Disclaimer On Prosper's Estimated Default Rate

Prosper has unveiled their new estimated loss calculation for loans. Notice those disclaimers down along the bottom. Yeah, me neither. Well, there's an interesting note.



If you get out the magnifying glass, you'll read:

¹Estimated average annualized loss rate based on the historical performance of Prosper loans for borrowers meeting the estimated loss criteria, originated between Jun-01-2006 and Aug-31-2007, measured as of Sep-30-2007. Actual performance may differ from estimated performance due to many reasons, for example, worsening economic conditions.

Well, economic conditions are worsening. I've recently written about how there are leading indicators for several states' economies slowing - states like Georgia and California, two big Prosper territories. And if you've looked at the stock market, you may have realized that Mr. Bernanke has been talking where people can hear him:

Federal Reserve Chairman Ben Bernanke said Thursday that a host of economic problems, including the severe housing slump, will cause business growth to slow noticeably in coming months.

Bernanke told Congress' Joint Economic Committee that the central bank is watching developments closely, but gave no signal that it's prepared at the current time to cut interest rates even further.

In other words, there are worsening economic conditions. Bid conservatively and leave large risk margins in your bids. This is a strong indicator that Prosper's newly deployed ROI estimators are not pessimistic enough.