Prosper.com - 07/2010 Late Loan Stats Update

Here's the July 2010 update to to my Prosper.com late loan statistics charts. I was unable to update these charts in May and June, because Prosper had the data offline at that time. The data's back, so here we go...

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.

The worst month so far is still February '07. Of the loans originated by Prosper.com in February '07, 45.3% have now gone bad. Yipes!

More detail can be found in my earlier posts.

Click on the chart to see a larger clearer version.

I terminate each curve when all the loans in that cohort are "done", in other words paid off or charged off. You may notice some of the curves extend to the right farther than you would expect. That's because I'm following the Prosper data.

There are some quirks. For example, I would have expected that loans originated in Dec '06 would all be "done" by now, but the Prosper database shows that they are not. They hold 5 of the Dec '06 loans still in the "30 to 120 days late" category. These are 36 payment loans, with their first payment in Jan '07, and last payment in Dec '09. Prosper holds late loans until they are either paid off or 4 months late. If one of these Dec '06 loans were late on its last payment, one could imagine it might be held thru Jan, Feb, Mar, Apr of 2010, but then it should be charged off. Dec '06 is not the only month containing such anomalies. Not the first quirk in this data, and I'm sure it won't be the last.

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. Because Prosper's loans changed character when Prosper relaunched in Aug '09 with new credit score limits etc, I have separated this data into two charts, one for the "old" loans Oct'08 and earlier, and a second for the "new" loans Aug'09 and later.

For easy visual comparison, I included two of the "old loan" curves on the new loan chart below. These are approximately the best and worst months of the old loans, so you can see the range of slopes occupied for comparison. The new loans have lower default rates mostly because in Aug'09 Prosper raised the minimum credit score required to apply for a loan.



In July Prosper made several small adjustments. They revamped the "Prosper score" again. This is both good and bad news. No doubt the new score design is an attempted improvement, but the constantly changing baseline makes the score almost useless to lenders. Prosper also raised the origination fees on several credit grades of borrowers. C thru HR credit grade borrowers are now charged a 4.5% up front origination fee for a loan! Many lenders have questioned the wisdom of that price hike. Might increase Prosper's income, but not enough to save the company. To save the company, they have to increase loan volume.



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.

PS: The very best discussion among P2P and Prosper.com lenders is found on prospers.org. See you there!

Prosper.com - no more stats

I'd like to update you on Prosper's late loan stats, but I can't.

On May 3rd, Prosper installed new software to process loan payments. There seem to be several problems with the new software.

On the same day, they have removed the Prosper loan performance data from the loan performance statistics web page. The page is still available, but since 5/3/2010 it has displayed the message "Marketplace data temporarily unavailable".

(In the meantime, you can refer to my most recent Prosper loan performance charts.)

Questions from lenders about when the loan performance data will reappear have gone unanswered. (One question from a lender posted on the prosper blog got a response saying the performance data will return, but not when. My own email to prosper on this subject has gone entirely unanswered.)

Meanwhile, the new payment processing software appears to be quite a fumble. In the last three weeks dozens of members have noticed anomalies in payment processing and have notified prosper about same. You can see these discussed in the comments section of the prosper blog, or on the prospers.org forum. It seems likely that most people don't look at the numbers in detail, so would not notice payment processing errors. If dozens are reporting errors, it seems likely that the snafu is widespread. If you have noticed such problems yourself, please contribute to the discussion on the prospers.org forum.

I noticed one myself, and emailed Prosper on 5/10/2010. I wrote:

I'm looking at note 8324-36. Looking at the note detail, I'm having trouble with some of the numbers.

I don't understand the "principal balance" column on the "borrower payments" tab.

The first April-12-2010 payment attempt drops the principal balance from $80.32 to $47.04, which looks about right. Later on April-12-2010, the payment is reversed, which jumps the principal balance to $142.79 . This is impossible.

Later on April-12-2010, another payment attempt is made, dropping the principal balance to $48.59 . At first I wondered why it didn't come back to $47.04 . Then I realized that the difference between these values is two late fees. But why is the guy charged two late fees for one payment?

Finally, I compared the principal balance column on the "lender accounting" tab to the principal balance column on the "borrower payments" tab, and found that they do not agree! One thing that borrower and lender must always agree upon is the principal balance!

Please advise.

I got a response thanking me, but the problem has not been fixed.

I suggest to all lenders that you look over the arithmetic in any loan where there have been late payments, or in which payments have been reversed. Look carefully at late fees. Look to see after a failed payment is reversed whether the principal comes back to what it was before the payment. Look to see whether the borrower tab and the lender tab agree on the loan principal.

Obviously Prosper installed this new software without adequate testing. Their recovery from this fumble is not encouraging. Have all the good software people left the company?

Meanwhile I wonder if the loan performance data will ever return. Seems quite possible that it is gone forever. This is a sad situation.

I remember three years ago when we had a similar situation on Prosper's collections performance data. I repeatedly pointed out that there were obvious errors in the data. Prosper took the collections data offline with the repeated promise that it would return as soon as some software which interfaced to the collections agency was repaired. Later the web page containing the collections data was removed, and the collections performance data was gone forever.

The best discussion among P2P and Prosper.com lenders is found on prospers.org. I hope to see you there!

Prosper.com - Series D financing analysis

Prosper has just announced its fourth equity capital round, series D. What follows is a brief analysis of this investment round based on public information.

Prior to the series D round, prosper had 14,752,825 shares of common stock outstanding. (This info from page 82 of Prosper's March 31, 2010 SEC form 10k.)

In the series D round, prosper issued 20,340,705 new shares of common stock for $14.7M. That comes to $0.723 per share. (This info from Prosper's April 20, 2010 SEC form 8K.)

The first thing to notice is that prosper was forced to give away 58% of the company to raise this money. That must have hurt.

How does that price per share compare with prior investment rounds? Here they are for comparison...

04/2005, Series A, 4,023,999 shares for $7,464,450, or $1.875 per share.
02/2006, Series B, 3,310,382 shares for $12,412,301 or $3.776 per share.
06/2007, Series C, 2,063,448 shares for $19,919,009 or $9.692 per share.
04/2010, Series D, 20,340,705 shares for $14,700,000 or $0.723 per share.

In the venture capital business, this is called a "down round". That's one hell of a jump down! From $9.692 to $0.723 is down by a factor of 13.

Although Prosper announced the series D event as a $14.7M round, it brought in only $11.4M of cash. That's because some of the shares in this round were paid for not with cash, but by conversion of the principal and interest Prosper owed on the bridge loans Prosper took out in Nov 2009 and Feb 2010.

If Prosper has continued spending at the rate reported for the quarter ended Dec 31, then it should have about $12.3M in the bank today. I now expect Prosper to begin spending at a greater rate than the December quarter, as it tries to rebuild momentum. If spending increases back to the rate of the quarter ended Oct 31, and revenue stays about the same, then this money would last about a year or so.

Of course I don't know what the future holds.

As always, great discussion among P2P and Prosper.com lenders is found on prospers.org. I hope to see you there!

Prosper.com - backloaded months

For a long time now, Prosper lenders (those members who lend to others thru Prosper), have observed that a great many Prosper.com loans originate in the last 3 or 4 days of each month. Each month is "back loaded".

The most often discussed hypothesis is that Prosper rushes at the end of each month to push thru any loans that can be pushed thru to make the best possibly monthly numbers. If so, this would be bad for lenders, because Prosper has a number of duties to perform before a loan originates, and lenders want those duties carried out with care. Prosper is supposed to check the borrower against various fraud databases, receive the post card from the borrower verifying their address, and selectively verify other information the borrower has provided. These checks are an important part of fraud protection on which lenders depend. If Prosper is skipping or skimping on these checks during the mad rush at the end of every month, then we'll have a bunch of lower quality loans in the system, and more defaults.

So do we have an end-of-month rush?

I've charted the daily loan originations for the last 5 months vs day of month. Although the chart is a bit busy, you can plainly see that each month is indeed back-loaded.



Now there are several problems with the chart above. First, each month has a different number of days, so the end-of-months don't line up. Second, there are weekends and holidays scattered around, and no loans originate on those days.

To fix these problems, I squeezed out the weekends and holidays, and then slid all the months over so they aligned on the last day of the month, then averaged the five months shown above. The result is this much cleaner chart, showing business days only, and with month-ends aligned.



Yep. I'd say Prosper's months are very much back-loaded. It really does look like the boss walks in when there are about 3 days left in the month and starts yelling that everything must get out the door by month end.

This is the end of another month, and I've updated my loan growth chart. This chart shows Prosper's loan origination by month, so we can see how the business is growing. February was larger than the preceeding month, but still below November '09, and of course well below anything in 2007 or 2008. The last few months have been pretty much a "no growth" scenario.



Today Prosper announced that they're negotiating with investors for a new investment round, which of course we all expected. In fact they must get this done quickly, because they are nearly out of cash. (See my last few writeups for calculations.) It will be interesting to see the details (ie how much did they have to give away) when they emerge in a few weeks.

Tomorrow is the SEC's deadline for the filing of Prosper's annual report (form 10K). At that time we'll learn a bit about how Prosper has managed their cash during October, Nov, and December. (Unfortunately, this document won't tell us anything about January, February, March. )

The best discussion among P2P and Prosper.com lenders is found on prospers.org. I hope to see you there!

Prosper.com - 02/2010 Late Loan Stats Update

Here's the February 2010 update to to my Prosper.com late loan statistics charts.

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.

The worst month so far is now February '07. Of the loans originated by Prosper.com in February '07, 45.3% have now gone bad. Yipes!

More detail can be found in my earlier posts.

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.

Not much news from prosper.com this month. Lenders are waiting to see Prosper's year-end SEC filing (form 10K) which should issue any day now. This will give us an update on how much cash Prosper has left. Based on the September 30'th quarterly SEC filing, I estimated that Prospser has enough cash to live until April 1, 2010. Some time in the next few days the 10K will issue, and we'll learn how Prosper's management has been managing its cash. If they've been frugal, perhaps they can last a bit longer, or ...

As we discuss the possibility of Prosper's next round of venture capital, it is meaningful to look at the scale of Prosper's business, and how it is growing. A new investor in Prosper's business wants to see growth of course. Prosper's business is not sustainable unless it is able to grow to something like 10x its present size, so growth is absolutely essential. The last few months have been disappointing. Where is the growth? This is sad to see. This company once had enviable buzz. Now their marketing is a horrible failure.



PS: The best discussion among P2P and Prosper.com lenders is found on prospers.org. See you there!

Prosper.com - bankruptcy postponed

Bankruptcy has been postponed.

At the 11th hour, on February 1, 2010, a group of 6 venture capital firms injected a small amount of money ($2 million) into Prosper.com in the form of a bridge loan. The terms of this loan were (as far as has been disclosed) identical to the terms of the $1 million investment from Nigel Morris on November 10th. These loans will convert to common stock when (and if) someone comes along with the next major chunk of money in the form of an equity investment.

This is a small amount of money on the scale of Prosper's operation. If we assume, as I did in the last post, that Prosper continues to burn cash at the same rate they did between the June and September quarterly reports, this new money is sufficient to keep Prosper operating until April 1st 2010 -- a relatively short time from now. Prosper's management will be working hard to find the next investor before this time is up. I wish them well.

To have a chance of growing to a sustainable revenue, Prosper needs an injection of $20 to $50 Million. Given the difficulties the business has had so far, it seems unlikely that this money will appear in chucks larger than $5 or maybe $10 million at a time. Management has lots of work to do.

While we're on the subject of sustainable business, lets look at how Prosper's loan orginations have grown with time. I estimate that Prosper needs $50 Million/month in loan originations to be sustainable. During the first year, volume grew nicely. After that there were a number of problems, including the SEC shutdown in late 2009.

Unfortunately, Prosper's loan volume after the restart have been comparable to those first months of 2006. Momentum died during the shutdown.

During the first two years Prosper's loan volume was driven largely by PR. In other words, you could see that borrowers came to Prosper after reading stories about Prosper in magazines and newspapers. Every time such a story appeared, you would see a spike in listings. PR is great for a new company, but it isn't sustainable. In the early days Prosper also managed to create an incredible buzz from a highly motivated community. That momentum was killed by Prosper's arrogant attitude toward the community.

For prosper the marketing problem is how to attract growing numbers of borrowers in a sustainable way. (Without PR and without a community?) Prosper has some new folks on board to try to sort this out. Now we get to sit back and see if they solve the puzzle.

And of course if the last 3 years have taught us nothing else, they must attract the right kind of borrowers -- those who will pay you back.

Great discussion among P2P lenders is found at Prospers.org .

Prosper.com is near bankruptcy

Its no secret. Prosper.com has been hemorrhaging cash. Its all in the public SEC filings.

I'm no accountant, but the numbers really jump off the page. Prosper is near bankruptcy.

Prosper's most recent quarterly report, which reports on the company's condition on 9/30/2009 reported $2,079,624 of cash left. That was down from $4,617,954 in the 6/30/2009 report. During this interval, cash was used up at the rate of $27,591 per day.

If you review the quarterly report, you will note that I have excluded a category called "restricted cash". A footnote explains "Restricted cash consists primarily of an irrevocable letter of credit held by a financial institution in connection with the Company’s office lease and cash deposits required to support the Company’s ACH activities and secured corporate credit cards." Gotta keep those ACH transfers rollin', etc. That restricted cash has to stay where it is. Therefore, I only count the cash that isn't in this restricted category.

Assuming a constant cash burn rate, on 11/10/2009 prosper would have had $948,412 of cash left. On that day, Nigel Morris invested $1,000,000., bringing my estimate of prosper's cash to $1,948,412. But then...

Assuming the cash burn rate stayed constant at $27,591 per day, Prosper would have had zero cash as of 1/20/2010, a few days ago!

I'm not saying prosper is bankrupt now. This is merely what would have occurred under this simple scenario. The inside story is surely more complex.

One would expect that as cash dried up, a prudent manager would reduce staff, defer executive salaries, defer accounts payable (ie pay the landlord late, pay the lawyers late, etc). We don't know whether these things have occurred. If they have taken these prudent steps, then another month or perhaps more is possible.

Simple analysis of the public documents indicates that prosper is in desperate need of cash.

The public documents also tells us about prosper.com's liabilities. The most recently quarterly report lists $434,738 accounts payable, $987,128 accrued liabilities, $281,061 long term debt. Those total to $1.7 million. It seems likely that those liabilities are higher now that it was on the 9/30/09 report date. If so, then zero cash in the bank is really net negative $1.7 million.

Oh but then on 11/10/09, Nigel Morris' invested $1,000,000 in the form of a "bridge loan" (per SEC filings), so that increased liabilities to maybe $2.7 million. That money is surely now spent (see above calculation).

Having zero cash and at the same time $2.7 million in liabilities is quite serious.

You may also notice that I haven't counted the loans or notes (two sides of the same coin) that prosper issued after their restart in 2009. That's because these as far as cash flow is concerned, these two items net out. For every loan prosper makes, there is an equal amount of notes issued to lenders.

I haven't tried to calculate what would happen if a bankruptcy were to occur. I've simply calculated what appears to be happening in the operation of the ongoing business.

There are now two possibilities. We could see a new investment of several million in Prosper during the next few weeks, which would breath new life to their balance sheet, or we could see bankruptcy.

Would be a shame to see this great idea go down. With cash in the bank from a new large investment, and new management, I might even become a customer again.

I'm no accountant, but golly gosh, it sure looks like the situation is coming to a head.

The best discussion among prosper lenders is always found at prospers.org

Prosper.com - 12/2009 late loan stats update

Here's the December 2009 update to to my Prosper.com late loan statistics charts.

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.

The worst month so far is still October '06. Of the loans originated by Prosper.com in October'06, 44.2% have now gone bad.

Feb '07 is comin' up fast with 43.9% gone bad so far.

More detail can be found in my earlier posts.

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.

Not much news from prosper.com this month. Lenders have not yet heard from new Prosper executive Nick Talwar.

Prosper needs a cash infusion from venture capital source within the next few months. Difficult to predict with precision, but the deadline must be coming up pretty soon now. Maybe end of January? If they become frugal, perhaps the cash could last a little longer. They must be desperately be searching for funds.

PS: Best discussion among P2P and Prosper.com lenders is always found on prospers.org. See you there