These charts show statistics for the performance of all prosper.com 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 or "charge off" as it is now called). The horizontal axis is the observation date. All data comes from Prosper.com's performance web page.
Loans created in the worst month so far, October '06, have now gone past 43% bad!
Click on the chart to see a larger clearer version.
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.
Explanation of methodology can be found in my prior postings in this blog, and in forum discussions on the old prosper forum, now archived at www.prosperreport.com
Many of the very early posts in this blog are still on point, and provide background on prosper, from a lender's perspective. If you're new to this, please read old posts before sending questions. Thanks.
The basic fact about Prosper.com loans so far is that about 40% of the borrowers are not paying back the loans. This is horrendous. You don't see this in the summary stats that Prosper gives you, because they mix new loans in with the old loans, and new loans haven't had time to go bad yet. Separating out the loans by time of origination, as I do above allows you to see how Prosper.com loans evolve over time. It seems that they evolve to about 40% bad.
I've written before about the reasons I believe that investments in Prosper loans have done so poorly. Prosper has done a poor or nonexistent job of basic tasks necessary for successful lending: verifying information provided by borrowers, and collecting loan payments.
In early 2008, I was pleased to see Prosper saying they wanted to try doing some things differently. As it turns out, it was all fake.
On 01/15/2008, Prosper.com sent an email message to many lenders, explaining that 68 very late loans were being moved to a new category, a "legal test". In this test, Prosper would try taking legal action against very late borrowers, instead of just doing nothing. I thought at the time that it was a good move. Prosper had done such a horrible job of collecting on late loans, lenders were desperate for improvement, and the promise of legal action against some of the professional deadbeats who had ripped us off just sounded right to us. Many of us opted in.
Prosper's 01/15/2008 email promised ...
Since this is a test, we have not yet designed the system to track these revenues within the normal statement process. As such, the loans will be defaulted at zero value and the accounting provided on a monthly basis in a supplementary statement.
However, Prosper has never bothered to send lenders any of these promised supplemental statements! $735,000 of loans have simply disappeared from lender's view.
That's right. No monthly acccounting statements as promised. No reporting. Prosper has kept lenders completely in the dark on the status of the legal action on these loans. None of these accounting statements were ever produced during any of the 12 months of 2008, nor the 8 months so far of 2009!
I have written to Prosper about this a few times now. My most recent correspondence was in early July 2009. Their response was that there would be some status real soon now. No word, however, on the missing 20 months of statements or when or if they intended to ever produce any.
Fact is, even tho Prosper is keeping the details secret, with great effort lenders can track the status of some of these lawsuits. This happens because many courts make some lawsuit status details public via their web sites. (Not all courts make status available online, so we can't see the status of all of them, without traveling around to the various county courts, and checking the records manually.)
From the lawsuits that are visible on the web, it appears that Prosper has lost most of the cases. No one from Prosper has ever offered an explanation for this. Isn't that outrageous? I think it is. I think it shows a disdain for lenders. It shows that Prosper management believes it is not necessary to do the things that they say they will do. They believe this even when $735,000 of lender's money is at stake.
I seems that the legal test was horribly underfunded by Prosper, and at some point they just aborted. A damn weak effort. Instead of a symbol of Prosper's strength and a deterrent to deadbeat borrowers, it is just another sad joke in the Prosper.com story.
So what does that tell us?
Posts
For the larger picture, read The Richest Man in Babylon.
ReplyDeleteI'm making an assumption that current loans do not count in the 40+ percent, even if they were a month late at some point. Is this a valid assumption?
ReplyDeleteTo Thomas: Correct.
ReplyDelete