Friday, October 31, 2008 - the lawsuits are not going well

In January of this year, Prosper initiated a test program to bring suit against a small set of nonpaying borrowers. 66 very late loans were selected, and Prosper turned these loans over to the law firm of Hunt & Henriques to go after the nonpayers, and try to recover some funds.

Almost 10 months have passed, so it is reasonable to ask the status of the cases in this test program. Unfortunately and amazingly, Prosper does not report any of this status to the lenders whose money is invested in these loans. (They told us they would report to lenders monthly, but they have not.)

I wrote about this earlier here.

Lets review the timeline:

01/15/08 -- Prosper sent many lenders an email message asking them to "opt in" to this project to allow Prosper to sue borrowers on the lenders behalf. I opted in.

02/17/08 -- Prosper repurchased the loans from lenders, to simplify court proceedings. Prosper didn't pay anything to the folks who opted in. Payment will come later, depending on success in the lawsuits.

02/25/08 -- First suit filed. In Riverside county. Prosper vs Cline
04/08 -- Lots more suits filed.

So its now >6 months after the suits were filed. Its time to see what happened.

Although Prosper doesn't tell us anything about the status of these cases, we can look some of them up on the public web sites of various courts. All 66 cases were in California, and several large California counties have excellent web sites that provide status of civil cases. I've visited these court websites, and retrieved status of each case I can see. I've simplified the legal language. If you want to see the details you can visit the court web sites and retrieve the same information directly from the source.

Los Angeles Superior Court
Case Number: 08C00921
Case filed 2/25/08.
Proof that summons was served on Holly Brown filed on 4/25/08.
Case dismissed 5/12/08. Prosper lost.

Case Number: 08C01750
Case filed 4/21/08.
Summons was apparently never served.
Case dismissed 10/10/08. Prosper lost.

Case Number: 08E04908
Case filed 4/28/08.
Summons was apparently never served.
Case dismissed 10/16/08. Prosper lost.

Case Number: 08C01411
Case filed 4/01/08.
No indication that summons was ever served.
Case dismissed 9/24/08. Prosper lost.

Case Number: 08C01437
Case filed 4/01/08.
Summons served on Robert Moffett. Proof of service filed 5/8/08.
On 8/11/08 the court clerk rejected Prosper's request for summary judgement. Sounds like some piece of documentation was missing from Prosper's request. I presume they'll try again.
In process.

Case Number: BC388361
Case filed 4/02/08.
Summons served and proof of service filed 6/19/08.
Plaintiff (prosper) asked for default judgement on 7/16/08.
Proceeding held on 10/29/08, and "continued" to some future date.
In process.

Case Number: 08K08483
Case filed 4/02/08.
No indication summons ever served on defendant.
Case dismissed 10/27/08. Prosper lost.

Case Number: 08K08484
Case filed 4/02/08.
Summons served and proof of service filed on 7/07/08.
Court clerk rejected Prosper's request for default judgement 9/23/08. Doesn't say why. I presume this is another documentation problem, and that Prosper will resubmit, although a month has gone by and they have apparently not yet done so. In process.

Case Number: 08C01110
Case filed 4/01/08.
Proof of service filed 7/07/08.
Court entered judgement against Carr for PRINCIPAL $ 13478.11 . ATTORNEY FEES $00.00 . INTEREST $ 2692.39 . COSTS $ 350.00 . TOTAL $16,520.50 .
Writ of execution issued to Los Angeles County on behalf of Prosper 9/12/08. (Legal thing telling law enforcement that you can take assets.) Prosper won!

Case Number: 08C01456
Case filed 4/01/08.
Proof of service filed 10/7/08.
In process.

Case Number: 08C01458
Case filed 4/01/08.
Proof of service filed 5/19/08.
The court clerk rejected prosper's paperwork on 9/08/08. The clerk's writing is terse, and best I can figure it seems that he believes that prosper filled out the paperwork wrong, asking for more interest than they were due.
The court clerk again rejected prosper's paperwork on 10/30/08, this time he seems to be complainng that some declaration was missing.
In process.

Case Number: 08C01457
Case filed 4/01/08.
Proof of service filed 7/02/08.
Prosper asked for default judgement on 8/11/08.
Court clerk rejected prosper's paperwork on 9/08/08, complaining about wrong interest rate.
Prosper filed again on 10/01/08.
Status conference 10/06/08, continued to 4/14/09. I don't quite understand that, but there are no details available.
In process (I think).

Orange County Court
30-2008-00065226-CL-CL-NJC PROSPER MARKETPLACE, INC. vs Mario Villanueva
Case filed 4/24/08.
Prosper filed proof of service of summons on 7/29/08.
Prosper requested dismissal of the case on 8/12/08.
Case dismissed 8/12/08. Prosper lost.

30-2008-00058684-CL-CL-HLH PROSPER MARKETPLACE, INC. vs Brandi Fitzgerald
Case filed 04/01/08.
No proof of service yet. If they haven't been able to serve the summons in 7 months, that's lookin' bad. Means they can't find the person. In process, but lookin' bad.

30-2008-00058438-CL-CL-NJC PROSPER MARKETPLACE, INC. vs Josephine Sharaba
Case filed 4/01/08.
No proof of service yet.
In process, but lookin' bad.

30-2008-00058436-CL-CL-NJC PROSPER MARKETPLACE, INC. vs Jermaine Massey
Case filed 4/01/08.
Summons served and proof of service filed 7/11/08.
Prosper requested default judgement on 8/12/08.
Court clerk rejected Prosper's paperwork on 8/19/08. Didn't give a reason.
In process.

30-2008-00058426-CL-CL-HLH PROSPER MARKETPLACE INC vs Teresita Spreen
Case filed 4/01/08.
No proof of service yet.
In process, but lookin' bad.

30-2008-00050023-CL-CL-NJC PROSPER MARKETPLACE, INC. vs Karen Rozier
Case filed 2/26/08.
Prosper filed proof of service "substitute" on 5/6/08. I don't know what that is.
Karen Rozier filed requests for waiver of fees and an answer to complaint on 5/14/08.
Prosper filed proof of service on 5/27/08.
In process.

So here are the totals, interpreting the facts that have been made public, of the cases that are easily visible:

Prosper won: 1 case
In process: 8 cases

In process, but lookin' bad: 3 cases

Prosper lost: 6 cases

Now it is entirely possible some of those "case dismissed" are not actually losses, but cases where the borrower coughed up money and got prosper to drop the case. However note that none of them say they were "settled". They just say "dismissed". It is just as likely that these are cases where Prosper discovered they were going after the wrong person, perhaps discovering that there was identity theft involved. Lenders have great interest in the possibility of identity theft, because Prosper has guaranteed our investments against identity theft, and in such cases, must pay off. Note that in several cases Prosper has been unable to serve summons. In other words they couldn't find the borrower to hand him a summons. Might mean that the borrower skipped town, but it might also indicate identity theft. We just don't know.

We just don't know, because Prosper has not made any of this transparent .

Not only has Prosper not told us investors/lenders the status or given us any information about these cases. Nine months after promising lenders a monthly financial accounting for these cases, it has delivered none.

I propose a more communicative approach. Prosper should keep Investors/lenders appraised of the status of their investments, and the actions prosper is taking on investors/lenders behalf.

The best discussion among prosper lenders is found at . See you there.

Friday, October 17, 2008 - 10/15/08 late loan stats update

Here's the october 15th, 2008 update to to my late loan statistics charts.

These charts show statistics for the performance of all loans. Each curve represents the set of loans that were created in one calendar month. The vertical axis is the fraction of those loans that have "gone bad", in other words are 1 month late or worse (up to and including default). The horizontal axis is the observation date. All data comes from's performance web page.

A larger, more readable version of that chart can be found here

08/01/08 small late loan chart

Here's a chart of the same data in which each curve has been slid to the left to a common origin. The horizontal axis is now days since loan origination month.

10/15/08 slid

Explanation of methodology can be found in my prior postings in this blog.

These curves show loans that are >1 month late, however, you can read them as "default curves" because almost all loans that go 1 month late move on to default. See my discussion of Prosper's collections performance in earlier blog entries.

We continue to see horribly misleading newspaper and magazine articles saying that the default rate on Prosper loans is 3% or 4% or something like that. Investors can only make reasonable investment decisions after understanding the default behavior of loans. Prosper loans default at about 20% per year. You can clearly see this from the charts. Pick your favorite month. Look how high the curve has gone after the first year. About 20%, eh? Prosper loans default at about 20% per year, on the average, considering all Prosper loans. There is considerable variation from month to month. Look at the final chart, where the curves are slid to a common origin. Just look at the vertical line labelled 390 days. (That's 30 days after 360 days, because loan payments can't be 1 month late until you wait 30 days after.) You will see curves cross that line anywhere from 18% to 26%. (Some of the more recent months look like they will come in a little lower.) That's how many loans went bad in the first year. Pretty simple really. Journalists seem to get it wrong time after time. Somebody must be feedin' them bad info, eh? Perhaps they just copy bad data from each other .

At the time of this writing, has shut down due to some not fully specified regulatory problem. Meanwhile, the ongoing loans still evolve, and the data is still available, so I will continue to update this charts .

PS: The best discussion among lenders can be found at