I view lenders as bankers. They're attempting to pick an interest rate that appropriately covers the risk of their loan while provided a rate of return. The problem with Prosper is that the statistics reporting has been too granular - it's difficult to spot trends because there's little information to differentiate different loans. All the good bits are in the listing information. Now that ProProsper has provided the link between listings and loans, it's time to analyze to see if there are any unnecessary risks that bankers should avoid.
I'm going to start by looking at the distress rate on verified versus unverified bank accounts. I consider a loan distressed if it's in any of these Prosper status categories: 1 month late, 3+ months late, Late, 2 months late, Defaulted (Delinquency), Repurchased, Defaulted (Bankruptcy). I'm approaching it this way because I'm thinking like a banker, and each of these represents risk, delay, and uncertainty - and that's bad.
Here's the distress rates based on the data from a few days ago looking at whether verified bank accounts matter:
|Verified Bank||7.43% (667/8972)|
|Unverified Bank||83.56% (122/146)|
Obviously, unverified bank accounts are a large risk. Huge. Phenomenal. I'll delve more into this later.