February Prosper Collections Report

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	28 100.0%	0 0.0%	0 0.0%
Current	13271	241 1.8%	12719 95.8%	311 2.3%
Late	228	58 25.4%	36 15.7%	134 58.7%
1 month late	297	22 7.4%	19 6.3%	256 86.1%
2 months late	265	11 4.1%	14 5.2%	240 90.5%
3 months late	229	5 2.1%	6 2.6%	218 95.1%
4+ months late	585	7 1.1%	511 87.3%	67 11.4%

This does not look good. The Signs Of Collections (SOC) statistics are below.

Months Late	February SOC	January SOC	December SOC
1 Month	13.7%	20.6%	23.0%
2 Month	9.3%	12.8%	2.8%
3 Months	4.7%	8.0%	3.8%

This is, by all accounts, a rather large statistical kick in the shins for lenders. There are two things that may distort February's collections numbers, however. First, Prosper transitioned their primary collections company from Penncro to AmSher. I find it unreasonable to expect a perfectly clean transition with no drop off when making a change of this magnitude. Second, I screwed up and didn't get the data until March 3rd. This may overstate the unsuccessful collections efforts.

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.

Prosper Interfering With Presidential Politics

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.

Prosper At Finovate 2008

It looks like Prosper will once again be at Finnovate this year, amongst 40 young and upcoming financial startups:

Already 40 leading startups have committed to demoing their products (no PowerPoint allowed) including: Andera, Aradiom, Authentium, Boulevard R., Buxfer, Cake Financial, CAPS, ClairMail, Credit Karma, Diversinet, Expensr, First ROI, FindABetterBank, Guard ID, Guardian Analytics, IP Commerce, Jwaala, Lending Club, Loanio, Mint, Prosper, SmartyPig, SmartHippo, Simple Tuition, SocialPicks, TradeKing, TrustedID, Tyfone, Unified Money, VaultStreet, Vestopia, Vidoop, Wesabe, Wonga, WorkLight, Zecco and 4 more still in stealth.

This could be most interesting since Loanio is on the list. They've a supposed-P2P lender that has been running ads all over the web for the last year. They have yet to put up any substance, earning them the vaporware entry of the year.

And, I say to you Prosper, please have your media strategy determined before hand. We'll find out about the features that you'll be showing this year, like we did last year. Please, on please, talk about the features and don't go all cathedral on us by hiding the proposed features. Think of us lenders as partners here, after all, and we'd like to see where things are going too.

Prosper Big In The UK? Who Knew?

I found this little oops in the Warsaw Business Journal (English translation):

"In Poland, the difference between interest rates for loans and those on bank deposits is so large that [this situation] presents a great opportunity for social lending services like Monetto.pl," said Łukasz Banach, the president of Prender, the firm which operates Monetto.pl. ...

Social lending has already become very popular elsewhere. The largest social lending web pages are Zopa.com in the US and the UK's Prosper.com. In Poland, Kokos.pl and Finansowo.pl also offer social lending.

Let the Polish jokes begin.

More On Prosper Loan Diversification

A while back, I had written to encourage Prosper lenders to truly diversify their loans. It's not enough to spread your loans across different credit grades if they're all in California, for example. Such a lender will still be vulnerable to local economic conditions in California (as the current housing mess illustrates). There are two parts to understanding diversification for lenders.

To be successful, it's important to understand the nuances of diversification. One of the best books on the topic of diversification I've seen is "The Intelligent Asset Allocator" (it was recommended by RGF from the old forums). It covers the how and why of diversification in the context of mutual funds and describes the math in easy terms. The principles translate into the Prosper domain without too many headaches. There is a problem, though. Prosper is too young and the statistical reporting tools are too immature.

To succeed in diversification, it is necessary to identify different groups of investments and spread investment dollars between these groups. Prosper makes it easy to verify performance for different credit grades and then for listings, but it stops there. The borrower's state is the second-best grouping criteria that's Prosper verified. There are no readily available tools, Prosper or otherwise, to succinctly report performance by state or a lender's loan distribution over states. Beyond this, there are self-reported criteria from borrowers like occupation and the borrower's reason for getting the loan. If you assume that the borrowers self-report accurately (a big IF), there is insufficient statistical information available to determine the performance for these sub-groups, and it will take a while to build a sufficient loan history to produce meaningful information.

This situation, however, is an opportunity for either Prosper or the independent sites like Lending Stats and Erics Credit Community to step up and provide the next layer of analysis to aid lenders in truly diversifying.

FDIC Thinks Bank Failures Coming

Yeah, it's a double-post day. I just spotted this on Calculated Risk. The AP is reporting that the FDIC is staffing up for an anticipated rush of bank failures.

The Federal Deposit Insurance Corp. wants to add 140 workers to bring staff levels to 360 workers in the division that handles bank failures, John Bovenzi, the agency's chief operating officer, said Tuesday. ...

There are 76 banks on the FDIC's "problem institutions" list — which would equate to about 10 expected bank failures this year, though FDIC officials declined to make projections. Historically, about six banks fail per year on average, FDIC officials said.

Since 1981, total failures per year averaged about 13 percent of the number of institutions that started the year on the agency's list of banks with weak financial conditions.

Now here's a topic that I'd like to see Chris Larsen address in one of the monthly marketplace summary commentaries. He's been very upbeat about otherwise ugly financial events, and I do have to admit that there is a good "cup-is-half-full" for Prosper in this otherwise troublesome bit of financial fortune telling. I'm sure it'd go something like this:

The recent turmoil in the banking sector has provided great opportunities for Prosper lenders. As the number of banks shrink, borrowers should be more willing to look toward Prosper for loans, seeing how they have so few other alternatives.

The other thing to note is that Prosper, being a marketplace instead of a traditional bank, will most likely not be brought down by the banking implosion. For good or bad, Prosper is a conduit that directly transfers the borrower's risk to the lenders, bypassing itself (this is why it's important for lenders to lend conservatively). As long as Prosper can make borrowers appear and find some return-hungry lenders, they'll survive. And I do believe that more borrowers will appear as banks tighten up their lending standards.