Monday, June 9, 2008

I Surrender

I started a new job a while back. A very good move for me and my family, but horrible for my free time and my free brainpower. I tried to deny it, but the reality is that I've got nothing left. I could pretend otherwise, but that's self-delusion. I still believe in Prosper and will keep lending, but Prosperous Land is going DOA for a while.

If things settle down, I may return.

Saturday, May 24, 2008

Where Will That Rebate Check Go

With the IRS blasting an estimated $105 billion dollars toward the public, the great question is where that check will go. I'm skeptical that it'll provide the economic stimulus that folks in government were expecting - I've always assumed that folks will use it to pay off credit card bills or buy their next tank of gas, neither of which stimulates the US economy. But paying off bills will get some Prosper loans paid down. The Orlando Business Journal is estimating that $28 billion of the $105 billion (26.6%) will go toward debt repayment, implying that a lot of money will flow into Prosper loan repayment.

I'll be watching for increased prepayments and, hopefully, some recovery from those doggy late loans while the checks roll out between now and the end of July.

Thursday, May 22, 2008

Prosper.com April Marketplace Survey

Prosper's April Marketplace survey was an interesting read. Mostly for the disclaimers at the bottom. Prosper's definition of "Attractive Risk-Return Tradeoff" was insightful.

Attractive Risk-Return Tradeoff: For purposes of this survey release, listings are considered to have attractive returns if, based on historical loan repayment performance of Prosper borrowers with similar characteristics, they are priced sufficiently to compensate lenders for risk. Risk includes both the risk of non-payment by the borrower and other risks associated with people-to-people lending. In general, as the credit quality of the borrower declines, the range of possible returns widens, requiring a larger risk premium to compensate the additional uncertainty. The amount of risk premium required to compensate for a given level of risk is a subjective judgment. The following formula is used by Prosper to determine if a listing is priced adequately to have an attractive risk adjusted return: Maximum Borrower Rate > Risk Free Rate1 + 3.25% + (Expected Annual Default * 1.5) + Prosper Servicing Fee. All lenders should make there own judgments with respect to what constitutes an adequately priced listing.

1 Risk Free Rate = 2-year CD national rate on BankRate.


This is a great equation and similar to what I've used in my lending ever since the bidding guidance was introduced. I've always used the 3-year CD as my baseline, but to each their own. A quick look on BankRate has the 2-year CD peaking at 4.10% and the top 10 rates above 3.73%. The great irony in this is that Prosper's conservative portfolio does not achieve an attractive risk-return trade-off as of a few days ago (the minimum post-fee/default rate would need to be greater than 3.73% + 3.25% = 6.98%, not the 5.10% currently shown).

And of course, there's Chris Larsen's commentary:

In April, we saw the supply of loan listings with an attractive risk-return tradeoff hit an all time high and approximately double compared to the prior month. At the end of March, the supply of loan listings with an attractive risk-return tradeoff was approximately $5 million; and at the end of April the supply increased to approximately $11 million and has remained at that level into May.

This significant increase in the supply of loan listings with an attractive risk-return tradeoff is attributed to the fact that on April 15 we commenced our business arrangement with WebBank, a Utah-chartered industrial bank. Through our agreement, all loans originated through the Prosper marketplace resulting from listings posted on or after April 15, 2008 are made by WebBank under its bank charter. Prosper provides services to WebBank in connection with the origination of such loans and Prosper services loans made to Prosper borrowers on behalf of registered Prosper lenders who purchase such loans. In effect, this partnership opened the platform to more borrowers, who may have previously been constrained by low state rate caps.

Also in April, we saw the supply of prime borrower listings hit an all time high, accounting for nearly half of all loan listings in terms of dollars requested. Prime borrower originations also reached its record level of 43% of funded loans.

Currently, the significant increased supply of quality listings is providing more attractive bidding opportunities, which is making it easier for lenders to efficiently deploy more money onto the platform.


Let me explain... No, there is too much. Let me sum up. When Prosper went nationwide at 36%, we got a lot more borrowers. Prosper thinks that it is a great time to be a lender.

And LendingStats confirms this. Their new bidding activity feature confirms that 63% of bids are going through to fully funded loans.

Tuesday, May 20, 2008

Prosper.com Feature Upgrade

Prosper did a feature drop the night of the 18th, and Andrew posted about it on the Prosper blog. This was an infrastructure drop, with improvements to the backend, but nothing visible right now:

  • Improved institutional lender support
  • Improved credit report reporting (for borrowers)
  • Preparation for bankruptcy tracking
  • Improved data handling for loan origination
The most interesting item for lenders is the bankruptcy tracking upgrades.

As of this release, we’re automating more of our bankruptcy tracking to set the stage for us to be able to start giving lenders the bankruptcy chapter number and filing date in the future.

More information = GOOD.

Monday, May 19, 2008

Prosper Newsletter: Portfolio ROI Falls

Prosper sent out a monthly newsletter that hit my email box today. The most astounding thing has been the rather notable fall in the portfolio ROI.

I had a hard time believing that the conservative portfolio estimated return had dropped to 5.10%. I remember the heady days of 8% anticipated returns with the Conservative portfolio. With Bankrate showing some 3-year CDs offering 4.45%, what exactly is the attraction? I cannot see the added risk of the Prosper lending market being worth about a half a percent, especially when the principle is not guaranteed and there's no way to get the money out (yet) if you need it.

Only Prosper could pinpoint what's driving this, but several rate cuts and banks desperately competing for high quality borrowers probably isn't helping.

Friday, May 16, 2008

April Prosper.com Collections Update

Yes, I'm alive. I took a week off for my brother's graduation. Unfortunately, no internet where we were staying. D'oh. I'm digging back in. On to the substance:

This is part of my ongoing series monitoring collections efficiency (March's report for comparison). For a reminder on the methodology, I took a snapshot of all of Prosper's loans on April 1 and compared their current status against those same loans on May 2 (operator error, once again). Presumably, loans that don't get further behind have some kind of money extracted in the collections process (not so valid on this run - see below). The statistics are below.

TotalGot BetterStayed The SameGot Worse
Current 14456 226
1.5%
13895
96.1%
335
2.3%
Late 223 56
25.1%
31
13.9%
136
60.9%
1 month late 292 32
10.9%
26
8.9%
234
80.1%
2 months late 235 18
7.6%
11
4.6%
206
87.6%
3 months late 260 7
2.6%
7
2.6%
246
94.6%
4+ months late 946 6
0.6%
930
98.3%
10
1.0%
The Signs Of Collections (SOC) statistics are below. Signs of collections percentage is calculated as the percentage of the loans that either improved or stayed the same.
Month
1 Month
2 Months
3 Months
Total
April '08
19.8%
14.2%
5.2%
39.2%
March '08
24.4%
12.4%
11.3%
48.1%
February '08
13.7%
9.3%
4.7%
27.7%
January '08
20.6%
12.8%
8.0%
41.4%
December '08
23.0%
2.8%
3.8%29.6%
Since I screwed up and didn't get the data until May 2, this report will be slightly negative. This is because Prosper calculates loan lateness based on the date in a month (and not 30 / 60 / 90 days) and loans that came due between the May 1 and May 2 will not be properly counted. Overall, there has been a mild trend toward improving odds of squeezing money out of a loan that has gone late.

The "4+ months late" category is very hard to quantify percentage wise. The default sales make month over month comparison very difficult, so I'm not going to try.

Monday, May 5, 2008

Default Sale Delayed

I like that Prosper is putting up more posts from their folks on their blog. Today's post was an update on the default sale by Doug Fuller. The punchline - the bad-loan marketplace is buyer market and a seller's nightmare:

As a result of these efforts, Prosper received a record number of bids on the sale file (eight). Unfortunately, all of the bids were extremely low. As I mentioned in my last update, the debt market was “flooded” by credit card issuers in March. That backlog has not dissipated.

At this point, we have not accepted a bid to buy the portfolio. We are actively soliciting alternative bids and proposals and are working through the alternatives. We are working to get the best price possible and appreciate your patience in this matter. Without compromising the status of negotiations, we will keep you informed on the process.


If you want confirmation, go through Portfolio Recovery Associates (bad debt collector) latest earnings conference call transcript. They're all a flutter about how there's lots of debt swirling around that can be purchased on the cheap, in part because actually collecting on the debt is getting more difficult. This does put Prosper in a bind. As debt ages, it becomes worth less. But if they wait, market conditions may improve. At some point, waiting longer will be entirely bad, but it's hard to say when it'll happen. Good luck to Doug Fuller on making that call - he'll be vilified regardless of what he does.

Friday, May 2, 2008

More On State Sales Tax Collections

State sales tax collections are a strong indicator of whether a state is going into a recession or not. This is useful information for lenders since loan default rates are known to correlate with recessions. After my last post on this, Calculated Risk has dug up a useful graphic from a Rockefeller Institute report that gives a heat map for year over year sales tax collections changes.

Green is positive change in collections, and blue is a negative change. There's a lot of blue in there. Presumably, lending to green states would have a below-average risk because the economies are still thumping along and any laid-off workers could find new employment, hopefully in time to pay off their loans.

Tuesday, April 29, 2008

Quiet Period

I know it's been real quiet around here. I've had to take a few weeks to work through some non-Prosper things and it's seriously cut into my blogging time. I should return to a more normal blogging schedule next week.

Friday, April 25, 2008

Many States Looking At Recession

I had picked on a few states before, but, according to Yahoo, it looks like a majority of the states are now facing budget shortfalls, a likely indicator for a recession and higher default rates than projected by current Prosper statistics

By mid-April, 16 states and Puerto Rico were reporting shortfalls in their current budgets as the revenue those budgets were built on -- typically, taxes -- fell short of estimates. That's double the number of states reporting a deficit six months ago.

The NCSL said the news is even worse for the upcoming fiscal year, with 23 states and Puerto Rico already reporting budget shortfalls totaling $26 billion. More than two-thirds of states said they are concerned about next year's budgets.

The results are consistent with a drumbeat of bad economic news for states that several budget groups have produced in the past few months.

Last week, the Washington-based Center on Budget and Policy Priorities said 27 states are reporting projected budget shortfalls next year totaling at least $39 billion.

What's a lender to do? Target states that are still doing well

It also noted the silver lining for states where the economy is based on energy, such as North Dakota and Wyoming. Alaska is making so much money from oil that it announced an estimated surplus next year of $8 billion, almost twice the state's annual budget.

In North Dakota, revenue is above legislative predictions by 13 percent, and in Louisiana, the oil and gas sector is robust.

"For energy-producing states, the fiscal situation is strong and the outlook is good," the report said.

High ROI Lender Panel Video Surfaces

The video for the infamous high ROI lender panel has surfaced on Google Video. LoanChimp and HollowOak have observed that spans of time appear to be missing from the video.

Friday, April 18, 2008

Prosper Days 2008 Videos Up On Google

Prosper has released video footage from Prosper days to Google Video. I havn't had a chance to go through it all yet, so that'll be coming, but why should that stop you? Based on all the reports out of Prosper Days, I suggest that lenders should scroll down to collections practices, start there, and then go back and experience it all.

Monday

Prosper 101
(ran in parallel with registration)



Chris Larson's Keynote (9 AM)



Blogger Panel is MIA at the moment (10:45 AM)



High ROI Lenders is MIA at the moment (1:30 PM)



Borrower Experiences (1:30 PM)



Leveraging Social Capital (3 PM)



Managing Large Portfolios (3 PM)



Earning A Risk Adjusted Return (4 PM)



Advanced API Applications (4 PM)



Tuesday

Stephen Dubner's Keynote is MIA not allowed to be distributed (silly contracts) (9 AM)

Collection Practices (10:30 AM)



Prosper API Workshop (10:30 AM)



Town Hall Lunch (12:00 PM)



Update: I added links to the Google video pages. Pass it around.

Update 2: It looks like Prosper uploaded the 2007 Prosper Days onto Google Video as well. Clicky-clicky to get them.


Update 3: Blogger panel is now active

Wednesday, April 16, 2008

Prosper Changes Bidding Guidance & Portfolios Too

In addition to the large changes announced yesterday, Prosper swept a few changes in more quietly. Specifically, they tweaked with their portfolio slices and drastically increased the number of bins used for lender bidding guidance.

First, the portfolios. The conservative and balanced portfolios had the loan criteria tweaked. A quick comparison shows that the conservative portfolio had the minimum bid rate increased by 1% for slices 1 - 3 and the balanced portfolio had the minimum bid rate increased by 1% for slices 1 - 2. This tweak looks intended to raise the average ROI for the portfolio.

On the bidding guidance side, Prosper is now using 103 different categories to provide bidding guidance, up from the 67 established back in January. All 103 will be reproduced below for record keeping since Prosper doesn't maintain a history. The bidding guidance is getting sufficiently fine-grained that there will probably be little wiggle between a specific loan's anticipated performance and the nearest bin. Rats. Lenders looking for an edge will need to go searching elsewhere.

SegmentCredit gradeCriteria
1 AA No automatic funding, loan amount <$5K, <=20% DTI
2 AA No automatic funding, loan amount <$5K, >=20% DTI
3 AA No automatic funding, loan amount $5K-$10K, <=20% DTI
4 AA No automatic funding, loan amount $5K-$10K, 20-40% DTI
5 AA No automatic funding, loan amount $5K-$10K, >=40% DTI
6 AA No automatic funding, loan amount $10,001-$15K
7 AA No automatic funding, loan amount $15,001-$25K, <=20% DTI
8 AA No automatic funding, loan amount $15,001-$25K, >=20% DTI
9 AA Automatic Funding Only, loan amount <=$10K, <=20% DTI
10 AA Automatic Funding Only, loan amount <=$10K, >=20% DTI
11 AA Automatic Funding Only, loan amount $10,001-$25K
12 AA Borrowers with no extended credit data
13 A No automatic funding, loan amount <$5K, 0 inquiries
14 A No automatic funding, loan amount <$5K, 1+ inquiries, 0 now delinquent
15 A No automatic funding, loan amount <$5K, 1+ inquiries, 1+ now delinquent
16 A No automatic funding, loan amount $5K-$7,499, 0 now delinquent, 0 inquiries
17 A No automatic funding, loan amount $5K-$7,499, 0 now delinquent, 1+ inquiries
18 A No automatic funding, loan amount $5K-$7,499, 1+ now delinquent
19 A No automatic funding, loan amount $7,500-$10,000
20 A No automatic funding, loan amount $10,001-$15,000, <=20% DTI
21 A No automatic funding, loan amount $10,001-$15,000, >=20% DTI
22 A No automatic funding, loan amount $15,001-$25,000, <=20% DTI
23 A No automatic funding, loan amount $15,001-$25,000, 20-40% DTI
24 A No automatic funding, loan amount $15,001-$25,000, >=40% DTI
25 A Automatic Funding Only, loan amount <$5K
26 A Automatic Funding Only, loan amount $5K-$9,999
27 A Automatic Funding Only, loan amount $10,000-$14,999
28 A Automatic Funding Only, loan amount $15,000-$25,000
29 A Borrowers with no extended credit data
30 B No automatic funding, loan amount <$5K, <=40% DTI, 0-2 inquiries
31 B No automatic funding, loan amount <$5K, <=40% DTI, 3+ inquiries
32 B No automatic funding, loan amount <$5K, >=40% DTI
33 B No automatic funding, loan amount $5K-$10K, <=20% DTI, 0-2 inquiries
34 B No automatic funding, loan amount $5K-$10K, <=20% DTI, 3+ inquiries
35 B No automatic funding, loan amount $5K-$10K, 20-40% DTI, 0 now delinquent, 0-2 inquiries
36 B No automatic funding, loan amount $5K-$10K, 20-40% DTI, 0 now delinquent, 3+ inquiries
37 B No automatic funding, loan amount $5K-$10K, 20-40% DTI, 1+ now delinquent
38 B No automatic funding, loan amount $5K-$10K, >=40% DTI
39 B No automatic funding, loan amount $10,001-$15K, 0 now delinquent
40 B No automatic funding, loan amount $10,001-$15K, 1+ now delinquent
41 B No automatic funding, loan amount $15,001-$25K, <=40% DTI, 0-1 inquiries
42 B No automatic funding, loan amount $15,001-$25K, <=40% DTI, 2+ inquiries
43 B No automatic funding, loan amount $15,001-$25K, >=40% DTI
44 B Automatic Funding Only, loan amount <$5K
45 B Automatic Funding Only, loan amount $5K-$15K, 0-1 inquiries
46 B Automatic Funding Only, loan amount $5K-$15K, 2+ inquiries
47 B Automatic Funding Only, loan amount $15,001-$25K
48 B Borrowers with no extended credit data
49 C No automatic funding, loan amount <=$5K, <=20% DTI, 0 inquiries
50 C No automatic funding, loan amount <=$5K, <=20% DTI, 1+ inquiries, 0 now delinquent
51 C No automatic funding, loan amount <=$5K, <=20% DTI, 1+ inquiries, 1+ now delinquent
52 C No automatic funding, loan amount <=$5K, 20-40% DTI, 0 inquiries
53 C No automatic funding, loan amount <=$5K, 20-40% DTI, 1+ inquiries
54 C No automatic funding, loan amount <=$5K, >=40% DTI
55 C No automatic funding, loan amount $5,001-$7,499, <=40% DTI, 0-2 now delinquent, 0-1 inquiries
56 C No automatic funding, loan amount $5,001-$7,499, <=40% DTI, 0-2 now delinquent, 2+ inquiries
57 C No automatic funding, loan amount $5,001-$7,499, <=40% DTI, 3+ now delinquent
58 C No automatic funding, loan amount $5,001-$7,499, >=40% DTI
59 C No automatic funding, loan amount $7.5K-$10K, 0-1 inquiries
60 C No automatic funding, loan amount $7.5K-$10K, 2-5 inquiries
61 C No automatic funding, loan amount $7.5K-$10K, 6+ inquiries
62 C No automatic funding, loan amount $10,001-$15K, 0-4 inquiries
63 C No automatic funding, loan amount $10,001-$15K, 5+ inquiries
64 C No automatic funding, loan amount $15,001-$25K
65 C Automatic Funding Only, loan amount <=$5K, 0 inquiries
66 C Automatic Funding Only, loan amount <=$5K, 1+ inquiries
67 C Automatic Funding Only, loan amount $5,001-$7,499
68 C Automatic Funding Only, loan amount $7.5K-$14,999
69 C Automatic Funding Only, loan amount $15K-$25K
70 C Borrowers with no extended credit data
71 D No automatic funding, loan amount <$3K, 0 now delinquent, 0-1 inquiries
72 D No automatic funding, loan amount <$3K, 0 now delinquent, 2+ inquiries
73 D No automatic funding, loan amount <$3K, 1+ now delinquent
74 D No automatic funding, loan amount $3K-$7,499, 0 now delinquent, 0-2 inquiries
75 D No automatic funding, loan amount $3K-$7,499, 0 now delinquent, 3+ inquiries
76 D No automatic funding, loan amount $3K-$7,499, 1-2 now delinquent
77 D No automatic funding, loan amount $3K-$7,499, 3+ now delinquent
78 D No automatic funding, loan amount $7.5K-$10K, 0 now delinquent
79 D No automatic funding, loan amount $7.5K-$10K, 1+ now delinquent
80 D No automatic funding, loan amount $10,001-$25K
81 D Automatic Funding Only, loan amount <=$3K
82 D Automatic Funding Only, loan amount $3,001-$7.5K
83 D Automatic Funding Only, loan amount $7,501-$25K
84 D Borrowers with no extended credit data
85 E No automatic funding, loan amount <$5K, 0 now delinquent
86 E No automatic funding, loan amount <$5K, 1-2 now delinquent
87 E No automatic funding, loan amount <$5K, 3+ now delinquent
88 E No automatic funding, loan amount $5K+
89 E Automatic funding only, loan amount <$5K, 0 now delinquent
90 E Automatic funding only, loan amount <$5K, 1-2 now delinquent
91 E Automatic funding only, loan amount <$5K, 3+ now delinquent
92 E Automatic funding only, loan amount $5K+
93 E Borrowers with no extended credit data
94 HR No automatic funding, loan amount <$3K, 0-1 now delinquent, <=20% DTI
95 HR No automatic funding, loan amount <$3K, 0-1 now delinquent, >=20% DTI
96 HR No automatic funding, loan amount <$3K, 2+ now delinquent
97 HR No automatic funding, loan amount $3K+, 0-2 now delinquent
98 HR No automatic funding, loan amount $3K+, 3+ now delinquent
99 HR Automatic funding only, loan amount <$3K, 0-2 now delinquent
100 HR Automatic funding only, loan amount <$3K, 3+ now delinquent
101 HR Automatic funding only, loan amount $3K+, 0 now delinquent
102 HR Automatic funding only, loan amount $3K+, 1+ now delinquent
103 HR Borrowers with no extended credit data
Update: LoanChimp also has a write-up on this

Tuesday, April 15, 2008

New And Shiny Prosper Interest Rates

Prosper dropped a large bomb this morning with their latest site upgrade. The headline topic: 36% interest rates everywhere [1]. Besides being miffed that they couldn't have announced it one day earlier and saved me some time, I find this to be a phenomenal development. Prosper has been limited in their growth due to the state usury limits, and this should increase the borrower volume, especially in the portfolio-worthy credit ranges.

Prosper also rolled out a number of other features at the same time

And to round up all those other bloggers chattering away on this
[1] - Void in Texas and South Dakota. Surprisingly, this isn't void in Utah.

Monday, April 14, 2008

Time For Prosper To Drop The Bank Draft Fee?

Update: Darn it Prosper. Obsoleting my post less than 24 hours after I finished writing it. I'll keep it around for posterity.

A while back, I noted that almost all portfolio-worthy loans are funding and this is driving Prosper's loan creation engine. A survey through a few portfolio criteria confirms this to still be true. For Prosper to extend and increase their loan volume, it's critical to get more loans into the various standard portfolio categories. Prosper is limited by the various state usury limits and their own internal policies like reserving 1% for the Bank Draft fee. Prosper has few choices but grinding through state and federal regulations to issue loans at rates above the current state limits, but they do have control over the bank draft fee, and it may be time for it to go.

Let's start by taking a look at the 21 slices that make up Prosper's 4 portfolio plans. These were last modified by Prosper on Feb 27. The various slices were ranked according the minimum interest rate that the portfolio would bid.


GradeRate Rank
Conservative Slice 2AA7.50%1
Conservative Slice 1AA7.70%2
Conservative Slice 3AA8.90%3
Balanced Slice 5 C10.45%4
Balanced Slice 1 AA10.65%5
Conservative Slice 4A10.80%6
Balanced Slice 2AA11.00%7
Moderate Slice 1 A12.40%8
Moderate Slice 3B 12.40%9
Balanced Slice 3A12.70%10
Balanced Slice 4 B 14.20%11
Moderate Slice 5 C 15.15%12
Balanced Slice 6 C 15.15%13
Moderate Slice 6 D 15.50%14
Aggressive Slice 5 D 15.50%15
Moderate Slice 4 B 15.75%16
Aggressive Slice 1 B 17.30%17
Moderate Slice 2 A 18.00%18
Aggressive Slice 2 B 19.10%19
Aggressive Slice 4 C 19.45%20
Aggressive Slice 3 C 21.25%21
There are three notable groups of loans in this table. Slices 4 - 7 cover an interest rate spread of 0.65%, slices 8 - 10 cover an interest rate spread of 0.3%, and slices 12 - 16 cover a 0.6% interest rate spread. Small movements in interest rates through these ranges will disproportionally affect loans that will fund in a state.

To understand how the state interest rate limits are hurting Prosper's ability to provide loans that fit into the Portfolios, I calculated the actual maximum Prosper loan interest rate for 22 lowest states loan rates for AA - D loans and these are shown below. Some states have different rates for different loan amounts and is noted on the table.
State AA A B C D
Pennsylvania 5.00% 5.00% 5.00% 5.00% 5.00%
Kentucky (under $15k) 5.82% 5.13% 5.13% 4.45% 4.45%
Arkansas 6.81% 6.12% 6.12% 5.44% 5.44%
Delaware 6.81% 6.12% 6.12% 5.44% 5.44%
Texas 8.31% 7.61% 7.61% 6.92% 6.92%
New Hampshire (under $10k)
8.31% 7.61% 7.61% 6.92% 6.92%
Tennessee 8.74% 8.04% 8.04% 7.34% 7.34%
South Carolina 10.30% 9.60% 9.60% 8.89% 8.89%
Massachusetts (under $6k) 10.30% 9.60% 9.60% 8.89% 8.89%
Hawaii 10.30% 9.60% 9.60% 8.89% 8.89%
Louisiana 10.30% 9.60% 9.60% 8.89% 8.89%
Virginia 11.00% 11.00% 11.00% 11.00% 11.00%
Connecticut 10.30% 9.60% 9.60% 8.89% 8.89%
Nebraska 15.00% 15.00% 15.00% 15.00% 15.00%
New Jersey 14.28% 13.56% 13.56% 12.84% 12.84%
New York 14.28% 13.56% 13.56% 12.84% 12.84%
Alaska 15.00% 15.00% 15.00% 15.00% 15.00%
West Virginia 16.27% 15.55% 15.55% 14.82% 14.82%
Wisconsin 16.27% 15.55% 15.55% 14.82% 14.82%
Vermont (under $4k) 16.27% 15.55% 15.55% 14.82% 14.82%
Florida 16.27% 15.55% 15.55% 14.82% 14.82%
Maine 16.27% 15.55% 15.55% 14.82% 14.82%
From here, I matched up the state maximum interest rates versus the various portfolio slices. In this match-up, I looked at how many slices could play in a various state as things are now as well as if Prosper somehow gave up the 1% bank draft fee. The results are below.
States
Portfolio Use
Without Bankdraft
Pennsylvania, Kentucky
Can't Play
Can't Play
Arkansas, Delaware
Can't Play
Slices 1-2, AA's In
Texas, New Hampshire, Tennessee
Slices 1-2
Slices 1-3, More AA's
South Carolina, Massachusetts, Hawaii
Louisiana, Connecticut
Slices 1-3
Slices 1-3, 5
More AA's In
Virginia
Ranks 1-7
No Change
New Jersey, New York
Slices 1-10
Slices 1-11, More B's
Alaska, Nebraska
Slices 1-11
Slices 1-17,
More B's, C's, and D's
West Virginia, Wisconsin, Vermont
Florida, Maine,
Slices 1-11
Slices 1-16
More B's, C's, and D's
I find the results rather notable. Arkansas, Delaware, Texas, New Hampshire, Tennessee, South Carolina, Massachusetts, Hawaii, Louisiana, and Connecticut would all increase the amount of AA loans that would slip into portfolio territory. This would be a boon for Prosper's "Prime Select" territory, and even though AA loans make a fraction of the total loans, that's a fraction of 55 million people represented by these states. New York and New Jersey allowing more B loans provides a bit of leverage because they're highly populous states, with 28 million residents combined. The crown jewels are Alaska, Nebraska, West Virginia, Wisconsin, Vermont, Florida, and Maine. These states managed to cross through the large group of slices that cover rates of 15.15% to 15.75%. Losing the bank draft fee opens up the field for a large increase in the potential pool of portfolio-worthy B, C, and D credit grade loans in states representing 30 million people.

So, that 1% fee is causing Prosper to leave a lot of portfolio-worthy loans on the table. Will they be able to resist expanding their available market?

Saturday, April 12, 2008

Digging Through The Prosper.com Help Wanted Section

Prosper does list jobs on their website, but it's PR washed and very blah. The recruiters seem to have more fun when they post Craigslist listings, and they leave some interesting crumbs in their wake.

For example, Prosper's looking for a new Product Manager because marketing is taking over the website look and feel (which begs the question - who has it now?):

The content of every single public facing page on our web site (http://www.prosper.com) is about to belong to the marketing team. As a product manager, you will be directly responsible for planning, designing, and releasing our site’s new features. Driving strategy, working with business owners, and writing PRDs. Make a difference on day one.

This means I need to pester their marketing folks about the new performance search page. I'll be happy to fill out a survey, if necessary.

Their quest for another software quality assurance (SQA) engineer also hints on why some features take a while to roll out - their user interface QA is done overseas (assuming that they don't have a cruise ship parked 15 miles off the coast of CA):

We need an SQA Engineer who is self starter (no hand holding here!), understands database structures, and knows web app testing pretty darn well. You’ll be spend a lot of time doing gray box testing, digging through database tables, testing APIs, and automating tests for web apps. This is NOT a functional UI testing position (most of the functional black box testing is done by our offshore team).

This is not to dismiss the capabilities of offshore engineering (I've met some pretty sharp folks in Asia), but a 12 hr time difference does tend to slow down communication.

Friday, April 11, 2008

Interesting Way To Get Prosper Money Back

This Prosper lender had found a creative way to liquidate all the loans he's holding: take out a loan against them.

Purpose of loan:
This loan will be used to pay off my current Prosper Lending Account. I no longer have the time to manage this, and would like to use my lending funds towards something else at this time.

Cash balance: $26.78
Value of loans: + $14,959.08
Payments in transit: $155.16
Winning bids: $394.33
Winning bids pending review: $300.00
Total account value: = $15,835.34

My financial situation:
I am a good candidate for this loan because I have the means to pay for this loan regardless of my portfolio, and have never missed a payment, or ever been late. I have an 830 FICO and pride myself on my perfect credit.

I worked for the world's largest investment bank, and recently moved to a startup because I have the means and free time. Prosper was fun for the past year, but being on the trading desk on Wall Street, enjoy a little more excitement out of my investments.

Presumably, he'll pay off his Prosper loan using the funds from his lending as they roll in. He does seem adept at picking loans with a LendingStats ROI of >10%, so it's not unreasonable.

Thursday, April 10, 2008

Prosper's March Marketplace Summary

Two days ago, Prosper released their March Marketplace Summary (also on Business Wire). As always, the most interesting part is Chris Larsen's marketplace commentary:

As we have previously reported, Prosper’s mix of “well priced” loans – loans with an attractive risk-return tradeoff – has dramatically changed from the same period last year with approximately a 200% increase in the percentage of “well priced” loans and a six-fold decrease in “low priced” loans – loans with an unattractive risk-return tradeoff. Part of this positive trend is attributable to the introduction of portfolio plans and performance guidance from the Prosper Marketplace – changes introduced last October. These changes continue to drive better overall performance of the market.

In March we saw further evidence of this with portfolio plan performance improving. For example, the Conservative portfolio plan – one of four model portfolio plans Prosper has provided as templates that can be used by lenders – consists of five credit slices. Looking at all the credit slices across all four plans, 18 of 21 slices improved or remained constant. This is quite positive considering the continuing credit crunch occurring in so many traditional financial markets and should lead to both better rates for borrowers and better performance for lenders.

We are also seeing a healthy start of custom portfolio plans, which lenders can create from scratch or modify from an existing Prosper model plan. These plans can be easily shared with friends or family. In March, approximately 1,800 custom plans were created that spawned over 18,000 bids.

Let me sum up Inigo Montoya style:
  • People are funding loans at interest rates where they will have a reasonable chance of making money and are backing off funding loans where they don't have a reasonable chance of making money.
  • The statistics are getting stable for the portfolio plans. Before, the default rates were worse than we predicted. Now, not so much.
  • People are using the custom portfolio plans, to the tune of around $1M in bids.
In other words, Prosper-derived statistics are a GOOD THING (TM), as is lender bidding guidance. Beyond this, there are lots of statistics which, if you're interested, you can attack.

Wednesday, April 9, 2008

Lending Club Halts New Lenders. Prosper Next?

Lending Club has announced that they're not allowing lenders to invest in loans until they get a few things sorted out with the government (I'm assuming the SEC):

Lending Club has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future. Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. We will continue to service all previously funded loans during this period, and lenders will be able to access their accounts, monitor their portfolios, and withdraw available funds without changes.

The borrowing side of our site will remain generally unaffected by this registration process; borrowers can continue to apply for loans and new loans posted after April 7, 2008, will be funded and held only by Lending Club.

Until the registration process is completed, the company will undergo a quiet period and will not be able to respond to press and other inquiries about Lending Club or the registration process during that time.

Lending Club will continue to fund borrower loans using their own money, a most interesting example of being confident that their platform is sound enough to put their own money in. All eyes are now on Prosper. Prosper got started with the SEC back in October last year, but has been quiet since.

Update 3: The PLP link had an interview with Chris Larsen talking about how they went after the regulatory framework from the get-go. Prosper is acting like they believe they're in the clear.



That's enough updates for now.

Update 2: Just go over to Personal Lending Portfolio. They've got all the good goods.

Update: Why did I go and take yesterday off. Some more digging gives:
The NetBanker article had an official comment from Prosper:

Person-to-person lending is an increasingly popular way for individuals to borrow and lend money at attractive interest rates. Understandably it must be done in a secure and trusted way. While we’re not in position to comment on another company’s regulatory stance, Prosper believes that the way we have structured the Prosper marketplace is in compliance with applicable state and federal laws. Currently Prosper has over 650,000 members, and more than $130 million in loans have funded through the Prosper marketplace.

Tech Crunch added:

Since Lending Club both loans and borrows money from users, instead of connecting them directly, it’s not a pure P2P service. While the legality of its lending practices is not in question, its borrowing practices could be interpreted as the sale of securities, which requires a license Lending Club doesn’t appear to have.

This suspicion has been reinforced by Veronica McGregor, an attorney with the law firm Perkins Coie. She says that “it looks like they are getting themselves a license to buy and sell securities.”

Prosper Listing Word Analysis

Word analysis has gone in and out of vogue among Prosper lenders. Right now, it's in vogue here at Prosperous Land. The premise is that you can get hints about the quality of a listing based on words that appear in the listing description. I've been messing with it to try and get a statistically significant edge (proving it provides an edge, now there's a dicey proposition), but some interesting things pop out when you mess with the datasets enough.

I have used the 2602 repaid loans and 2387 defaulted, bankrupt, or 4+ month late loans for my number crunching, as of the April 1 dataset. For each word, I look at the ratio of appearances in good loans versus the appearances in bad loans to find those words that are good indicators of loan quality. The top ten good and bad ones that have appeared in at least 100 listings are below:

Word
Appeared In Good Loan
Appeared In Bad Loan
reinvest
95
10
aa
120
14
investments
104
16
lend
114
26
investing
82
27
lending
142
50
borrower
100
37
invest
124
48
side
120
50
investment
227
99
prove
44
144
catch
34
113
file
24
82
mother
78
270
establish
25
89
behind
67
241
lost
33
131
explanation
33
132
priority
27
119
payday
43
276

Tuesday, April 8, 2008

March Prosper.com Collections Update

This is part of my ongoing series monitoring collections efficiency (February's report for comparison). For a reminder on the methodology, I took a snapshot of all of Prosper's loans on March 3 (yes, I'm a doofus and missed March 1) and compared their current status against those same loans on April 1. Presumably, loans that don't get further behind have some kind of money extracted in the collections process (not so valid on this run - see below). The statistics are below.

TotalGot BetterStayed The SameGot Worse
Payoff in progress 48 48
100.0%
0
0.0%
0
0.0%
Current 13772 214
1.5%
13243
96.1%
315
2.2%
Late 203 54
26.6%
42
20.6%
107
52.7%
1 month late 281 34
12.0%
35
12.4%
212
75.4%
2 months late 273 11
4.0%
23
8.4%
239
87.5%
3 months late 254 4
1.5%
25
9.8%
225
88.5%
4+ months late 740 8
1.0%
723
97.7%
9
1.2%
Defaulted (Delinquency) 1421 0
0.0%
1355
95.3%
66
4.6%
The Signs Of Collections (SOC) statistics are below. Signs of collections percentage is calculated as the percentage of the loans that either improved or stayed the same.
Month
1 Month
2 Months
3 Months
March '08
24.4%
12.4%
11.3%
February '08
13.7%
9.3%
4.7%
January '08
20.6%
12.8%
8.0%
December '08
23.0%
2.8%
3.8%
Since I screwed up and didn't get the data until March 3rd, this report may look overly favorable on collections success. This is because Prosper calculates loan lateness based on the date in a month (and not 30 / 60 / 90 days) and loans that came due between the 1st of April and 3rd of April will not be properly counted. This inflates the numbers for loans that stayed the same, though statistically, this should only shave about 3-4% of the loans in the stayed the same category. Removing that 3-4% would place March on similar footing to January.

The "4+ months late" category is very hard to quantify percentage wise. The default sales make month over month comparison very difficult, so I'm not going to try. There were 62 loans that left the "Default (Delinquency)" which are presumably part of Prosper's collections-by-lawsuit effort. This has created a statistical tracking problem because they are now marked as Repurchased. Repurchased has typically been for loans that were reacquired by Prosper due to fraud. Most statistics reporting sites like Lending Stats do not count repurchased loans for ROI calculation purposes, even though it isn't appropriate in this case.

Monday, April 7, 2008

Figuring Prosper's Maximum Allowable Loan Rate

I often get confused when I look at a state like New Jersey that has a 16% interest rate cap due to state laws but then see listings where the maximum interest rate is 12.84%. This makes no sense in any practical universe, so what's going on? The answer, my friends, is a confluence of Prosper's payment choices and government regulation (see, it doesn't have to make sense).

The Bank Draft

Prosper allows lenders to choose between 2 loan payment methods: bank draft and electronic funds transfer (ETF). The ETF method is quick and painless, and free. Prosper charges 1% for the bank draft method, however. And, because a borrower can swap between the two methods on a whim at any time during the loan, Prosper must make sure that, should a borrower choose to use the bank draft method during a loan, their effective interest rate will never exceed the state maximum. So, take 1% off the state rate limit.

Government Regulation and APR

Some state government require interest rate limits to be based on the effective Annual Percentage Rate (APR) instead of the simple interest rate. This came about because lenders were adding huge fees while keeping the interest rate low (sure, we'll make you a loan at 6%, after 10% in origination fees and closing costs). Lenders are required to account for those origination fees in their APR calculation, and it breaks down like this. I have "C" credit and want to get a $10,000 loan in New Jersey for 12.84%. Because "C" credit grades have a 3% closing fee, Prosper won't pay me $10,000, they only pay me $9,700, with the other $300 staying with them as a closing fee, and a monthly payment of $336.17. The state of New Jersey sees it differently. They see a monthly payment of $336.17 on a loan of $9,700. It would take an interest rate of about 14.98% to get that. 14.98% is considered the the APR rate.

So now, lets put it all together. You'll notice that there's a little bit of slop in the math, but at 0.02%, it is a rounding error. If you're worried about the 0.02%, you've got bigger things to worry about.

16.00%
State Legal APY Limit
-1.00%
Bank Draft Margin
-2.14%
Closing Costs Adjustment
-0.02%
Slop In The Math
12.84%
Maximum Allowable Rate
Of course, this calculation will vary from state to state. Some set interest rate limits, others set APR limits, and I'm sure a few have even goofier methods of limiting loan shark lender rates.

Sunday, April 6, 2008

What A Coincidence

I happened to be playing with Prosperous Land visitor statistics and I happened to notice that about 10% of my web traffic in March came from San Francisco. What are the odds?

While I'm mentioning the site, I'll working up the mental fortitude to tinker with the site layout. It's a confluence of Google adding some cool (beta) widgets to the Blogger system and my desire to get away from one of their standardized templates. Will I actually do it? Who knows, but it's possible.

And finally, rapping economy students are funny.

Friday, April 4, 2008

LoanChimp's Prosper.com Lending Tips

LoanChimp has provided a handy set of Prosper lender tips (in 8 parts, thus far) that are good advice to any new (and existing) Prosper lender. However, going through all the posts is quite tedious, so here's my quick crib sheet:

  1. You don't know everything. Just admit it. It'll make things easier.
  2. You're here to make money, not provide handouts.
  3. This isn't gambling. Don't take chances.
  4. Don't be impulsive. Take time to think about the listing.
  5. Understand what the borrower mean, not just what they say.
  6. Ask questions. It makes #4 and #5 easier.
  7. But be nice when you ask questions.
  8. Loans do go late. Learn to live with it.
  9. Don't get mad. Just like the Godfather says, "This isn't personal. It's business."
I'll tack on more when they come in. So many early mistakes could've been avoided. Nothing like the school of hard knocks to catch your attention.

Thursday, April 3, 2008

Alt-A And Sub-prime Interactive Map

The New York Federal Reserve Bank has put together a pretty entertaining interactive map showing how bad things are in the alt-A and sub-prime mortgage space (hat tip The Big Picture).

That's the wonderful state of Texas up there. The NY Fed also published, in spreadsheet form, their supporting data. If you don't want to spend lots of time navigating the map to figure it out, California and Florida are in a world of hurt. I wouldn't be lending there right now.

Quick Update On Prosper State Lending Limits

Every once in a while, I state a snapshot of Prosper's state lending limits to see how things are changing over time. Some states tie their lending limits to the Fed Funds rate or some other standard benchmark, state laws may change, or Prosper's legal standing in a state may change. Prosper, being the wily data hiders that they are, have blocked Google and the Way Back Machine from caching the page for SEO purposes, so it is helpful to have a record of changes.

State
Current Rates
Old Rates (Dec '07)
Alabama
$2k - $25k @ 36%

Alaska
$1k - $25k @ 16%

Arizona
$1k - $10k @ 24%
$10k - $25k @ 36%

Arkansas
$1k - $25k @ 8.5% APR $1k - $25k @ 10.25% APR
California
$1k - $2.5k @ 19.2%
$2.5k - $25k @ 36%

Colorado
$1k - $25k @ 21% APR

Connecticut
$1k - $25k @ 12% APR

Delaware
$1k - $25k @ 8.5% APR$1k - $25k @ 10.25% APR
DC
$1k - $25k @ 24% APR
$1k - $25k @ 6% APR
Florida
$1k - $25k @ 18% APR

Georgia
$3k - $25k @ 36%

Hawaii
$1k - $25k @ 12% APR

Idaho
$1k - $25k @ 36%

Illinois
$1k - $25k @ 36%

Indiana
$1k - $25k @ 21% APR

Iowa
$1k - $25k @ 21% APR

Kansas
$1k - $10k @ 21% APR

Kentucky
$1k - $15k @ 7.5% APR
$15k - $25k @ 36%
$1k - $15k @ 9.25% APR
$15k - $25k @ 36%
Lousiana
$1k - $25k @ 12% APR

Maine
$1k - $4k @ 24% APR
$4k - $25k @ 18% APR

Maryland
$6k - $25k @ 24% APR

Massachusetts
$1k - $6k @ 12% APR
$6k - $25k @ 20% APR

Michigan
$1k - $25k @ 25%

Minnesota
$1k - $2.5k @ 19.2%
$2.5k - $25k @ 36%

Mississippi
$1k - $25k @ 36% (Business Only)

Missouri
$1k - $7.5k @ 36%

Montana
$1k - $25k @ 36%

Nebraska
$1k - $25k @ 16%

Nevada
-None-

New Hampshire
$1k - $10k @ 10% APR
$10k - $25k @ 36%

New Jersey
$1k - $25k @ 16% APR

New Mexico
$2.5k - $25k @ 36%

New York
$1k - $25k @ 16%

North Carolina
$1k - $25k @ 36% (Business Only)

North Dakota
$1k - $25k @ 36%

Ohio
$1k - $25k @ 25%

Oklahoma
$1k - $25k @ 21%

Oregon
$1k - $25k @ 36%

Pennsylvania
$1k - $25k @ 6%

Rhode Island
-None-

South Carolina
$1k - $25k @ 12% APR

South Dakota
-None-

Tennessee
$1k - $25k @ 10.43% APR
$1k - $25k @ 11.75% APR
Texas
$1k - $25k @ 10% APR
$1k - $25k @ 18% (business)

Utah
$1k - $25k @ 36%

Vermont
$1k - $4k @ 18% APR

Virginia
$1k - $25k @ 12%

Washington
$1k - $25k @ 25%

West Virginia
$1k - $25k @ 18% APR

Wisconsin
$1k - $25k @ 18% APR

Wyoming
$1k - $25k @ 21% APR

Arkansas, Delaware, Kentucky, and Tennessee had decreases in their rates due to the Fed dropping interest rates. The other item of interest is that Prosper is lending in Washington DC now as was announced before Prosper Days. Since DC has a population of around 560k people, no one will get rich off the influx of borrowers.