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.
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!