Zipcodes With High Defaults

I got really frustrated with Prosper when they removed the cities from the borrower's listings. This is why:

A study for CNNMoney.com by RealtyTrac, an online marketer of foreclosure properties, showed that 139 of California's ZIP codes fell within the top 500 for total foreclosure filings in the United States. The next highest count for any state is less than half that at 72 and is in another sun-belt state - Florida.

...

RealtyBid spokeswoman, Daphne Shannon, said, "The Midwest has always been very solid for us, but the properties we're seeing are moving across the country - they're from California, Arizona and Nevada."

Call me cynical, but I don't want to lend to people in areas with high mortgage defaults and foreclosures. I'm thinking that if someone has defaulted on their mortgage and is considering bankruptcy to hold things together, an unsecured loan is a trifle. I keep hoping that Prosper will add state information to their Market Performance engine, but until then, continue to highly scrutinize listings from California, Nevada, Florida, and Arizona.

LendingStat Is Back

LendingStat, a Prosper statistics site, is back after a long period without database updates:

We’re back after a longer than expected hiatus. We apologize for the delay between updates. There’s a saying that things happen in threes, well, in a perfect storm of sorts, our web programmer needed to take a leave of absence last month. Between that, the Prosper data changes, and our backend changes/server migration, we’ve been trying to pick up the slack.

I can now go back to excitedly clicking every few days to see my anticipated ROI. Twitch. Ok, more seriously now, it's insightful to be able to see what lenders are up to.

It's All About The Income

I've been playing around with Prosper's Marketplace Performance tool to overcome the limitations present in the exported Prosper data (no detailed credit information). While playing around with some initial queries (if you're trying to figure out how to change things, look for the not-so-easy-to-find "Edit Criteria" link), I stumbled onto some statistical confirmation of something that I've believed for a while: income matters.

This seems obvious. Now matter how well intentioned someone is, they can't repay their lender if they have no cash. Therefore, borrowers disclose their incomes. Prosper is supposed verifying income levels if a loan funds. It's the borrowers who low-ball their official incomes for the listing and then claim in the description that they've got more money available (it's just hard to prove it, trust me) that scare me. As the mortgage industry is learning, stated income loans are risky.

Prosper only has about 6 months of data with income, so this is only a first peek, but the results are interesting. Below are the percentage of distressed loans (late or worse) in the recovered datasets.

Income	AA	A	B	C	D	E	HR
Income >$25k	0.54%	0.99%	0.53%	2.13%	2.55%	4.86%	9.35%
Unstated or <$25k	0.00%	0.75%	2.53%	3.20%	4.64%	11.39%	20.39%

While this isn't enough information to predict default rates, it's a clear indicator that a verified income is equivalent to elevating the borrower by one credit grade for all but the best borrowers (or, conversely, not having verified income is equivalent to a drop of one credit grade).

Finding Default Information

RateLadder has been collecting default sale information from various lenders (pensioner and L5 come to mind) to get a picture of the default recovery for lenders. This is a bit labor intensive and requires the cooperation of other lenders. I've recently spotted a quicker way to collect default statistics.

The Prosper Marketplace Performance page provides all the necessary information. After doing a search, look under Performance Data at Defaults (D) and Net Defaults (ND).

The amount recovered for the lender after fees is (D - ND). To calculate the recovered percentage, use (D-ND)/D. I've pulled a few of the favorites just for fun (I'm odd like that), but I didn't have the patience to do a cross-correlation with auto funding.

Criteria	AA	A	B	C	D	E	HR
All	14.2%	19.9%	15.8%	19.2%	11.5%	9.9%	8.5%
Homeowners	n/a	19.9%	22.8%	21.2%	19.7%	18.7%	21.7%
Non Homeowners	14.2%	19.9%	12.1%	14.7%	8.5%	7.2%	6.7%

The AA grade is slanted because there's only 1 loan that's gone through a default sale. The A grade is just a freaky coincidence (and an implication that home ownership doesn't matter here). I know this much - if I dared mess with E and HR loans, I'd rate home ownership pretty highly.

Rapid Transfer Details

While trolling through the Prosper forums a while ago, there was some commentary on express transfers for Prosper lenders (also from RateLadder). It caused money transfers from banks to post immediately to the lender's Prosper account instead of the usual 4 business days.

I got contacted by a Prosper Lending Services Manager. I suspect the call was because I've been doing lots of transfers to fund more loans (which, incidentally, is what's been distracting me from posting these last few weeks) and they like happy lenders. He was friendly enough, and I did have the opportunity to ask about the rapid transfer service.

To qualify, a lender needs at least $2500 in active loans. I have interpreted this to mean principle in active loans, but once you hit $2500, that's splitting hairs. Once this happens, the service is automatically enabled and the lender can get the rapid transfer on any amount greater than $500 and less than 20% of the active loan amount.

I'm guessing this'll show up in the next non-maintenance post in the announcement forums, but only time will tell.

Tip To Borrowers - Lenders Can Do Math!

I don't make a habit of picking on specific borrowers, but after writing a few tips for borrowers, I wanted to highlight what not to do. In this listing, the potential borrower wants a loan of $8000 and claimed a gross income of ~$16600 and listed expenses of ~$5000.

MY INCOME and EXPENSES:I make about $200,000 per year and my husband stays home with the kids. My expenses Mortgage ($2,500/mo), Insurances (300/mo), Utilities (500/mo), Two car payments ($757 and $712/mo respectively), three credit cards that never really have much of a balance (maybe $100/mo payment), Student Loans ($170/mo). I also have to cover some of my own travel in my income I stated as well as pay my taxes.

Even ignoring food and leisure, quick math implies that there should be some money left over (pessimistically assume taxes average 35%). $16600 * 0.65 - $5000 = $5790. So why do you need the loan again? Ah, yes, that little detail about covering travel expenses.

thank you for your question. I have to pay for my travel expenses out of my income and since I travel 100% of the time, typically my expenses for a month are around $6,000 or $70K per year. I also have to pay my taxes on my income as I am self-employed. I end up with some extra money per month which I try to put into the kids' education fund and save for vacations as well as a regular savings account. I could go for several months without work since I am a contractor & rely on savings.

Oh, yes, that one expense that's greater than all the other expenses combined. Yes, that's why they need the loan. Would the inclusion of this expense stop me from bidding? Nope. Would the act of ignoring a significant expense make me wonder what else the borrower is failing to disclose? Yup. Will this stop me from bidding? You betcha!