if it had
been at 20%, you'd break even around payment 26, and if at 25% interest, breakeven is month 25.
(I'm not actually doing the maths here but I think those are right, maybe you should check on me?)

All of that to say:  it TOTALLY matters "when", in the payment cycle, any particular default occurs.
If a loan defaults at breakeven, you lost nothing but time value.  If later than breakeven you profit.
If somewhere below breakeven, then, the closer you are to breakeven, the less the default "costs".

This leads to all kinds of other questions about what kind of loans to target or rates to go after but
if nothing else, I hope that makes clear what I meant by % or # of defaults being sort of misleading.

-t

[ira01]

If a loan defaults after 9 payments, you're going to lose principal - but not as much principal as you'd
have lost if it defaulted after, say, 3 payments.  If it defaults after making, say, 24 payments (2 yrs),
you've probably recovered most of the principal and it might only be a small loss, or even a small gain.

And how about if it defaults after making ZERO payments -- don't you think Prosper ought to do more to investigate those, and sue in cases of fraud (which are going to be almost all of them)?

[Fred93]

I hope that makes clear what I meant by % or # of defaults being sort of misleading.

It is NOT misleading to talk about % of loans that default.  It is only misleading if you do the wrong math with the number and mislead yourself.  You set up a straw man and knock it down.

[nonattender]

I hope that makes clear what I meant by % or # of defaults being sort of misleading.

It is NOT misleading to talk about % of loans that default.  It is only misleading if you do the wrong math with the number and mislead yourself.  You set up a straw man and knock it down.

It is NOT misleading to talk about % of loans that default IF you provide the relevant context.

We can discuss the % of humans who do not live to be 100 years old but it would be ABSURD
for us to pretend that those who did not live to be 100 either died at birth...or just shy at 99.
The right thing to do, supposing we're really interested, and want to learn, is to count 'em all.

The same goes for loans.  Each one has a life of its own - and a payment schedule, to boot...
If 100% of all loans default at month 35, is the right headline "100% of All P2P Loans Default"?
I'm not saying that's the case but neither is it the case that every defaulted loan is zero sum.

Rigor matters.  Context matters.  Nuance matters.  To not provide it is to mislead by omission.

-t

[112233]

I dont recall anybody saying you get no money from a defaulted loan or implying such a thing. Default rate is a nice simple number which puts performance into perspective quickly. If you want to discuss the the underlying data all day long then great, but it doesnt change what default means.

[xraider]

And my point was if a loan defaults after I've been repaid the principal, it's not offsetting as much of my other losses as full payment would.  So, THAT loan may be slightly profitable (less than I had bargained for, but at least not an actual out of pocket loss) but my portfolio still shrinks further with each default, no matter if the default occurs at month 1, month 6 or month 35. 

[bamalucky]

NA likes to repeatedly build strawmen such as comparisons to BOA etc like the economy is the reason Prosper has so many defaults.

Why did so many loans go bad in the 2006 boom year?

[Urbi_et_Orbi]

Rigor matters.  Context matters.  Nuance matters.  To not provide it is to mislead by omission.

-t

Sort of like when Prosper includes brand new loans in their delinquency calculations in press releases?

Or when Prosper kept loans in the 3+ month delinquent category for 12 months and didn't include these loans in their definition of defaulted loans?

[nonattender]

Rigor matters.  Context matters.  Nuance matters.  To not provide it is to mislead by omission.

-t

Sort of like when Prosper includes brand new loans in their delinquency calculations in press releases?

Or when Prosper kept loans in the 3+ month delinquent category for 12 months and didn't include these loans in their definition of defaulted loans?

Nah, sort of more like when someone fails to mention that the "Charged Off" loan state didn't exist then,
and, since there was no secondary market for loans, and no JDB's interested, they kept working them...



-t

[regeneration]

Thank you thank you thank you.  I feel like a whole new world has opened up to me now that I understand that money lent or borrowed accumulates interest over time.  Just imagine all the applications this idea could have!

[ira01]

Rigor matters.  Context matters.  Nuance matters.  To not provide it is to mislead by omission.

Sort of like when Prosper includes brand new loans in their delinquency calculations in press releases?

Or when Prosper kept loans in the 3+ month delinquent category for 12 months and didn't include these loans in their definition of defaulted loans?

Nah, sort of more like when someone fails to mention that the "Charged Off" loan state didn't exist then,
and, since there was no secondary market for loans, and no JDB's interested, they kept working them...

LIAR!  There most certainly WAS a "default" category that those loans should have gone into -- but it was to Prosper's advantage to not do that, so Larsen could continue spouting his fraudulent default rate claims as long as possible.  Moreover, there WERE JDB's interested -- Prosper unilaterally decided that one JDB's price offer was too low and that another JDB's higher offer came with "unacceptable" (to Prosper) "conditions" -- maybe something like that Prosper would have to repurchase ID-theft loans, which, of course, it was contractually obligated to lenders to do anyway.

[JammingJAY]

Thank you thank you thank you.  I feel like a whole new world has opened up to me now that I understand that money lent or borrowed accumulates interest over time.  Just imagine all the applications this idea could have!

I agree NA's round speak convinced me too!

I'm all in NA. How much you figure we are going to make?

Millions Whoo hoo Pump it Na Pump you daddys orders.

We will be rich sucker !!! whooo hooo!!!!!