Hiccup In Portfolio ROI Estimation

Prosper refreshed the statistics for the bidding and portfolio ROI in the last day or so. The new statistics are for loans underwritten between June 1, 2006 and Sept 30, 2007 as viewed from Oct 31, 2007. Prosper Andrew has suggested that it takes several days for all of the ACH transactions to settle out in the statistics, which I'm guessing is why they don't use Nov 30 as the observation date.

This a good thing. It's an indication that Prosper is working to keep the statistics relevant and up to date. The one downside for this update is that it hiccuped on the conservative portfolio:

It looks like one of the standing orders that make up the portfolio had a hiccup and it polluted the calculation.

Update: Appears fixed as of 1:30 PM CST

Official Prosper Blog Coming Soon

It started with an eagle eyed lender on the prosper.org forum spotting an interesting tid-bid in a Prosper job posting on the San Francisco Craigslist employment area. Prosper is looking for a temp to fill in for a while, and running the Prosper Company Blog (noted as forthcoming) was one of the job responsibilities.

Prosper has now confirmed to me that they will be launching an official blog in the near future. This does have interesting implications for how they intend to communicate to their users, but the proof of the pudding is in the eating.

I'll note that the software recently deployed for the new forums, Community Server, also has a blog component to it, so we can probably expect this platform to be running the blog as well.

Revisiting Group Rewards

After my initial reaction to Prosper removing group rewards, I spent some time understanding the (near) collective wisdom that group rewards needed to go. I've hit acceptance. The positive group leaders could not overcome the market-distorting effects of the pump and dump and the community payment.

Here's how the pump and dump worked. A group leader would take smaller loans with high interest rates and bid a large sum (25% - 50%) at the initial interest rate. Other lenders, noticing a loan about to fund, would bid. As more lenders bid, the group leader's bid would be pushed off the loan, leaving the group leader with a funded loan to his group and no skin in the game. Why did lenders pile onto the loan? It was because the group had a 5 star rating.

But why did the group have a 5 start rating? It was because of community payments. The community payments were originally intended to allow a friend to help out a borrower, but were used for statistics manipulation. The group leader would prop up his group's rating by making community payments for those loans that ran late. The group rewards provided sufficient income to the group leader to maintain this system for several months. Those familiar with pyramid schemes will recognize that eventually the pyramid will fall apart - the community payments cannot be maintained with the group rewards as defaults increase as more loans are funded. When everything falls apart, however, the group leader still gets group rewards on those loans that didn't go belly up, usually with little or no money lost on their part.

At some level, the system was perpetuated because Prosper did not account for community payments in the star rating system and community payments were difficult to observe for lenders. But, even if existing lenders could learn to navigate the dangerous waters, a constant stream of new lenders were entering the marketplace. The current system was damaging to the marketplace and had to change. I still believe that it was painful to lose the good group leaders who made working with borrowers their full time job, but Prosper made the right choice to preserve the integrity of the marketplace.

New Attempt At Observing Collections Progress

My previous attempt at getting a handle on how collections are proceeding on Prosper following the arrival of the new VP of operations didn't go so well. I did not have a grasp on how successful collections impact the reported loan status. Time to try again.

At the beginning of each month, I'll download the raw Prosper loan data. It'll be processed to determine loans that increased in their lateness (going from 1 month late to 2 months late, for example), and those that showed signs of some monies being collected (held or improved position). The first dataset was picked up on Dec 1, with this being the baseline for all future statistics tracking.

I'm going through the trouble to fill in the gaps with the collection agency statistics. The statistics report how well the collection agencies are performing, but do not discuss borrowers paying directly through Prosper (perhaps because they got a letter) to get the account current. I also find that it has less ambiguity than the statistics that Prosper reports.

The Quietly Changing State Interest Rate Limits

While reviewing Prosper's state lending limits to see if everyone had bumped up to 36%, I noticed that some of the values had drifted a bit from the last officially announced state limit change back in May. At the time, I did not capture all the rates (only the new ones), so I do not have a complete picture. Prosper, being the wily data hiders that they are, have blocked Google and the Way Back Machine from caching the page, so I can only work with the data that I have.

There are some changes of note based on the limited information available, however. And, to get around that data hiding goodness, I've listed all the state information for future reference.

State	Current Rates	Old Rates
Alabama	$2k - $25k @ 36%
Alaska	$1k - $25k @ 16%
Arizona	$1k - $10k @ 24% $10k - $25k @ 36%
Arkansas	$1k - $25k @ 10.25% APR	$1k - $25k @ 11.25% APR
California	$1k - $2.5k @ 19.2% $2.5k - $25k @ 36%
Colorado	$1k - $25k @ 21% APR
Connecticut	$1k - $25k @ 12% APR
Delaware	$1k - $25k @ 10.25% APR	$1k - $25k @ 11.25% APR
DC	$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 @ 9.25% APR $15k - $25k @ 36%	$1k - $15k @ 10.25% APR $15k - $25k @ 30%
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)	$1k - $25k @ 30% (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)	$1k - $25k @ 30% (Business Only)
North Dakota	$1k - $25k @ 36%	None
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 @ 11.75% APR	$1k - $25k @ 12.25% 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 minor decreases in their rates. These are not large moves and should have a minor effect on loan volumes. Mississippi and North Carolina had their business only restrictions removed which is a big deal since these states have a 36% rate cap. (Update: As Prosper Andrew pointed out, I can't read). Also on the benefit side is a pickup of North Dakota, though this is of limited practical benefit. There are not many people in North Dakota.

There's also an interesting note on DC (District Of Columbia). Even though Prosper now has the license to issue loans up to 24% APR, they're not doing it yet. I'll be watching this.

Update: Prosper Andrew has pointed out in the comments that I can't read, the states with the 1% shift tie their rates to the fed rate, and that DC has some weird regulations that aren't quite compatible with Prosper's business model.

We Wish You A Merry Linkfest

Unlike many stores, I at least had the decency to avoid Christmas references until after Thanksgiving. Now onto the giftwrapped, linky goodness.

My MicroFinance - Zzzzz… Zopa.com

Have you ever been promised something, then that day comes and you don’t get exactly what you were told you were getting (kind of like Christmas morning)? Well, that is how I feel about Zopa.com. I remember hearing and cheering this idea on back in the Fall of 2006… Hmmm, quick check of the calendar indicates it’s now Fall of 2007 and Zopa.com is just, finally, going to open shop in the US of A next week.

So why am I not excited? Well, several horrifying changes have been made to the US platform vs. the UK parent.

Netbanker - Congestion at the Starting Gate? Three New U.S. P2P Lenders Set to Launch: Zopa, GlobeFunder, and Loanio

Less that two years after the first P2P launched in the U.S., it looks like we'll soon have at least five companies chasing this new market, six if you include Virgin Money.

AP - Consumers Eye Social Lending On The Web

Nash and Fisher are members of Prosper.com, the U.S. leader in a growing trend known as peer-to-peer lending, which facilitates loans between complete strangers.

Social lending has been around since the days when needy families turned to the richest man in town, but the Web is breathing new life into the practice. Loans on Prosper and Facebook's LendingClub have risen to $100 million this year from $27 million in 2006, according to Online Banking Report. By 2010, the report forecasts $1 billion in peer-to-peer loan originations.

Prosper Press Release - Prosper Crosses $100 Million Threshold -- Freakonomics Author to Keynote Prosper Days

America’s largest people-to-people lending marketplace, today announced that over $100 million in loans have funded in the Prosper marketplace. Prosper also announced that Stephen Dubner, author of Freakonomics, will keynote at its second annual Prosper Days community conference to be held in San Francisco on February 25^th and 26^th, 2008.