Could You Spare a Dollar?

I’ve been perusing through the recently updated Bidding Guidance from Prosper (BG dated 4/14/08), and something jumped out at me.

The loan size ranges for each credit segment are all a bit, um, wonky. Maybe I should be a little more specific. The upper limit of the loan size ranges are wonky.

For example, the lowest loan size range for each credit grade is “less than $5,000” (or $0 - $4,999) ; except the C grade, which is “less than or equal to $5,000” ($0 - $5,000).

Also, when the upper limit is $10k, it is usually “less than $10,000” (up to and including $9,999, but not $10,000). Except segments 9 & 10 (AA) and segment 26 (A). These three are up to and including $10,000.

While there are these few quirks, there does seem to be at least a little consistency when selecting the upper loan size limit. For loan sizes less than $10,000, the upper limit is a “less than” figure (i.e. $4,999, $7,499), and sizes $10k and up, the upper limit is a “less than or equal to” figure (i.e. $10,000, $15,000).


So, why do I think this matters? Do I really have that much free time on my hands?


Let’s see how much difference a dollar makes.

(Using Prosper’s performance page and the criteria for this version of the Bidding Guidance, that is Loans originating between 6/1/06 – 1/31/08, observed on 3/10/08. Default rates shown below include the sum of the net default and adjustment figures from the ROI estimate table.)


Segment #9 – EDIT (I screwed this one up, nevermind. I'll look at it closer later.)


Segment #16 – A, No automatic funding, loan amount $5,000-$7,499, 0 now delinquent, 0 inquiries

Historical Default Rate: 1.25%

Instead use upper limit of $7,500 and recalculate:

Historical Default Rate: 2.46%


Segment #30 – B, No automatic funding, loan amount less than $5K (0 - $4,999), less than or equal to 40% DTI, 0-2 inquiries

Historical Default Rate: 2.80%

Instead use upper limit of $5,000 and recalculate:

Historical Default Rate: 4.25%


Segment #71 – D, No automatic funding, loan amount less than $3K (0 - $2,999), 0 now delinquent, 0-1 inquiries

Historical Default Rate: 5.57%

Instead use upper limit of $3,000 and recalculate:

Historical Default Rate: 11.52%

(those $3000 D loans in this slice must be killer)


See, a dollar really does make a difference!


Now, I should add that there are some cases where the extra dollar hurts the performance of the credit segment.

For example, take a look at the C grade, non-autofunding segments 49-54. These don’t follow the pattern, as the upper loan size limit is “less than or equal to” $5,000. (all other segments show the range 0 - $4,999)

Just by adding in that extra dollar, the performance of 5 of the 6 slices is actually worse than it would be if the slices were 0 - $4,999. I won’t list them here, check it out yourself.

(edited out while I check on something)


So, when bidding on a loan that is on the cusp of a credit segment, do a little extra due diligence. And give me a dollar…


* - “less than” signs don’t do well in blogger for some reason, otherwise I would use them…