Prosper Warning For Low ROI & Prosperous Land Competition

With the last feature upgrade, Prosper has added a ROI calculator that will estimate the average return for certain classes of loans. It helps lenders to estimate how much risk they're taking on, and prevents people from complaining that they didn't know what they were getting into. And, if you proceed anyway, Prosper has added a big warning that you're doing something that is not recommended.

Wasn't that nice of them to let me know that a 3-year CD would do better than this loan?

And now for the competition part. I think it's likely that Prosper will place ads for some well meaning financial institution along with this Low Estimated Return warning (probably for CDs or high interest savings accounts). The reader whose guess is closest to the date the ads go live will get a copy of Banker To The Poor: Micro-lending and the Battle Against World Poverty.

So, here are the rules (for you legal-types).

• The competition will run until Dec 1, 2008. That sound be enough time.
• Guesses must be submitted by Dec 1, 2007.
  
• E-mail your official guess to prosperousland@gmail.com although I encourage you to also post your guess for bragging rights. Be sure to include a name you want used for the world to see. Since I run on Blogger, I have no good way of authenticating that you're the post owner.
• The winner will be announced upon first confirmation of ads. This will be based on my sighting, or a confirmed and verified screenshot on another blog or the Prosper forums.
  
• The winner will have 1 week to claim their prize and then the winner will revert to the next closest guess. This will proceed until the prize is actually claimed. To claim your prize, I'll need a mailing address.
  
• I'm the arbiter of disputes, Grand Poobah, and benevolent dictator of this small corner of the internet as far as terms for the competition go.
  

Happy guessing!

Revenge Of Linkfest

RateLadder looks at thin slices of loans:

However, I would caution lender to think for themselves a little bit. Speaking as one who has analyzed a bunch of Prosper data if you sliced the current loan data into 54 equal segments (see graph at the bottom of the page) you start to get some mighty fine segments. There are currently 15,832 loans on Prosper. 15,832 / 54 = 293 per segment assuming equal size buckets. I haven’t looked but I am sure that not all buckets are of equal size. Even with even distribution this is cutting it close.

WiseClerk ponders on the effects of identity theft:

P2p lending services can tolerate only a low level of identity theft cases. The innovative approach of p2p lending requires that lenders trust the concept and the service. Fraud cases endanger that trust.

RateLadder had Prosper repurchase a loan:

Yesterday, I had one of those bitter sweet moments. Sweet in that a loan I had been writing off in my mind as bad was repurchased by Prosper for the full principal balance. Bitter, because I really believe I am helping people with these loans and yet someone would take advantage and try to steal my hard earned money.

One person's experience with Prosper.com:

If someone with a lot of cash wanted to invest on Prosper there are ways to automate it and reduce the workload relative to what I was doing. For instance, you can set up bidding agents that will bid on any loans with certain characteristics. My hunch is that lenders who are continually refining their agents and doing rigorous analysis of the data on the site probably can make money without plodding through thousands of listings. If you can't be that sophisticated about it, I wouldn't recommend lending on Prosper unless you think it's fun.

Secondary Market & SEC Filing Roundup:

• Prosper proposes secondary market for person-to-person loans
• Prosper Registers With SEC to Create a $500 Million Secondary Market in Peer-to-Peer Loans
• Prosper Files With SEC To Create Loan Resale Marketplace
• Prosper wants to create a secondary market in p2p loans
• Prosper and the Defaulter
  

The Economist - Peer-to-peer lending: Crunchless credit

IF THE banks won’t lend you money, might a stranger? Probably not, to judge by recent data from Prosper, an American peer-to-peer lending marketplace (a place where people can lend their own money to other people).The website, which lets lenders bid against each other on the interest rates they are prepared to offer to specific borrowers, has seen an increase in demand from subprime borrowers as access to credit has tightened. But lenders have responded in turn.

Business Week - Looking Elsewhere

With tried-and-true sources of capital drying up, entrepreneurs need to get creative about finding financing. If lenders turn you down, consider one of the new Web sites that link entrepreneurs and individuals with cash, such as prosper.com or lendingclub.com.

Update On Prosper's Collection Effectiveness

As I mentioned in a previous blog post, one way to gauge the effectiveness of collections is to look at how delinquent age. If a loan is one month late, in a month it will either be brought current or it will be two months late. From this, we can get near real-time updates on whether Prosper's attempts to improve collections are working.

And on that note, we now have Nov 1 statistics to add to the table.

Month Initially Late	Initially Late (1 month late)	1 Month Later (2 months late)	2 Months Later (3 months late)	Repair Rate
January 07	95	83	82	13.68%
February 07	101	90	90	10.89%
March 07	108	91	89	17.59%
April 07	130	119	119	8.46%
May 07	193	178	171	11.40%
June 07	203	195	186	8.37%
July 07	224	194	187	16.52%
August 07	250	232	227	9.20%
Sept 07	259	229	234	9.65%
October 07	313	264	?	?
November 07	324	?	?	?

The uptick in defaults in the Sept 07 family (1 month late on Sept 1, 2 months late on Nov 1, 3 months late on Nov 1) is peculiar and may be because October has 31 days (a good question for Prosper staff). The Oct 07 family, however, is noteworthy because the repair rate is already at 15.7%. While this is not outside the statistical spread (March and July were also pretty good), it's better than average (11.4%). A decrease would've been a contrary indicator, so this is a reasonable sign. December's numbers should be enlightening.

I'm transitioning my Collections-O-Meter (TM) from "skeptical" to "cautiously hopeful".

P2P Lending Featured On NPR's Morning Edition

P2P lending got featured during this morning's rush-hour NPR coverage during Morning Edition. Prosper was promoted prominently. It was a little rosy compared to actually lending on Prosper, but was interesting none the less. I was amused that I had seen the listing they referred to in the piece just a day or two ago. Head over to NPR if you want a listen.

America is known as a nation of borrowers. At last count, it had a collective $2.5 trillion in consumer debt. But it could become a nation of lenders — theoretically at least — as Web sites enabling ordinary people to lend and borrow from each other flourish.

Prosper Violating Lender Registration Agreement?

traveler505 has done some great research that suggests that Prosper is violating their agreement with lenders. It's a long read (at least by blog standards), but he's got a solid collection of facts backing him up.

Because the Lender Agreement specifically precludes Prosper from deducting Servicing Fees and Group Leader Fees from payments made more than 30 days after the due date, and because doing so constitutes a breach of contract and breach of fiduciary duty on the part of Prosper Marketplace Inc., I request that Prosper make immediate restitution of the misappropriated funds to lender accounts.

traveler505 was one of many lenders who are highly critical of Prosper's recent changes, specifically hiding previous listings. The changes destroyed some of good will from the lending community, and traveler505 is no longer being nice.

In the past, when my research uncovered serious misconduct by Prosper, I have contacted Prosper staff privately, to allow them to voluntarily correct the problem before making it public. However, in view of the gross contempt that Prosper has shown for lenders through the moderation of these forums and the implementation of certain new policies, I no longer feel that I owe Prosper this courtesy. I will be delivering a formal version of this complaint and request for restitution to Prosper’s General Counsel and Chief Compliance Officer later this week, after lenders have had an opportunity to review it here.

Prosper Andrew has committed to look into it:

Thanks for bringing this up. We'll look into it and make changes accordingly (either to the agreement or to the servicing system).

He was quickly called on the implied statement that everything would be hunky dory if they changed the agreement and clarified his answer:

Sorry - I didn't mean to imply that we would simply change the agreement and pretend like nothing ever happened. Give us a couple of days to work on this and come up with a plan.

Prosper To Give Quarterly Collections Update?

Prosper Shira has hinted that there'll be quarterly collections updates from Doug Fuller.

Thanks for this post. There is important feedback in here that I'll make sure Doug Fuller sees.

As a reminder, Doug plans to update the community on Collections progress on a quarterly basis. You can also catch him live at Prosper Days 2008 in February in San Francisco.

Shira

This could be interesting when it arrives.