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.
Tuesday, April 29, 2008
Friday, April 25, 2008
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.
Friday, April 18, 2008
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.
Prosper 101 (ran in parallel with registration)
Chris Larson's Keynote (9 AM)
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)
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.
- Prosper Days: Keynote Address by CEO Chris Larsen
- Prosper Days: Credit Expert Panel
- Prosper Days: Collections Overview
- Prosper Days: Lending from AA-Z
- Prosper Days: Portfolio Analysis
- Prosper Days: Lender Panel
- Prosper Days: Building Better Credit
- Prosper Days: Group Leader Panel
- Prosper Days: Power Groups! Group Leader Best Practices
- Prosper Days: Third Party Applications Showcase
- Prosper Days: Town Hall
Update 3: Blogger panel is now active
Wednesday, April 16, 2008
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.
|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|
Tuesday, April 15, 2008
Prosper dropped a large bomb this morning with their latest site upgrade. The headline topic: 36% interest rates everywhere . 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
- Lower instant transfer limits. As RateLadder has observed, this should help those folks who worry about getting paid interest on their idle cash.
- The second loan criteria has been tweaked. It now depends on credit grade as well as loan payment history.
- 1% service fee for AA loans is back. Apparently they think they have enough volume now.
- All loans will list for 7 days. If borrowers are in a hurry, they'll have to turn on auto-funding.
- The Prosper website layout was tweaked. I'm not a fan. If you want to compare, the Prosper Blog still has the old layout (that may change as soon after Andrew reads this).
- There are supposedly other less published changes for us to dig out.
 - Void in Texas and South Dakota. Surprisingly, this isn't void in Utah.
Monday, April 14, 2008
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.
|Conservative Slice 2||AA||7.50%||1|
|Conservative Slice 1||AA||7.70%||2 |
|Conservative Slice 3||AA||8.90%||3|
|Balanced Slice 5||C||10.45%||4|
|Balanced Slice 1||AA||10.65%||5|
|Conservative Slice 4||A||10.80%||6|
|Balanced Slice 2||AA||11.00%||7|
|Moderate Slice 1||A||12.40%||8|
|Moderate Slice 3||B||12.40%||9|
|Balanced Slice 3||A||12.70%||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 |
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.
|Kentucky (under $15k)||5.82%||5.13%||5.13%||4.45%||4.45%|
|New Hampshire (under $10k) ||8.31%||7.61%||7.61%||6.92%||6.92%|
|Massachusetts (under $6k)||10.30%||9.60%||9.60%||8.89%||8.89%|
|Vermont (under $4k)||16.27%||15.55%||15.55%||14.82%||14.82%|
|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|
|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|
|Slices 1-11||Slices 1-16|
More B's, C's, and D's
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
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
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
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.
Wednesday, April 9, 2008
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:
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.”
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|
Tuesday, April 8, 2008
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.
|Total||Got Better||Stayed The Same||Got Worse|
|Payoff in progress||48|| 48 |
| 0 |
| 0 |
|Current||13772|| 214 |
| 13243 |
| 315 |
|Late||203|| 54 |
| 42 |
| 107 |
|1 month late||281|| 34 |
| 35 |
| 212 |
|2 months late||273|| 11 |
| 23 |
| 239 |
|3 months late||254|| 4 |
| 25 |
| 225 |
|4+ months late||740|| 8 |
| 723 |
| 9 |
|Defaulted (Delinquency)||1421|| 0 |
| 1355 |
| 66 |
|Month||1 Month||2 Months||3 Months|
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
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|
Posted by Mike at 9:15 AM
Sunday, April 6, 2008
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 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:
- You don't know everything. Just admit it. It'll make things easier.
- You're here to make money, not provide handouts.
- This isn't gambling. Don't take chances.
- Don't be impulsive. Take time to think about the listing.
- Understand what the borrower mean, not just what they say.
- Ask questions. It makes #4 and #5 easier.
- But be nice when you ask questions.
- Loans do go late. Learn to live with it.
- Don't get mad. Just like the Godfather says, "This isn't personal. It's business."
Thursday, April 3, 2008
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.
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%|
|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%|
|South Carolina||$1k - $25k @ 12% APR|
|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|
Wednesday, April 2, 2008
This is part of my ongoing series monitoring collections efficiency (January's report for comparison). For a reminder on the methodology, I took a snapshot of all of Prosper's loans on February 1 and compared their current status against those same loans on March 3 (yes, I'm a doofus and missed March 1). Presumably, loans that don't get further behind have some kind of money extracted in the collections process. The statistics are below.
|Total||Got Better||Stayed The Same||Got Worse|
|Payoff in progress||28|| 28 |
| 0 |
| 0 |
|Current||13271|| 241 |
| 12719 |
| 311 |
|Late||228|| 58 |
| 36 |
| 134 |
|1 month late||297|| 22 |
| 19 |
| 256 |
|2 months late||265|| 11 |
| 14 |
| 240 |
|3 months late||229|| 5 |
| 6 |
| 218 |
|4+ months late||585|| 7 |
| 511 |
| 67 |
|Months Late||February SOC||January SOC||December SOC|
The "4+ months late" category is very hard to quantify percentage wise. The default sales make month over month comparison very difficult. There were 62 loans that transitioned to "Default (Delinquency)" which are presumably part of Prosper's collections-by-lawsuit effort. We'll see them rattle around further in next month's dataset.
Tuesday, April 1, 2008
After extensive investigation, Prosperous Land can now report that Prosper is attempting to manipulate the 2008 election process. Based in liberal San Francisco and quietly supported by Nancy Pelosi herself, Prosper has employees with well known ties to the Democratic establishment, especially among the executives. Prosper is intentionally holding back on raising the lending limits and improving collections in Red leaning states to drive them further into economic recession, a condition that favors Democratic candidates in this election cycle. George Soros, one of Prosper's venture capital partners via one of his shell companies, is coordinating the effort.
Prosper did not respond to our inquiries for this story.
Update: Oh, sure, Prosper rolls out predictive bidding to steal my thunder. Don't be distracted. The conspiracy is real!
Update 2: Prosper has finally responded to my request for comment:
Nancy Pelosi? Can't say that we've heard of her. Same thing with that George guy. Chris Larsen's donations were a passing fad of an early, more simple time (you know, back before lender bidding guidance) and really have no relevance to the day to day operation of Prosper. We'd love to send a few of folks to stop by your home and talk to you about this, to avoid any confusion. They'll be arriving shortly. Don't worry, we have your address on file.