What Hopeful Prosper Borrowers are Saying

“I thought prosper was to help out in need and I am good for it.. Just give an chance, thats what life is taking an chance.”


“I cannot get a loan from any banks without haveing a job and I need the money right away if I can get it. "


“I want to start a Cash Giftng Program, so I will be able to make some serious money $$$$”


“I am two months behind on my mortgage payments and I need this loan to come current and stop getting deeper.”


“I am DILIGENTLY rebuilding my credit and I would like to make one monthly payment to someone that will give me a chance. “

Another Prosper Loan Bankruptcy

*sigh*

Another loan tagged with a bankruptcy in my Prosper loan portfolio.

Just turned less than 15 days late too. 18 on-time payments.

What is it with some folks? Oh, right. Nevermind…

Weekend Chimp Joke - The Lottery

My Car Felt Special for 5,280 Feet

But now it's back to feeling like a regular, 9 year old car...

Prosper Collection Agency Amsher Workin’ It

To my surprise I noticed a second small collections payment from a 3 month late borrower within the month. This loan is two years old.

It looks like Prosper's Collection Agency Amsher may have worked out some sort of payment plan with the borrower, about 1/4 of the monthly payment amount every two weeks. It won’t bring the loan current, but it will keep putting my money back in my pocket.

I just hope it continues. Something is better than nothing…

Hopes Crushed on 6 Month Late Loan

I had my fingers crossed. I saw a dagger on a 6 month late Prosper.com loan, meaning a payment (a rather large one) was attempted. It had a regular payment number (did not start with “OP”), so I could only assume this payment was initiated by the borrower.

This borrower has had an interesting history. First becoming 3 months late, and then catching up late last summer. Then only to go late again in November, with only one inconsequential small payment made at the 33 day late mark. Now it’s 6 months late.

I was hoping that this again was an attempt by the borrower to make good on her promise to pay me back. It turns out she’s still a deadbeat.


Here’s a screen shot of the pending payment:

And the screen shortly after the payment failed. We still don’t get to see a history of failed payment attempts, which is kind of frustrating. They just go *poof*.

As I’ve said on many other delinquent and defaulted loans of mine, I wouldn’t bid on this one today. I know, hindsight is 20/20, but thanks to deadbeats like this, it’s rare for me to find a listing that I can’t imagine some sort of scenario where the borrower will default.

You’d be amazed at the sort of things I consider red flags these days. Pretty trivial stuff, and probably not even correlated to defaults or anything. But these are the thoughts that run through the head of an old lender - deadbeat until proven otherwise. I guess it’s better to be safe than sorry.

This would probably also explain the few number of loans I’ve made in the past year. If I can find a reasonable listing on Prosper, I’ll bid. A quick look at my recent Prosper loans will show you how many good loans I’ve found lately (10 loans since the new year if you’re too lazy to look it up – 2 of which I’ve met personally).

So, I’ve been spooked. I guess that’s what happens after you’ve been burned enough times by deadbeat borrowers on Prosper.

Weekend Chimp Movie - In and Out

One of Your Loans Defaulted Due to Bankruptcy

The automated Prosper message title said it all: “One of your loans defaulted due to bankruptcy”. Ugg.

I received two of these messages just recently. It’s not a surprise, since I’ve known that both of these borrowers had filed for bankruptcy. But defaults still suck.

Here’s a little about each of these:


Loan: Consolidation Loan (Listing 30873)
Borrower: SDL
Default date: Apr-30-2008
Principal balance before default: $30.54
Loan value before default: $32.39

This borrower first made 12 on-time payments, stumbled for a few months, then made 2 more on time payments until December 07, when it just died.

After interest is figured in, I lost about $23 on this one. Luckily, this was not one of my larger loans. (my largest is $1,050)

In her profile, she states "I think prosper will be a very good thing for borrowers and lenders.” As for this case, it was not very good for Prosper lenders.

What red flags should I noticed on this one? It appears I didn’t do a very good job of checking previous listings. Her second listing would have scared me off, where she was requesting $22,000 to pay off all credit card debt, and titled the listing, “Drowning in 2 Cards debt with no payoff”. That doesn’t sound good - I should have done my homework. Also, the 37% DTI should have made me more cautious.

Not the worst listing I’ve bid on. It’s too bad it had to end in default.


Loan: Debt Consolidation (Listing 65538)
Borrower: uniguy
Default date: Apr-30-2008
Principal balance before default: $116.43
Loan value before default: $129.99

I wrote a little about this one when the bankruptcy tag first appeared.

This guy only made 10 payments before filing. I lost a lot more on this second loan than I did the first.

Ugg.

April 08 Warm n Fuzzy Index

April 08 Warm n Fuzzy Index:
61% - 43/70
(Last month's reading: 54%)


8/10 - Personal Performance: +1 this month. I’ve managed to claw my way back to just under 8% ROI when using Excel’s XIRR function.

6/10 - Peer Performance: No Change.

7/10 - Prosper Management: +1 this month. The recent change to use WebBank to originate Prosper loans so that rate caps and state restrictions could be minimized was long overdue. Of course, it now appears Prosper’s origination mechanics are even more similar to LendingClub’s, who just last month ceased all activity in order to register promissory notes with the appropriate securities authorities. Perhaps Prosper is still slightly different enough to be ok. Maybe not. Who knows. But ballsy enough – I like it.

10/10 - Platform Improvement: +2 this month. The updates implemented in April were fantastic enough to award the first 10 to a category score.

Nationwide lending at 36% interest rate cap – Cool, fantastic, and excellent! About time?

Second loan criteria updated – nice

Lender servicing fee for AA changed to 1% per annum – Bzzzt. Wrong answer.

3/10 - Listing Selection/Volume: +1 this month. With nationwide lending now a reality, the listing count has increased a little bit. Still, not many good loan opportunities, but better than before.

2/10 - External Influences: No Change. The economy still sucks. Inflation. Oil prices…

7/10 - Viability Forecast: No Change.


Summary: The nationwide lending change was by far the most interesting improvement I’ve seen in a while. Enough to push the Warm n Fuzzy Index to its highest level to date!

See you next month!


Past Index Readings:
54% - March 2008
54% - February 2008
46% - January 2008
43% - December 2007
50% - November 2007
57% - October 2007
54% - September 2007

What is the Warm n Fuzzy Index?

Observations on Prosper Interest Rates

(part 18 of my Prosper Lending Presentation)

If you have followed along to at least this point, then it should be obvious to you that you need to set your own bidding rates to accommodate the risk you’re taking on with each Prosper loan. duh! Don’t chase a rate down too far just because you were outbid and have to be on the loan. There is always a point to let a loan go free without your bid. More listings will be coming your way.

And while we’re on interest rates, here are just a couple of observations I’ve had about them in the Prosper Marketplace:

Market Popularity

The final interest rate gives the Prosper lender an idea of how others have rated the listing. A high rate usually means that there isn’t too much confidence in the borrower, while a low rate usually means a high level of confidence. So this in a way is another data point.

For example, Ohana loans and longtime community member loans usually go for very low rates because of their popularity.

But if you don’t know why a Prosper loan is so low, then you need to find out before you bid on it. Sometimes loans just go low for other reasons.


Auction Mechanics

Don’t be fooled by big loans, and don’t be fooled by small loans.

Bigger loans usually command a higher interest rate, not only due to the new Bidding Guidance that we’re given and the higher risk that large loans usually carry, but because it’s harder to drive the rate down on them. Because of the loan size, more interested bidders are required to successfully drive the rate down on these large loans.

Conversely, on a small loan, only a few aggressive bidders are required to drive the rate down to unimaginable depths…

Beyond the Credit Grade

(part 17 of my Prosper Lending Presentation)

As absolutely nifty as Prosper’s new Bidding Guidance and Portfolio Plans are, they just do not have the capability to capture the amount of detail that the manual bidder can.

Let’s consider the Borrower’s description. The way a borrower presents themselves can offer insight into their financial situation. A lot of borrowers these days include a budget and show much they’re paying for their mortgage or rent, car, and credit card bills.

Do the numbers in the budget jive with how much they make per month? (are they claiming a $100 food amount per month? (ack))

Does their budget jive with the DTI figure provided by Prosper?

There really is good stuff to be found in borrower descriptions. Unfortunately for the borrower, more often than not there are little tidbits offered in the description that might convince you NOT to bid rather than bid, but too bad for them, and too good for your Prosper balance.

On the other hand, a properly written Prosper listing will show the sincerity and determination that the borrower has toward repaying their Prosper loan. You just need to learn what to look for and what to avoid. Things that I unfortunately will not provide here.


Beyond the listing description, even, there are other things the manual Prosper bidder can take advantage of. Prior listings are a huge resource. If the listing has changes substantially, watch out! Other things, like Prosper user ID’s and pictures can also offer some clues to the borrowers sincerity or desperation.

The Credit Grade and Bidding Guidance offered by Prosper are a good start. But if you’re looking to maximize your return on Prosper, you’ve just got to dig a little deeper…

Assessing Borrower Risk

(part 16 of my Prosper Lending Presentation)

Just because someone is an AA doesn’t mean they should get a 25k Prosper loan! Based on their income and DTI, they might only be considered an AA for a 1k loan.

Credit Grade is not the only thing the Prosper lender should be looking at. Actually, in my opinion, Credit Grade is quickly becoming a thing of the past.


When Prosper was first launched, the idea (I’m assuming) was to break borrowers into risk segments based on their Experian ScoreX Plus score. Each segment had an associated risk. These were our credit grades. AA, A, B, C, D, E, and HR.

For the professional lender, these scores might have carried more weight in combination with either the full credit report or a proprietary scoring system that could both assess risk and establish maximum credit amounts. (the scoreX Plus score default rates used in Prosper’s past were derived from bank card products, not personal, over-the-internet type loans)

Fortunately for us Prosper lenders now, Prosper has created the Bidding Guidance which references one of 103 Credit Segments based on actual Prosper historical loan performance. (as opposed to the initial 7 credit segments / grades we had initially)

Would you believe that the best performing D grade Credit Segment has historically carried a lower risk than the worst performing AA grade Credit Segment? Look at the details for each of these. The best performing D grade slice is a low amount, non-autofund, with 0 current delinquencies and a low number of recent inquiries. Meanwhile, the worst AA slice is an autofund for more than $10,000.

Crikey!

Credit grades don’t carry nearly the weight that they used to, thanks in part to the improved Bidding Guidance and Prosper’s Performance Page. Prosper’s Credit Segments pare each Credit Grade down and weed out the historical non-performers for you. It’s a beautiful thing.


The Credit Slices are a great improvement on Prosper for us lenders. But there are a few other things that help the manual bidder assess risk even further, beyond both the grade and the credit slice…

The Borrower’s Ability to Pay You Back

(part 15 of my Prosper Lending Presentation)

One of the most important things one should consider when looking for listings on Prosper is to find borrowers that are requesting reasonable loan amounts within their capacity to pay you back.

Of course, the income claimed is self reported (although some are verified by Prosper), but that’s all we have, so we have to rely on it (with a healthy dose of skepticism).

Also, the borrower’s DTI gives you an idea of what sort of debt load the borrower has relative to how much they’re making. Keep in mind that the DTI figure includes the Prosper loan payment, but does not include a mortgage payment (that would give renters a huge advantage).

Now, how much are they asking? Huge loan amounts scare the hell out of me, and historically haven’t performed well, regardless of the income. Big loan amount = big monthly payment. The borrower would need a large salary to handle a large monthly payment and other existing obligations, and unfortunately most borrowers don’t have big incomes. So, you must consider the amount requested relative to income and DTI.

Fortunately for us lenders, the newly revised Bidding Guidance is in part based on loan amount. If you want to see how much riskier large loans are compared to small loans, spend some time perusing the latest Credit Segments Prosper offers on existing Prosper loans. The results might surprise you - or not.

Notice I haven’t even brought up credit grades yet. Regardless of the credit grade, the borrower MUST HAVE the ability to pay you back…