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.

	Total	Got Better	Stayed The Same	Got 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.

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.

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.

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.

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.