tag:blogger.com,1999:blog-22111865434989593692024-03-06T12:02:42.697-08:00Fred93's BlogA lender's view of Prosper.comUnknownnoreply@blogger.comBlogger78125tag:blogger.com,1999:blog-2211186543498959369.post-50836239347982688242011-06-08T21:05:00.000-07:002011-06-08T21:28:46.018-07:00Prosper.com - Series E financing analysisA few days ago, Prosper.com received another venture capital investment.<br /><br />Investors paid $0.739/share, a slightly higher price than last year's round, but still far far lower than the $9.692/share Prosper raised in 2007.<br /><br />Here's a quick history of Prosper's venture capital.<br /><br />04/2005, Series A, 4,023,999 shares for $7,464,450, or $1.875 per share.<br />02/2006, Series B, 3,310,382 shares for $12,412,301 or $3.776 per share.<br />06/2007, Series C, 2,063,448 shares for $19,919,009 or $9.692 per share.<br />04/2010, Series D, 20,340,705 shares for $14,700,000 or $0.723 per share.<br /><span style="color: rgb(255, 0, 0);">06/2011</span>, Series E, 23,222,747 shares for $17,150,000 or <span style="color: rgb(255, 0, 0);">$0.739 per share</span>.<br /><br />Prosper paid an agent $375,000 to raise this money. If we subtract that commission out of the $17,150,000, then Prosper received net $0.722/share for this round.<br /><br />In recent months, Prosper has been burning (losing) about $1 Million/month. (For example, see the Prosper 10Q filing for the quarter ending 3/31/2011, and leave out the nonrecurring items, such as insurance recoveries. They lost about $3 Million for the quarter.) Prosper's future depends on reducing that burn, eventually breaking even and then becoming profitable. My guess is that with fresh money in hand, they may initially increase the burn rate, as they put money to use for various marketing programs to try to drive the loan origination rate up.<br /><br />As always, great discussion among P2P and Prosper.com lenders is found on <a href="http://www.prospers.org/forum/">prospers.org</a>. I hope to see you there!Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-2211186543498959369.post-47045049048345737192010-08-02T22:22:00.001-07:002010-10-29T00:05:17.158-07:00Prosper.com - 07/2010 Late Loan Stats UpdateHere'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...<br /><p>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.</p><p>The worst month so far is still February '07. Of the loans originated by Prosper.com in February '07, <span style="color: rgb(255, 0, 0);font-size:130%;" ><span>45.3%</span></span><span style="color: rgb(255, 0, 0);"> </span>have now gone bad. Yipes!<br /></p><p>More detail can be found in my earlier posts.</p><p><span style="font-style: italic;">Click on the chart to see a larger clearer version</span>.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2010-08-01.png"><img style="cursor: pointer; width: 445px; height: 388px;" src="http://fred93.com/fbi/prosperlate-2010-08-01-small.png" alt="" border="0" /></a><br /></p><p>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.<br /></p><p>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.<br /></p><p>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.<br /></p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2010-08-01-slid.png"><img style="cursor: pointer; width: 445px; height: 431px;" src="http://fred93.com/fbi/prosperlate-2010-08-01-slid.png" alt="" border="0" /></a><br /><br />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.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2010-08-01-slid2.png"><img style="cursor: pointer; width: 446px; height: 432px;" src="http://fred93.com/fbi/prosperlate-2010-08-01-slid2.png" alt="" border="0" /></a><br /><br />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 <span style="color: rgb(255, 0, 0);">4.5%</span> 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.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosper-loan-growth-2010-07-26.png"><img style="cursor: pointer; width: 531px; height: 370px;" src="http://fred93.com/fbi/prosper-loan-growth-2010-07-26.png" alt="" border="0" /></a><br /><br />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<br /><br />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.<br /><br />PS: The very best discussion among P2P and Prosper.com lenders is found on <a href="http://www.prospers.org/forum/">prospers.org</a>. See you there!Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-2211186543498959369.post-19553111989301913332010-05-22T13:19:00.001-07:002010-07-31T20:22:01.781-07:00Prosper.com - no more statsI'd like to update you on Prosper's late loan stats, but I can't.<br /><br /><a href="http://blog.prosper.com/2010/05/03/new-loan-servicing-platform-implemented/">On May 3rd, Prosper installed new software to process loan payments</a>. There seem to be several problems with the new software.<br /><br />On the same day, they have removed the Prosper loan performance data from the<a href="http://www.prosper.com/invest/performance.aspx"> loan performance statistics web page</a>. The page is still available, but since 5/3/2010 it has displayed the message <span style="font-style: italic; font-weight: bold; color: rgb(255, 0, 0);">"Marketplace data temporarily unavailable"</span>.<br /><br />(In the meantime, you can refer to <a href="http://fred93blog.blogspot.com/2010/03/prospercom-022010-late-loan-stats.html">my most recent Prosper loan performance charts</a>.)<br /><br />Questions from lenders about <span style="font-style: italic;">when</span> 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 <span style="font-style: italic;">will</span> return, but not <span style="font-style: italic;">when</span>. My own email to prosper on this subject has gone entirely unanswered.)<br /><br />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 <a href="http://blog.prosper.com/2010/05/03/new-loan-servicing-platform-implemented/#comments">comments section of the prosper blog</a>, or on <a href="http://www.prospers.org/forum/maintenance_announced-t19814.30.html">the prospers.org forum</a>. 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.<br /><br />I noticed one myself, and emailed Prosper on 5/10/2010. I wrote:<br /><br /><span style="color: rgb(0, 153, 0);font-size:85%;" >I'm looking at note 8324-36. Looking at the note detail, I'm having trouble with some of the numbers.<br /><br />I don't understand the "principal balance" column on the "borrower payments" tab.<br /><br />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 <b>$142.79</b> . This is impossible.<br /><br />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?<br /><br />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!<br /><br />Please advise.<br /><br /></span>I got a response thanking me, but the problem has not been fixed.<br /><br />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.<br /><br />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?<br /><br />Meanwhile I wonder if the loan performance data will <span style="font-style: italic;">ever</span> return. Seems quite possible that it is gone forever. This is a sad situation.<br /><br />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.<br /><br />The best discussion among P2P and Prosper.com lenders is found on <a href="http://www.prospers.org/forum/">prospers.org</a>. I hope to see you there!<br /><img src="http://www.sophos.com/mk/auth?_ED=OSVcGwRrV36mplUax1PXmy&_esniff=true" alt="" height="1" width="1" /><img src="http://emm.certivox.com:8080/g.html?uid=1.7.fjf.0.bo96qmvcgw" alt="" border="0" height="1" width="1" />Unknownnoreply@blogger.com5tag:blogger.com,1999:blog-2211186543498959369.post-52269213149713228572010-04-20T21:37:00.000-07:002010-04-20T22:17:42.319-07:00Prosper.com - Series D financing analysisProsper has just announced its fourth equity capital round, series D. What follows is a brief analysis of this investment round based on public information.<br /><br />Prior to the series D round, prosper had 14,752,825 shares of common stock outstanding. (This info from page 82 of <a href="http://www.sec.gov/Archives/edgar/data/1416265/000141626510000135/prosper10k123109.htm">Prosper's March 31, 2010 SEC form 10k</a>.)<br /><br />In the series D round, prosper issued 20,340,705 new shares of common stock for $14.7M. That comes to <span style="font-weight: bold; color: rgb(255, 0, 0);">$0.723 per share</span>. (This info from <a href="http://www.sec.gov/Archives/edgar/data/1416265/000141626510000169/p8k4d15d2010.htm">Prosper's April 20, 2010 SEC form 8K</a>.)<br /><br />The first thing to notice is that prosper was forced to give away <span style="color: rgb(255, 0, 0); font-weight: bold;">58% of the company</span> to raise this money. That must have hurt.<br /><br />How does that price per share compare with prior investment rounds? Here they are for comparison...<br /><br />04/2005, Series A, 4,023,999 shares for $7,464,450, or <span style="color: rgb(255, 0, 0);">$1.875 per share</span>.<br />02/2006, Series B, 3,310,382 shares for $12,412,301 or <span style="color: rgb(255, 0, 0);">$3.776 per share</span>.<br />06/2007, Series C, 2,063,448 shares for $19,919,009 or <span style="color: rgb(255, 0, 0);">$9.692 per share</span>.<br />04/2010, Series D, 20,340,705 shares for $14,700,000 or <span style="color: rgb(255, 0, 0);">$0.723 per share</span>.<br /><br />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.<br /><br />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.<br /><br />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. <br /><br />Of course I don't know what the future holds.<br /><br />As always, great discussion among P2P and Prosper.com lenders is found on <a href="http://www.prospers.org/forum/">prospers.org</a>. I hope to see you there!<br /><img src="http://www.sophos.com/mk/auth?_ED=OSVcGwRrV36mplUax1PXmy&_esniff=true" alt="" height="1" width="1" /><img src="http://emm.certivox.com:8080/g.html?uid=1.7.fjf.0.bo96qmvcgw" alt="" border="0" height="1" width="1" />Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-2211186543498959369.post-1272493305774835952010-03-31T10:16:00.000-07:002010-07-31T20:21:38.768-07:00Prosper.com - backloaded monthsFor 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".<br /><br />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.<br /><br />So do we have an end-of-month rush?<br /><br />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.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/Prosper%20End-of-month-rush-dom-2010-03-31.png"><img style="cursor: pointer; width: 481px; height: 558px;" src="http://fred93.com/fbi/Prosper%20End-of-month-rush-dom-2010-03-31.png" alt="" border="0" /></a><br /><br />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.<br /><br />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.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/Prosper%20End-of-month-rush-dobm-2010-03-31.png"><img style="cursor: pointer; width: 493px; height: 465px;" src="http://fred93.com/fbi/Prosper%20End-of-month-rush-dobm-2010-03-31.png" alt="" border="0" /></a><br /><br />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.<br /><br />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.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosper-loan-growth-2010-03-31.png"><img style="cursor: pointer; width: 519px; height: 370px;" src="http://fred93.com/fbi/prosper-loan-growth-2010-03-31.png" alt="" border="0" /></a><br /><br />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.<br /><br />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. )<br /><br />The best discussion among P2P and Prosper.com lenders is found on <a href="http://www.prospers.org/forum/">prospers.org</a>. I hope to see you there!<br /><img src="http://www.sophos.com/mk/auth?_ED=OSVcGwRrV36mplUax1PXmy&_esniff=true" alt="" height="1" width="1" /><img src="http://emm.certivox.com:8080/g.html?uid=1.7.fjf.0.bo96qmvcgw" alt="" border="0" height="1" width="1" />Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-2211186543498959369.post-20182946449523038792010-03-02T22:01:00.000-08:002010-04-18T19:55:26.659-07:00Prosper.com - 02/2010 Late Loan Stats UpdateHere's the February 2010 update to to my Prosper.com late loan statistics charts.<br /><p>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.</p><p>The worst month so far is now February '07. Of the loans originated by Prosper.com in February '07, <span style="color: rgb(255, 0, 0);font-size:130%;" ><span style="font-weight: bold;">45.3%</span></span><span style="color: rgb(255, 0, 0);"> </span>have now gone bad. Yipes!<br /></p><p>More detail can be found in my earlier posts.</p><p>Click on the chart to see a larger clearer version.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2010-03-01.png"><img style="cursor: pointer; width: 445px; height: 388px;" src="http://fred93.com/fbi/prosperlate-2010-03-01-small.png" alt="" border="0" /></a><br /></p><p>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.<br /></p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2010-03-01-slid.png"><img style="cursor: pointer; width: 445px; height: 431px;" src="http://fred93.com/fbi/prosperlate-2010-03-01-slid.png" alt="" border="0" /></a><br /><br />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<br /><br />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.<br /><br />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 <span style="color: rgb(255, 0, 0);">April 1, 2010</span>. 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 ...<br /><br />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.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosper-loan-growth-2010-03-02.png"><img style="cursor: pointer; width: 519px; height: 370px;" src="http://fred93.com/fbi/prosper-loan-growth-2010-03-02.png" alt="" border="0" /></a><br /><br />PS: The best discussion among P2P and Prosper.com lenders is found on <a href="http://www.prospers.org/forum/">prospers.org</a>. See you there!<br /><img src="http://www.sophos.com/mk/auth?_ED=OSVcGwRrV36mplUax1PXmy&_esniff=true" alt="" height="1" width="1" /><img src="http://emm.certivox.com:8080/g.html?uid=1.7.fjf.0.bo96qmvcgw" alt="" border="0" height="1" width="1" />Unknownnoreply@blogger.com5tag:blogger.com,1999:blog-2211186543498959369.post-9545167254312236462010-02-04T19:43:00.000-08:002010-03-20T22:45:08.365-07:00Prosper.com - bankruptcy postponedBankruptcy has been postponed.<br /><br />At the 11th hour, on February 1, 2010, a group of 6 <a href="http://www.sec.gov/Archives/edgar/data/1416265/000141626510000048/p8k222010.htm">venture capital firms injected a small amount of money ($2 million) into Prosper.com in the form of a bridge loan</a>. 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.<br /><br />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 <span style="color: rgb(255, 0, 0);">sufficient to keep Prosper operating until </span><span style="color: rgb(255, 0, 0); font-weight: bold;">April 1st</span><span style="color: rgb(255, 0, 0);"> 2010</span> -- 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.<br /><br />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.<br /><br />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.<br /><br /><div style="text-align: center;"><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosper-loan-growth-2010-02-04.png"><img style="cursor: pointer; width: 508px; height: 385px;" src="http://fred93.com/fbi/prosper-loan-growth-2010-02-04.png" alt="" border="0" /></a><br /></div><br /><br />Unfortunately, Prosper's loan volume after the restart have been comparable to those first months of 2006. Momentum died during the shutdown. <br /><br />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.<br /><br />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.<br /><br />And of course if the last 3 years have taught us nothing else, they must attract the <span style="font-style: italic;">right kind </span>of borrowers -- those who will pay you back.<br /><br />Great discussion among P2P lenders is found at <a href="http://prospers.org/forum/">Prospers.org</a> .<br /><IMG SRC="http://www.sophos.com/mk/auth?_ED=OSVcGwRrV36mplUax1PXmy&_esniff=true" HEIGHT="1" WIDTH="1" ALT="">Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-2211186543498959369.post-84919266252518926702010-01-29T01:21:00.000-08:002010-03-30T00:11:34.426-07:00Prosper.com is near bankruptcyIts no secret. Prosper.com has been hemorrhaging cash. Its all in the public SEC filings.<br /><br />I'm no accountant, but the numbers really jump off the page. Prosper is near bankruptcy.<br /><br />Prosper's <a href="http://www.sec.gov/Archives/edgar/data/1416265/000141626509000247/p10q093009.htm">most recent quarterly report</a>, 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.<br /><br />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.<br /><br />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...<br /><br /><span style="color: rgb(255, 0, 0);"><span style="color: rgb(0, 0, 0);">Assuming the cash burn rate stayed constant at $27,591 per day,</span> </span><span style="font-weight: bold; color: rgb(255, 0, 0);">Prosper would have had zero cash as of 1/20/2010, a few days ago!</span><br /><br />I'm not saying prosper <span style="font-style: italic;">is</span> bankrupt now. This is merely what would have occurred under this simple scenario. The inside story is surely more complex.<br /><br />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.<br /><br />Simple analysis of the public documents indicates that prosper is in desperate need of cash.<br /><br />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.<br /><br />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).<br /><br />Having zero cash and at the same time $2.7 million in liabilities is quite serious.<br /><br />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.<br /><br />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.<br /><br />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.<br /><br />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.<br /><br />I'm no accountant, but golly gosh, it sure looks like the situation is coming to a head.<br /><br />The best discussion among prosper lenders is always found at <a href="http://prospers.org/forum/">prospers.org</a>Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-2211186543498959369.post-73559706524562177492010-01-03T21:59:00.000-08:002010-07-13T10:37:09.986-07:00Prosper.com - 12/2009 late loan stats updateHere's the December 2009 update to to my Prosper.com late loan statistics charts.<br /><p>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.</p><p>The worst month so far is still October '06. Of the loans originated by Prosper.com in October'06, <span style="color: rgb(255, 0, 0);font-size:130%;" ><span style="font-weight: bold;">44.2%</span></span><span style="color: rgb(255, 0, 0);"> </span>have now gone bad.<br /></p><p>Feb '07 is comin' up fast with <span style="color: rgb(255, 0, 0); font-weight: bold;">43.9%</span> gone bad <span style="font-style: italic;">so far</span>.<br /></p><p>More detail can be found in my earlier posts.</p><p>Click on the chart to see a larger clearer version.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2010-01-01.gif"><img style="cursor: pointer; width: 445px; height: 388px;" src="http://fred93.com/fbi/prosperlate-2010-01-01-small.gif" alt="" border="0" /></a><br /></p><p>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.<br /></p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2010-01-01-slid.gif"><img style="cursor: pointer; width: 445px; height: 431px;" src="http://fred93.com/fbi/prosperlate-2010-01-01-slid.gif" alt="" border="0" /></a><br /><br />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<br /><br />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.<br /><br />Not much news from prosper.com this month. Lenders have not yet heard from new Prosper executive Nick Talwar.<br /><br />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.<br /><br />PS: Best discussion among P2P and Prosper.com lenders is always found on <a href="http://www.prospers.org/forum/">prospers.org</a>. See you thereUnknownnoreply@blogger.com4tag:blogger.com,1999:blog-2211186543498959369.post-22557520967826096882009-12-05T00:48:00.000-08:002009-12-05T02:36:33.840-08:00Prosper.com - 11/2009 late loan stats updateHere's the November 2009 update to to my Prosper.com late loan statistics charts. Toward the end of this article, I have included some comments on recent events at Prosper.com.<br /><p>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.</p><p>The worst month so far is October '06. Of the loans originated by Prosper.com in October'06, <span style="color: rgb(255, 0, 0);font-size:130%;" ><span style="font-weight: bold;">44.2%</span></span><span style="color: rgb(255, 0, 0);"> </span>have now gone bad.<br /></p><p>October'06 is not alone. Many other months have produced similarly bad performance.</p><p>More detail can be found in my earlier posts.</p><p>I've started charting some of the loans originated after Prosper's SEC-sanctioned reopening. There weren't enough loans originated in July'09 to make useful statistics, so I've started with Aug'09. In July'09, Prosper raised the borrower credit score cutoff from 520 to 640, a huge change. With these new restrictions on borrowers, the new loans in aggregate should go bad at a much lower rate (ie lower slopes on the new curves). Too early to know much, but the first couple of points do seem to indicate the new loans doing much better.<br /></p><p>Click on the chart to see a larger clearer version.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-11-01.gif"><img style="cursor: pointer; width: 445px; height: 388px;" src="http://fred93.com/fbi/prosperlate-2009-11-01-small.gif" alt="" border="0" /></a><br /></p><p>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.<br /></p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-11-01-slid.gif"><img style="cursor: pointer; width: 445px; height: 431px;" src="http://fred93.com/fbi/prosperlate-2009-11-01-slid.gif" alt="" border="0" /></a><br /><br />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<br /><br />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.<br /><br />There have been several interesting developments at Prosper.com during the last month.<br /><br />As many of you know, Prosper is a startup, burning thru venture capital, and near the end of its cash. As a result, Prosper needs a substantial new injection of cash within the next 6 months, or else. It was therefore a welcome development when Prosper announced that on November 11 Nigel Morris, a co-founder of Capital One, had made an investment in Prosper. Examination of SEC filings shows us that this investment was only $1 million, a very small amount, and also that this investment was in the form of a bridge loan, at 15% interest, and came with a warrant kicker and a position on the board of directors. This investment is not the substantial investment we've been waiting for. Its just a bridge. Bridge to what we're not quite sure. Does the appearance of Morris signal the beginning of a change of control?<br /><br />On November 11, 2009, Prosper filed its <a href="http://www.sec.gov/Archives/edgar/data/1416265/000141626509000247/0001416265-09-000247-index.htm">official quarterly report</a> (10Q) with the SEC. This latest 10Q shows that prosper is burning about $2 million of cash per quarter, and had about $2 million of cash left as of Sept 30th. (Of course the Nigel Morris $1 million was added after Sept 30th.)<br /><br />In late November, Prosper's chief marketing officer, Catherine Muriel, left the company. Muriel was an embarrassment. Her only visible work was authorship of many of Prosper's official blog entries, on subjects such as <a href="http://blog.prosper.com/2008/11/26/thanksgiving-%E2%80%93-an-american-tradition/">thanksgiving leftovers</a> and recommendations to buy Christmas gifts at spencers online, a company that sells pranks such as <a href="http://www.spencersonline.com/fun-and-games_tricksterprankster/">tear-proof toilet paper</a>, and lets not forget the <a href="http://blog.prosper.com/2009/04/06/online-dating-%E2%80%93-part-1/">four part series on online dating</a>. (See the forum thread <a href="http://www.prospers.org/forum/empty-t10940.0.html">Crazy Muriel Blogs Again</a>.)<br /><br />On December 2, 2009, Prosper announced the arrival of Nick Talwar as their new "chief revenue officer". I had never heard the title CRO before. A little research indicates that this title generally includes responsibility for "revenue". I thought that was the CEO's job. Maybe its just a fancy name for the marketing guy. In any case, investors haven't heard from Talwar yet, so we can't yet judge what he's going to accomplish.<br /><br />On December 2, 2009, Prosper dismissed its accounting firm, Ernst & Young, and hired the much much smaller firm of Odenburg, Ullakko, Muranishi & Co.<span style="display: inline;font-family:Times New Roman;font-size:10pt;" ><a name="page_0_1_39"></a></span> Although some may find this sinister, I take Prosper's word that this change was made to save money. I don't know anything about OUM, but you can see some of <a href="http://www.oumcpa.com/OurProfessionals">their smiling faces here</a>.<br /><br /><br />PS: The best discussion among P2P and Prosper.com lenders are found on <a href="http://www.prospers.org/forum/">prospers.org</a>. See you thereUnknownnoreply@blogger.com4tag:blogger.com,1999:blog-2211186543498959369.post-37715100298486453272009-11-04T20:08:00.000-08:002010-03-20T22:45:54.243-07:00Prosper.com - Paradise Lost; Deadbeats WonIt was a hot Saturday afternoon, August 5th 2006. I was driving to Long Beach to have dinner with a bunch of folks -- 25 fellow Prosper.com lenders -- who I had never met.<br /><br />That's not quite true. I had met them over the internet. For several months I had been vigorously corresponding with these folks <span style="font-style: italic;">(day and night)</span> as we worked hard to decipher the risks and necessary disciplines for lending money to anonymous strangers via the internet. We were spending several hours a day reviewing loans, corresponding with borrowers and each other, doing statistical studies, debating our hypothesis about what makes a good borrower. For example.. Historical data said that "homeowners" are better risks, but would that still be true now that housing lenders had gone nuts and strange people were buying with no money down and flipping homes left and right? There seemed to be a million such issues, and a lot of different opinions on each one.<br /><br />Was I nuts? I had never done anything like this before. A face-to-face meeting with people I knew only by pseudonyms (their Prosper screen names)?<br /><br />I drove 100 miles, but some came from much larger distances. Prosper CEO Chris Larsen flew down from San Francisco. One lender flew in from New York.<br /><br />The get-together was arranged by a fellow lender I knew only as DebinVenice. She gave me an address and said "I'll be standing under a big horse." As I drove past the Queen Mary I wondered if there would be a horse or a woman standing under it or what that even meant. (I had never been to a P.F. Changs, so I didn't know they all have giant horse statues out front.)<br /><br />Sure enough Deb was standing under the horse with a small crowd when I arrived. I felt like I knew all these people. After all we had spent hundreds of hours talking online. Online we had talked mostly about specific borrowers, and various Prosper technical issues and frustrations but by this time we knew a lot about each-others' politics, family life, etc. We did not however know what each other looked like. Screen names don't give you much of a clue about who is male or female, who is black or white, short or tall, etc, and the mental images I had formed needed considerable adjustment.<br /><br />One couple walked up to me (seeing the screen name on my badge) and thanked me for bidding on their loan. Wow! Borrowers in the flesh! Unexpected. It seemed very personal.<br /><br />This was the time of the most amazing excitement for the early batch of Prosper lenders.<br /><br />I remember sitting across the table from Prosper CEO Chris Larsen, as he explained how tough he was gonna' be on fraud and deadbeats. He was gonna make an example of these folks, so borrowers would know that Prosper is tough.<br /><br />Chris Larsen, CEO of Prosper.com (center) talking with lenders (folks who lend money to strangers over the internat via Prosper.com) over dinner, Long Beach, August 5, 2006. (Photo credit DebinVenice)<br /><div style="text-align: center;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/Penelope_Chris_Lenderguy.jpg"><img style="margin: 0pt 10px 10px 0pt; cursor: pointer; width: 326px; height: 245px;" src="http://fred93.com/fbi/Penelope_Chris_Lenderguy.jpg" alt="" id="Penelope_Chris_Lenderguy" border="0" /></a><br /></div>This was pretty much the time of peak excitement. What I mean is that lender enthusiasm went downhill after this time. Those folks around that table were the wildest imaginable supporters and advocates for Prosper.com, but none of the folks I sat with at that table (with the exception of Chris Larsen) are still lending via Prosper. Something went wrong.<br /><br />To those of us who were actively participating, observing how borrowers interacted with lenders, observing how loans were performing, some problems became clear. The population of Prosper borrowers was obviously heavy with fraudsters and deadbeats. A tremendous amount of animosity developed when specific examples of borrower fraud and dishonesty were exposed by lenders time and time again, and Prosper management just didn't want to hear it. Lenders who made the "mistake" of exposing such fraud were routinely censored and censured by Prosper management. Chris Larsen "shot the messenger" instead of learning about the problem and taking action to fix it.<br /><br />I've written much about the rate at which Prosper loans are going bad. To get some historical perspective, lets look back at the guidance Prosper gave lenders in those early days. Prosper published statistics which developed from credit bureau Experian's experience with credit card customers. The purpose was to help lenders understand the Prosper credit grades, which at that time were just highly quantized Experian credit scores. This data showed that borrowers in Prosper's "AA" credit grade would be expected to default at the rate of 0.20% per year. What actually happened is that loans to AA borrowers went bad at a rate of about 5.00% per year. Wow! That's <span style="font-style: italic;">25 times worse</span> than Experian's vast experience seemed to predict! Somehow Experian's credit score and their historical credit experience didn't quite predict the behavior of Prosper borrowers. (Note: You can see how "AA" credit grade loans have performed by looking at <a href="http://www.rateladder.com/2008/10/20/prosper-1-month-late-or-worse-curves-by-credit-grade/">rateladder's graphs</a>. Find the 1 year point on the X axis and look at the "AA" curve.)<br /><br />Experian's experience didn't provide the right insight, from which we conclude...<br /><br />Apparently Prosper attracted a "different" crowd.<br /><br />Making a successful business in P2P lending requires that you understand this fact. If Chris Larsen had taken the time to realize what was happening, he might have put in place superior fraud checks, serious verification steps, a serious collections department, etc, as appropriate to deal with the substantial fraction of fraudsters and deadbeats who were attracted to Prosper, but that was not to be.<br /><br />I'd love to give you the details (ie names) and amazing stories of specific deadbeat Prosper borrowers who stiffed me personally. Anecdotes often communicate better than statistics. I won't, because giving you personal information on these borrowers could be interpreted as violating the terms of the lender agreements I signed with Prosper. One of my deadbeats was a former state senator from New Hampshire who is still routinely quoted in the political press. (Rated "A" by Prosper.) One of my deadbeats wrote a book on how to avoid collection agencies! He sells it on the internet! Man that's a deadbeat's deadbeat. (Rated "AA" by Prosper.) Both these guys are highly visible. Its not like all Prosper deadbeats have skipped town. Some sit right in front of your face and don't pay. You'd think that with highly visible people like this stiffing Prosper's lenders, management would want to take some action. Maybe sue some people. Get serious. No, they just had a collection agency call them repeatedly on the phone. Damn weak effort.<br /><br />In late 2007, Prosper hired a collections expert, Doug Fuller, as VP of Operations. Prosper introduced this new employee as if he were an attack dog who was going to eat deadbeat borrowers for lunch. On October 2, 2007, Prosper published an "interview" of Fuller by a fellow Prosper employee. This was published on Prosper's official forum, on Prosper's web site, but has since been deleted. Fortunately, some lenders kept a copy, and you can read it <a href="http://www.prospers.org/forum/q_a_with_doug_fuller_prosper%E2%80%99s_vice_president_of_operations-t3312.0.html">here</a>. I'll quote a few snips, but you should read the entire interview for yourself. It paints a strong image.<br /><br /><span style="font-style: italic; color: rgb(0, 153, 0);">Q: Do you have experience with suing people?</span> <span style="font-style: italic; color: rgb(0, 153, 0);"><br />A: Oh yes. Between First Select and Credigy, I have been responsible for making the decision to sue more than 150,000 people. There are a lot of lawyers that can’t claim that number of suits in a lifetime.</span><br /><span style="color: rgb(0, 153, 0);">...</span> <span style="font-style: italic; color: rgb(0, 153, 0);"><br />Q: Okay, so you need to decide who to sue, then what?</span> <span style="font-style: italic; color: rgb(0, 153, 0);">A: Put quite simply, my philosophy is this – <span style="color: rgb(255, 102, 0);">if you won’t pay, but can (or will in the future) be able to pay, I’m going to sue you. If I sue you I’m going to win.</span></span> <span style="font-style: italic; color: rgb(0, 153, 0);"><br /><br />Q: That sounds kind of arrogant, can you back it up?</span> <span style="font-style: italic; color: rgb(0, 153, 0);"><br />A: Courts in seven states have recognized me as an expert at consumer debt litigation. At Credigy, if a case got really nasty, I would go testify live. <span style="color: rgb(255, 102, 0);">I refuse to lose</span><span style="color: rgb(255, 102, 0);">.</span></span> <span style="font-style: italic; color: rgb(0, 153, 0);"><br /><br />Q: Really? What’s your win/lose record?</span> <span style="font-style: italic; color: rgb(0, 153, 0);">A: In my last 18 months at Credigy, <span style="color: rgb(255, 102, 0);">I testified live at 42 trials. My record was 41-1. By the way, I fired the law firm where we lost.</span></span><br /><br />Big hat, but is there cattle?<br /><br />In January 2008, Fuller selected 66 loans out of the 1800 Prosper.com loans that had defaulted by that time, and he organized a "legal test" in which he would sue these 66 borrowers, and demonstrate that he was able to produce results like the ones he described above. Fuller personally selected these 66 loans. Fuller told us that he picked loans where he believed he had good contact information on the borrower, and where the borrower had the ability to pay. Presumably he also took care to choose loans where he believed he had the best chance to win. (He did not include my state senator or deadbeat's instruction manual author.)<br /><br />Although Prosper kept the status of this project secret, many courts publish information about ongoing lawsuits, so lenders were able to observe that the lawsuits were not going well. <a href="http://fred93blog.blogspot.com/2008/10/prospercom-lawsuits-are-not-going-well.html">I wrote about this</a> in October of 2008. What I observed is that many of the suits were being dismissed! We couldn't tell exactly what was going wrong, because courts publish limited information.<br /><br />Some of the lawsuits were dismissed by the court because Prosper was never able to find the deadbeat borrowers to serve them. Oops. Other borrowers were served (ie were found), but the cases were later dismissed by the court. Some suits were being dismissed at Prosper's request! Something more was going wrong. It was mysterious. Sure looked like Prosper was just pulling the plug. Lenders wanted information, but Prosper would not tell us what was happening.<br /><br />The legal test was a horrible failure. Prosper demonstrated that it doesn't know how to collect on late loans even when it tries, even with expensive lawyers helping. How could this be?<br /><br />Prosper has been mute on this subject -- <span style="font-style: italic;">for almost two years</span> -- until a few days ago, when Doug Fuller wrote about the results of the legal test project in <a href="http://blog.prosper.com/2009/11/03/the-results-from-the-legal-collections-test/">Prosper's official blog</a>. (Because Prosper has often deleted their blog entries which proved embarassing, I point out that a copy of Fuller's writeup is archived <a href="http://www.prospers.org/forum/collections_test_blog_part_3-t17080.0.html;msg297941#msg297941">here</a>.) Its a worthwhile read.<br /><br />Now we know some of the numbers, and more about what went wrong. In summary: Everything went wrong. It is as it appeared. The legal test was a horrible failure. What's worse, to most observers it seems obvious that every step could have been carried out in a much more competent fashion. It was a three stooges operation.<br /><br />Here's what we learn by reading Fuller's recent admissions. (I'm not the first to dissect Fuller's writeup. I follow the outline given by Prosper lender ira01 <a href="http://www.prospers.org/forum/collections_test_blog_part_3-t17080.0.html;msg297988#msg297988">here</a>. Read ira's message for more technical legal details.)<br /><br />They started with 66 hand-picked charged-off loans. Of these, they discovered that 3 borrowers had moved to a different state, so they gave up. (Mind you, it is possible to sue in all 50 states, but Prosper just gave up, preferring the convenience of only suing people resident in Prosper's home state: California.)<br /><br />Next there were 13 loans where Prosper's legal team was unable to locate the borrower, in order to "serve" him, so they gave up. Its pretty outrageous that 13/66 = 20% of his hand-picked borrowers can't be found.<br /><br />What did they do to find these people? They don't say. It is possible that they did nothing except try the address they had on file. Fuller offers the excuse that in his experience, the address shown in Lexis is usually accurate, but wasn't in these cases. I guess Fuller believes these people just vanished without a trace. Given Fuller's background, we expected him to be skilled at skip-tracing, or know how to hire someone who was.<br /><br />Doug offers the observation that Prosper borrowers don't seem to fit the pattern of his prior experience. Here I agree. Prosper borrowers are different. Two years after he joined us, he's beginning to figure it out.<br /><br />One possibility is that these 13 people never existed. Prosper.com has an obligation to purchase "identity fraud" loans from the original lenders, therefore they don't like to consider this possibility.<br /><br />There's something else fishy about giving up on these 13 borrowers. In California, if after diligent effort you haven't been able to find the defendant to hand him the paperwork, you can satisfy the requirement for service by printing a notice several times in a newspaper. This allows you to proceed with a suit, and hopefully get a default judgment against the deadbeat, even tho he's hiding from you. Then when you do find him later, you have a legal advantage. Apparently this was too hard for Prosper, so they gave up instead.<br /><br />Doug then tells us that in 21 more cases, the borrowers filed bankruptcy after Prosper filed suit! Doug also tells us that is a huge unexpected number. Another clue that Prosper borrowers are different.<br /><br />I do wonder about those 21 bankruptcies. In the past there have been some cases where a borrower told Prosper that he had filed bankruptcy, and Prosper took the borrowers word for it, when in fact there was no bankruptcy. I wonder if they actually checked these cases with the court. I also wonder whether Prosper has filed paperwork with the bankruptcy courts in these 21 cases. Perhaps we'll figure out how to track down these bankruptcies (or lack thereof) another day. (After all, we know the names of most of the defendants, because we found them while searching court records to track down the status of these lawsuits during the 2 years when Prosper was silent.)<br /><br />66 minus 3 minus 13 minus 21 ... just 29 loans left.<br /><br />More than half the suits died before they even got started. Remember Fuller's words? "<span style="font-style: italic; color: rgb(0, 153, 0);"><span style="color: rgb(255, 102, 0);">I’m going to sue you. If I sue you I’m going to win.</span></span> "<br /><br />At this point Fuller stops giving us precise numbers. He proceeds to explain a number of different things that went wrong, and the fact that he's unhappy about them. He's not the only one.<br /><br />A typical early step in this kind of lawsuit is to ask the court to grant a "default judgment", meaning that the facts are so clear that there isn't any use wasting time with a trial. (Default judgements are common when the defendant doesn't bother to show up, etc.) Doug explains that they had a little trouble with this: "<span style="font-style: italic; color: rgb(255, 102, 0);">the vast majority of courts rejected the requested Clerk’s Judgment</span><span style="color: rgb(255, 102, 0);">.</span>" Well huh. He doesn't explain why. Dude, we want to know why, because there's something very wrong here. Maybe you should diagnose the problem and fix it. Maybe you guys are putting the carbon paper in backwards.<br /><br />And a clerk's judgment is just the easiest kind of default judgment. If you fail that, there's another kind you can apply for. So we expect, well you know ... follow-thru. Fuller says that as he was getting ready to do that, Prosper entered its "quiet period", because of Prospers SEC filing, intended to straighten out the regulatory issues Prosper had with their lenders. Fuller decided to not proceed with the necessary court filings during the quiet period. Well the quiet period lasted nearly a year, so this was quite an interruption! Prosper missed legal deadlines and the courts dismissed most of the remaining cases.<br /><br />There is a bit of a hole in this story. Prosper filed their first S1 with the SEC in October of 2007, before the legal test project had even started! Another hole in this story is the fact that the registration with the SEC has to do with the relationship between Prosper and lenders, and has nothing whatsoever to do with borrowers. I know Fuller agrees with me on this point, because he has used this argument himself. In an <a href="http://blog.prosper.com/2009/10/15/legal-test-update-judgment-in-favor-of-plaintiff/">earlier blog entry, describing one case which he won</a>, he tells us that the defendant (borrower) raised the issue of the SEC boondoggle, and Fuller was able to counter with an explanation that the SEC matter didn't affect the relationship between Prosper and its borrowers. Given that the courts hearing these cases had no problem with the SEC entanglement, I can only presume that it was overcautious lawyers advising Prosper on the SEC matter who told Doug to shut down. They harmed lenders by doing so.<br /><br />Doug says he's going to try again on some of the cases that were dismissed. I'm glad to hear it. He didn't say when. We've blown <span style="font-style: italic;">two years</span> on this "test" so far, and we have nothing to show for it.<br /><br />By the way, we've been out of the quiet period for several months now. If the quiet period was the thing keeping Fuller from proceeding with legal action, he should have fired up the suits again by now, but he has not. I question his intent.<br /><br />Well, at least they did win at least one case out of 66.<br /><br />Many times we've been told they were going to treat nonpaying borrowers seriously, but looking back these statements have never been truthful.<br /><br />While they're firing up the 2nd try on many of the dismissed lawsuits for this initial batch of <span style="color: rgb(255, 0, 0);">66</span> borrowers, there now are another 7,933 that's right <span style="font-style: italic; color: rgb(255, 0, 0);">seven thousand nine hundred and thirty three</span> Prosper borrowers who have defaulted on their loans, with nobody even thinkin' about legal action on any of these folks. There is simply no credible story that they're ever gonna get any material legal action going against deadbeat borrowers.<br /><br />What have we learned?<br /><br />Prosper borrowers are "different". While most of them are very nice people, like the couple I met in Long Beach, a substantial fraction of Prosper's borrowers are hardened deadbeats, attracted by the sweet odor of naivete. Prosper lenders cannot succeed without better mechanisms to protect against against these zombies.<br /><br />Deadbeat borrowers are a big problem.<br /><br />Prosper has a Three Stooges legal strategy.<br /><br />Prosper management has never taken these issues seriously.<br /><br />Prosper management's talk about how they would handle deadbeats has been hot air from the very beginning.<br /><br />It was such a wonderful concept. It seems such a shame.<br /><br />In order to stay alive, Prosper.com needs a new round of venture capital funding some time in the next few months. If I were one of the VCs considering an investment, I'd be lookin' to replace Chris Larsen. Mr VC, if you're reading this, that is what I suggest you do.<br /><br />PS: Great discussion among P2P lenders is found at<a href="http://www.prospers.org/forum/"> prospers.org</a> .<br /><br /><IMG SRC="http://www.sophos.com/mk/auth?_ED=OSVcGwRrV36mplUax1PXmy&_esniff=true" HEIGHT="1" WIDTH="1" ALT="">Unknownnoreply@blogger.com5tag:blogger.com,1999:blog-2211186543498959369.post-84788574371595971032009-10-11T19:59:00.000-07:002010-01-22T19:27:43.319-08:00Prosper.com - Don't blame the economyFrom time to time, someone will try to explain away the poor performance of prosper.com loans by blaming it on the poor economy. Its become a national pastime to use the economy as an excuse these days. But is it true?<br /><br />To sort this out, I have graphed the default rate of all prosper.com loans side by side with the U.S. unemployment rate. If bad economic conditions cause prosper borrowers to change their behavior, then you should see the prosper.com default rate go up when unemployment goes up, and vice versa.<br /><div style="text-align: center;"><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2LM3lPV3Qm6BsdusbEtzv4fLHNEBZOgFfUFSDPlpAyJ3_V_TOc8khoKA7Q9LhEcJB-aag4UB2RgJoLM3EAnvzkdaBu2XaAHV0oQ_QlLx3dG7MJGS2S6P9Yu3GrQ0-8bILh3EgODukps1v/s1600-h/prospelate-vs-unemployment-2009-10.gif"><img style="margin: 0pt 10px 10px 0pt; cursor: pointer; width: 481px; height: 411px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg2LM3lPV3Qm6BsdusbEtzv4fLHNEBZOgFfUFSDPlpAyJ3_V_TOc8khoKA7Q9LhEcJB-aag4UB2RgJoLM3EAnvzkdaBu2XaAHV0oQ_QlLx3dG7MJGS2S6P9Yu3GrQ0-8bILh3EgODukps1v/s1600/prospelate-vs-unemployment-2009-10.gif" alt="" id="BLOGGER_PHOTO_ID_5391875650542385842" border="0" /></a><br /></div><br /><span style="font-weight: bold;">These two curves don't look correlated at all!</span><br /><br />In the last year, unemployment has roughly <span style="font-style: italic; font-weight: bold;">doubled</span>, which represents a huge change in economic conditions. During that time the default rate on the prosper portfolio has bounced around, but it certainly hasn't gone up in tandem with the unemployment rate.<br /><br />In a recent blog, Prosper's CFO Kirk Inglis was describing Prosper's new system for rating borrowers, and he said "<span style="font-style: italic; color: rgb(0, 153, 0);">...the historical performance that underlies the Prosper Rating System is derived from a poor economic environment. <span style="color: rgb(255, 102, 0);">As a result the estimates of loss are biased higher than if the economic environment had been more benign.</span></span>" <br /><br />In other words, he argues that because he did his calculations using loan data from the recent past, when economic conditions were bad, then surely future loans should do <span style="font-style: italic;">better</span> than his model predicts. His unstated underlying assumption is a correlation between prosper loan performance and the economy. I see no evidence for his conjecture. Wishful thinking.<br /><br />It may seem counter-intuitive, but we can't deny the data. Loan payment performance doesn't seem to track economic conditions.<br /><br />Boring methodology footnotes: To compute the instantaneous default rate of the entire prosper portfolio, I looked at prosper's performance web page. I asked it to show me all loans (for all time) as observed on the first day of each month. I copied down the number of loans that had defaulted as of that date. Subtracting these numbers for two adjacent months tells me the number of loans that defaulted during that month. To convert this to a default rate, I divide by the total number of loans prosper had originated as of four months earlier.<br /><br />I chose the four-months-ago total because loans take four months to default. Using a later total would have included loans in the denominator which could not possibly appear in the numerator. Finally, I converted this monthly default rate to an annualized default rate exponentially, ie da = 1-(1-dm)^12 .<br /><br />This process produces an instantaneous "whole prosper portfolio" default rate. Beware that this number doesn't help us judge the performance of loans prosper originated at any point in time, or at any credit grade, becaue here they are all mixed together. It does allow us to observe trends (if any) in borrower payment behavior over time, so it seems appropriate for this inquiry into how borrowers behave during economic hard times.<br /><br />You probably note a downward tilt in the default rate curve during the months that Prosper was shut down by the SEC. This is a side effect of the loan portfolio "aging" during that period. No new loans were being added, and the existing loans were all getting older. Therefore the age distribution of loans in the prosper portfolio was changing. This aging produces a lower default rate, because the default rate naturally falls somewhat as loans age. This happens because the portfolio is a heterogeneous mix of loan quality. The bad loans (think HR, E, D, ...) tend to fail early, leaving a more aged portfolio with a higher quality mix.<br /><br />The unemployment rate shown is the whole-country U-1 series produced by the bureau of labor statistics, and which I obtained from www.economagic.com . This is the unemployment rate that you most often find quoted in the press.<br /><br />PS: The best discussion among P2P lenders can be found at<a href="http://www.prospers.org/forum/"> prospers.org</a> .Unknownnoreply@blogger.com4tag:blogger.com,1999:blog-2211186543498959369.post-13977374953191192652009-10-04T15:52:00.000-07:002009-10-19T23:57:30.464-07:00Prosper.com - 10/2009 late loan stats updateHere's the October 2009 update to to my Prosper.com late loan statistics charts.<br /><p>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.</p><p>The worst month so far is October '06. Of the loans originated by Prosper.com in October'06, <span style="color: rgb(255, 0, 0);font-size:130%;" ><span style="font-weight: bold;">43.5%</span></span><span style="color: rgb(255, 0, 0);"> </span>have now gone bad.<br /></p><p>I'll show that calculation as an example: In October '06, Prosper originated 743 loans. Three of these loans later disappeared from the stats Prosper provides. Prosper's stats now show having originated only 740 loans in October '06. The difference, 3 loans, presumably are loans that were repurchased by Prosper because of identity theft, but we don't know for sure. I count those 3 loans in the set that have gone "bad". Prosper reports that 307 of their October'06 loans have now defaulted. Finally, Prosper reports 13 of these loans are now in the "1 to 3 month late" category. I then calculate (3+307+13)/743 = <span style="color: rgb(255, 0, 0);">43.5%</span> gone bad.<br /></p><p>October'06 is not alone. Many other months have produced similarly bad performance.</p><p>More detail can be found in my earlier posts.</p><p>New tidbits this month: Two of these curves are "done". The May'06 and Jun'06 originated loans are now all either in the "paid off" or the "charged off" category. With no borrowers active, the numbers have reached their final resting place. I've decided to make the curves end when this happens, rather than continuing a long horizontal line into the infinite future. You can see this more plainly on the larger version of the chart.</p><p>I've started charting some of the loans originated after Prosper's SEC-sanctioned reopening. There weren't enough loans originated in July'09 to make useful statistics, so I've started with Aug'09, which makes its first appearance this month as a single dot. In July'09, Prosper raised the borrower credit score cutoff from 520 to 640. A huge change. Therefore the new loans in aggregate should go bad at a much lower rate (ie lower slopes on the new curves). We'll see.<br /></p><p>Click on the chart to see a larger clearer version.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-10-01.gif"><img style="cursor: pointer; width: 445px; height: 388px;" src="http://fred93.com/fbi/prosperlate-2009-10-01-small.gif" alt="" border="0" /></a><br /></p><p>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.<br /></p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-10-01-slid.gif"><img style="cursor: pointer; width: 445px; height: 431px;" src="http://fred93.com/fbi/prosperlate-2009-10-01-slid.gif" alt="" border="0" /></a><br /><br />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<br /><br />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.<br /><br />From time to time I get a comment that I should separate out the credit grades in these charts. Some folks would like to see a separate curve for loans to AA credit grade borrowers, A borrowers, B borrowers, etc. Their thinking is that this would help lenders understand the risks of lending to these individual grades of borrowers. There's some merit to that idea, but I'm not doing it for two reasons.<br /><br />First, there's another fellow doin' it already. Check <a href="http://www.rateladder.com/2008/10/20/prosper-1-month-late-or-worse-curves-by-credit-grade/">rateladder's blog</a>. Here's one of his recent charts. (Click on it for a larger copy).<br /><p></p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://www.rateladder.com/images/VintageCurves_20091028.jpg"><img style="cursor: pointer; width: 468px; height: 320px;" src="http://www.rateladder.com/images/VintageCurves_20091028_small.jpg" alt="" border="0" /></a><br />From the chart you can see that about 5% of grade AA loans went bad during the first year of the loan, etc. That's useful information. In the early days of Prosper.com, prosper used to give lenders statistics from Experian that showed Experian's experience of a 0.20%/year default rate for grade AA borrowers. Unfortunately, that data came from credit card accounts, which we can now see don't behave anything like Prosper loans!<br /><br />I recently asked rateladder whether he would be updating his charts now that prosper is running again. He says does not expect to do any more updates. That's a shame. Rateladder has published the SQL code he wrote to produce those charts. You can grab his code, download the database from Prosper, and run those calculations yourself. (Only works for database / SQL experts.)<br /><br />The 2nd reason I'm not charting loan performance by credit grade is that credit grade is just one criteria. There are many variables you can use to choose borrowers. Most lenders use some combination of more than one variable. (Example: Credit grade A or better, no past delinquencies, and doesn't mention religion in the writeup.) I can't chart all combinations.<br /><br />I do believe there's value in observing the behavior of Prosper.com loans in aggregate, even if that doesn't give lenders insight into exactly how they should pick loans. <br /><br />In the early days of Prosper, it was common to hear a wide variety of speculations and myths about borrower behavior. These charts provide the data to understand whether some of those speculations were correct.<br /><br />Example: "Once you get two or three payments made, the loans are good." I used to hear this all the time. Turns out it is not true. There's no bump in the default curves at the beginning. They're pretty smooth. <span style="font-style: italic;">Loans go bad over time.</span><br /><br />A common myth you hear recently is that borrowers are defaulting a lot because of the recent bad economy. It ain't so. Look at the curves. (Look at the top chart above.) The horizontal axis is calendar date. If borrowers were behaving very differently now (during the recession and high unemployment) than they did earlier (say last year) you'd see it in this graph. You would expect ot see the curves bend upward as unemployment rose. Didn't happen.<br /><br /><br /><br />PS: The best discussion among P2P and Prosper.com lenders are found on <a href="http://www.prospers.org/forum/">prospers.org</a>. See you there!Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-2211186543498959369.post-27315563104723261892009-09-24T13:05:00.001-07:002010-03-20T22:46:25.786-07:00Prosper.com - Don't Mislead InvestorsThat was the subject of my very first blog about Prosper.com. Sadly here I am again two years later discussing the same subject.<br /><br />During Prosper's lifetime, a great many newspaper and magazine articles have contained misleading statements about the quality of Prosper.com loans. It just seems to happen again and again. That was in fact the impetus for this blog. I wanted to counterbalance the misinformation. More about history later. Lets start with the most recent outrage.<br /><br /><a href="http://www.washingtonpost.com/wp-dyn/content/article/2009/09/19/AR2009091900124_2.html?sub=AR">An article in the 9/19/09 Washington Post</a>, said <span style="color: rgb(255, 0, 0); font-style: italic;">"Prosper's default rate is about 5 percent."</span><span style="color: rgb(255, 0, 0);"> </span> That statement is bunk. Prosper loans are far worse than that. The difference between what was printed and reality is important to investors, because it makes the difference between profit and loss.<br /><br />As many of you know, I've tracked Prosper loan performance for several years, and you can see from the charts I publish that Prosper loans go bad much faster than this. But lets start with a more authoritative source than me: Prosper's <a href="http://www.sec.gov/Archives/edgar/data/1416265/000141626509000033/prosper_s-1a6d7d13d2009.htm">most recent prospectus filed with the SEC</a>.<br /><br />The prospectus says: <span style="font-style: italic; color: rgb(255, 0, 0);">"As of March 31, 2009, of the 29,000 borrower loans, ...5,840 loans or 20.1% had defaulted. "</span><span style="color: rgb(255, 0, 0);"> </span>Well, that doesn't directly tell us a default <span style="font-style: italic;">rate</span>, because the 29,000 loans outstanding are spread across a wide range of ages. Loans go bad over time, and many of these loans haven't had much time to go bad yet. Still, it doesn't take a genius to see that you can't get a 5% default rate from 20% of the pool having already gone bad! The Washington Post article is clearly in conflict with the prospectus.<br /><br />The statement in the Washington Post is misinformation, just like the many similar examples of misinformation which have preceded it.<br /><br />If we separate out Prosper.com loans by age, the facts become clear. The following chart shows Prosper.com loans broken out by month of origination, and you can clearly see that the early (ie old) cohorts are headed toward about <span style="color: rgb(255, 0, 0);">40%</span> of loans going bad. The younger cohorts are doing a little better, as I've discussed before. Still they are similar. These are 3 year loans. If 40% of them go bad over 3 years, that's equivalent to roughly a <span style="color: rgb(255, 0, 0);">16% per year default rate</span>. The Washington Post article is bunk.<br /><br />Click on the chart to see a larger clearer version.<br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-09-01.gif"><img style="cursor: pointer; width: 445px; height: 388px;" src="http://fred93.com/fbi/prosperlate-2009-09-01-small.gif" alt="" border="0" /></a><br /><br />Now lets go back and visit some of the prior examples of misleading press. You may see a pattern. I'm sure I haven't caught this lie every time it has appeared in the press. A few should do to let you appreciate the pattern.<br /><br />I first wrote about this in my very <a href="http://www.prospers.org/blogs/media/blogs/Fred93/open-letter-number-1.pdf">first blog entry on April 20, 2007</a>. I was an enthusiastic Prosper investor at the time, and believed I could sway Chris Larsen's behavior by just getting the facts out to the public. Turns out I didn't have much influence.<br /><br />In that blog, I wrote about an April 1, 2007 article about Prosper in the Baltimore Sun. (The article is so old now that they make you pay to read it, but you can <a href="http://pqasb.pqarchiver.com/baltsun/access/1248418151.html?dids=1248418151:1248418151&FMT=ABS&FMTS=ABS:FT&type=current&date=Apr+1%2C+2007&author=Eileen+Ambrose&pub=The+Sun&desc=PROSPER.COM+HELPS+REGULAR+FOLKS+BECOME+A+BANK+AND+MAKE+LOANS">read the abstract for free</a>, and the abstract contains the Chris Larsen quote of interest.)<br /><br />This article quotes Chris Larsen... <span style="color: rgb(255, 0, 0); font-style: italic;">"Larsen says the default rate - payments 120 days past</span><span style="color: rgb(255, 0, 0); font-style: italic;"> due - is about 0.50 percent. But that will likely climb as the three-year loans mature, he</span><span style="color: rgb(255, 0, 0); font-style: italic;"> says."</span><br /><br />Even back then, with limited data at my disposal, I was estimating a total Prosper.com default rate around <span style="color: rgb(255, 0, 0);">17%/year</span>. (I said so in my first blog entry.) That is so horribly different than<span style="color: rgb(255, 0, 0);"> 0.50%</span> that I just couldn't imagine how Larsen could say that sort of thing to the media.<br /><br />When you're a young loan company, it is easy to point to the portfolio and say "Look, not many of our loans have defaulted!" Of course that isn't what matters. What matters is the <span style="font-style: italic;">rate</span> at which loans are going bad. Prosper doesn't default a loan until it is 4 months past due, and the first payment doesn't become due until 1 month after the loan originates, so loans younger than 5 months don't give you any defaults, and at the time of that article, most of Prosper's loans were very young. However, given the data available at the time, anyone could see, without any analysis, that Larsen's statement was incorrect. Even letting the various ages of Prosper loans be mixed together, <a href="http://www.prosper.com/invest/performance.aspx?af=0&esba=63&gm=0&gr=0%2c1%2c2%2c3%2c4%2c5&hw=0&iba=255&ibid=0&iwatch=0&lc=0%2c1%2c2%2c3%2c4%2c5%2c6%2c7&lq=&maxAmt=100000&maxDTI=1000000&maxFund=1&maxGrpTLC=1000000&minA=0&minAA=0&minAmt=0&minB=0&minC=0&minD=0&minDTI=0&minE=0&minFund=0&minGrpTLC=0&minHR=0&minNC=0&occ=&od=04%2f01%2f2007&oer=04%2f01%2f2007&osr=11%2f01%2f2005&pbt=0&plcsd=&plp=0&sf=10&sh=0&sn=&tg=0">Prosper's own data</a> shows that on April 1, 2007, they had originated 9003 loans, and of those, 291 had already defaulted. That's <span style="color: rgb(255, 0, 0);">3.23%</span> . How can you possibly get from that number to a claim of a <span style="color: rgb(255, 0, 0);">0.50%</span> default rate? You can't.<br /><br />I thought perhaps if I exposed this sort of thing, the misinformation would stop. It did not.<br /><br />There was an <a href="http://www.msnbc.msn.com/id/21993720/">AP/MSNBC article on Nov 27, 2007</a> <span style="font-style: italic; color: rgb(255, 0, 0);">"Prosper’s default rate hovers at about 2.7 percent, Larsen said, but that figure is expected to rise as more loans mature."</span> This was misinformation.<br /><br />By that time, even using the most simple possible method of dividing the number of already defaulted loans by the total number of loans would tell you that <span style="color: rgb(255, 0, 0);">9.15%</span> of prosper loans had already defaulted, and remember a great many of those loans were so young they could not possibly have yet defaulted.<br /><br />If, using <a href="http://www.prosper.com/invest/performance.aspx?af=0&esba=63&gm=0&gr=0%2c1%2c2%2c3%2c4%2c5&hw=0&iba=255&ibid=0&iwatch=0&lc=0%2c1%2c2%2c3%2c4%2c5%2c6%2c7&lq=&maxAmt=100000&maxDTI=1000000&maxFund=1&maxGrpTLC=1000000&minA=0&minAA=0&minAmt=0&minB=0&minC=0&minD=0&minDTI=0&minE=0&minFund=0&minGrpTLC=0&minHR=0&minNC=0&occ=&od=11%2f27%2f2007&oer=06%2f27%2f2007&osr=11%2f01%2f2005&pbt=0&plcsd=&plp=0&sf=10&sh=0&sn=&tg=0">Prosper's own data</a> again, observing on Nov 27, 2007, we take out the loans so young that they could not possibly default, then we have 1502 defaults out of a total of 12035 loans. That's right, <span style="color: rgb(255, 0, 0);">12.48%</span> of loans old enough to meet the 4-month-late criteria for default had already in fact defaulted!<br /><br />The simplest possible calculations tell you that Chris Larsen's quote is terribly misleading.<br /><br />The true default rate, ie the rate at which loans were going bad could be easily estimated by looking at the slope of the curves on my charts, and this told me loans were going bad somewhere in the range of <span style="color: rgb(255, 0, 0);">15% to 20% per year</span>. How could he say <span style="color: rgb(255, 0, 0);">2.7%</span> to the press? ...and thereby the investing public?<br /><br />There was a Dec 16, 2007 article (now expired) on Yahoo news which said "<span style="color: rgb(255, 0, 0);">The default rate on Prosper loans is a meager three percent.</span>" They probably just copied from the AP article. The misleading information echoes and repeats over and over.<br /><br />Chicago Tribune article of 01/13/07 talks of a <span style="color: rgb(255, 0, 0);">4.7%</span> default rate. (Article may be offline now. The links I had no longer work.)<br /><br />The long series of misinformation continues with the recent Washington Post article's statement <span style="color: rgb(255, 0, 0); font-style: italic;">"Prosper's default rate is about 5 percent."</span><span style="color: rgb(255, 0, 0);"> </span><br /><br />No my dear. Prosper's loans have experienced a default rate of something like <span style="color: rgb(255, 0, 0);">17% per year</span>. As anyone can plainly see from my charts, about <span style="color: rgb(255, 0, 0);">40%</span> of Prosper.com loans go bad over their 3 year life.<br /><br />When you're loaning money to someone, especially someone anonymous, your estimate of the default rate is really important. It is the most important piece of information you use to judge what interest rate to charge the borrower. That's why I began tracking the numbers. I was an enthusiastic early Prosper.com investor, and I wanted to understand.<br /><br />On Prosper.com, lenders must rely on their understanding of historical default rates.<br /><br />The continued material misrepresentation of this important data in the press, apparently driven by interviews with Prosper's CEO Chris Larsen, is disturbing.<br /><br />PS: Great discussion among P2P investors can always be found at <a href="http://www.prospers.org/forum/index.php">prospers.org</a>Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-2211186543498959369.post-17354369289813390002009-09-18T01:46:00.001-07:002009-10-20T00:01:22.985-07:00Prosper.com - 09/2009 late loan stats updateHere's the September 2009 update to to my Prosper.com late loan statistics charts.<br /><p>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.</p><p>Prosper loans created in the worst month so far, October '06, are now more than <span style="color: rgb(255, 0, 0);font-size:130%;" ><span style="font-weight: bold;">43%</span></span><span style="color: rgb(255, 0, 0);"> </span>bad! This number could still go higher! These are 3-year loans, but we don't know the final number of loans that have gone bad until 3 years + 4 months after origination, because loans are "charged off" when they are 4 months late. On March 1, 2010 we'll know the final numbers for loans originated in October 2006.<br /></p><p>Click on the chart to see a larger clearer version.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-09-01.gif"><img style="cursor: pointer; width: 445px; height: 388px;" src="http://fred93.com/fbi/prosperlate-2009-09-01-small.gif" alt="" border="0" /></a><br /></p><p>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.</p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-09-01-slid.gif"><img style="cursor: pointer; width: 445px; height: 431px;" src="http://fred93.com/fbi/prosperlate-2009-09-01-slid.gif" alt="" border="0" /></a><br /><br />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<br /><br />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.<br /><br /><span style="color: rgb(255, 0, 0);">The basic fact about Prosper.com loans so far is that about 40% of the loans go bad.</span><br /><br />Something unexpected happened this month. The Securities and Exchange Commission has begun to disclose (on their web site) some of the correspondence between the SEC and Prosper while Prosper was attempting to get SEC approval to reopen. I've not seen such correspondence released before, but it seems like a great thing.<br /><br />From some of these documents we learn that the SEC reads Fred93's blog! A few issues that have often been discussed here are mentioned, and in one place Fred93's blog is referenced by name.<br /><br />Here are some snips from a <a href="http://www.sec.gov/Archives/edgar/data/1416265/000000000009049230/filename1.pdf">June 12 2009 letter from SEC to Prosper</a>:<br /><br /><span style="color: rgb(153, 153, 0);">"We note analysis of the prosper loan originations posted by prosper members which shows <span style="color: rgb(255, 0, 0);">loans that are not paying according to their terms approaching 40% for your oldest tranches</span>."</span><br /><br /><span style="color: rgb(153, 153, 0);">"...there have been concerns expressed about the number of reported loans that closed during a particular month changing. ... Please refer to http://fred93blog.blogspot.com ."</span><br /><br />Right on! I was surprised but pleased to learn somebody reads this stuff.<br /><br />To see the correspondence, go to the <a href="http://www.sec.gov/cgi-bin/browse-edgar?company=prosper+marketplace&match=&CIK=&filenum=&State=&Country=&SIC=&owner=exclude&Find=Find+Companies&action=getcompany">SEC's list of Prosper.com filings</a>, and scan thru pages and pages of documents looking for the keyword "UPLOAD" in the first column. Only the letters from the SEC to Prosper are available, so this is like listening to only one side of a conversation. (I wish I could see Prosper's answer to the # of loans originated changing over time issue. I asked Prosper about that myself several times, but never got an answer.) Still reading the SEC letters is quite educational. The SEC really got into the details.<br /><br />PS: The best discussion among P2P and Prosper.com lenders are found on <a href="http://www.prospers.org/forum/">prospers.org</a>. See you there!Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-2211186543498959369.post-24211314564115236452009-09-05T22:16:00.000-07:002009-10-20T00:03:09.319-07:00Lendingclub - 09/01/2009 Late Loan Stats UpdateThese charts show statistics for the performance of all <span style="COLOR: rgb(255,102,0)">Lendingclub.com</span> 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 Lendingclub's performance web page.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/Lendingclublate-2009-09-01.png"><img style="MARGIN: 0pt 10px 10px 0pt; WIDTH: 445px; HEIGHT: 392px; CURSOR: pointer" border="0" alt="" src="http://fred93.com/fbi/Lendingclublate-2009-09-01.png" /></a><br />The curves are "noisy" (ie they jump up and down a lot) and are not as orderly as the curves on my charts of prosper.com loan performance. That's because the volume of loans at Lendingclub is still too low to get really good stats.<br /><br />Lets slide these curves over to a common origin, so we can compare their shapes ...<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/Lendingclublate-2009-09-01-slid.png"><img style="MARGIN: 0pt 10px 10px 0pt; WIDTH: 445px; HEIGHT: 419px; CURSOR: pointer" border="0" alt="" src="http://fred93.com/fbi/Lendingclublate-2009-09-01-slid.png" /></a><br />Just look at where these curves crossed the 390 day line, (ie 30 days after the 360 day line, because it takes 30 days for a loan to become 1 month late) or visualize where they might cross the 390 day line as they extend, and that tells you what fraction of loans went bad in the first year. This is then an estimate of the annual default rate for Lendingclub loans.<br /><br />Loans originated during the first few months of lendingclub's operation have performed very poorly. Oct, Nov 2007, and Jan 2008 have had about 15% of loans go bad during the first year. This is similar to the performance of Prosper.com loans.<br /><br />Loans originated in later months have performed much better. This gives investors some hope, but...<br /><br />Why have Lendingclub's later loans performed better than earlier Lendingclub loans? It seems that Lendingclub management must have learned some things and improved their verification criteria. Perhaps they learned how to filter out more of the identity theft or professional deadbeat borrowers. Unfortunately, I don't know what they changed. That makes it difficult to have faith that the improved quality of loans will continue.<br /><br />The best discussion among P2P lenders occurs at <a href="http://www.prospers.org/forum/">http://www.prospers.org/forum/</a>. See you there!Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-2211186543498959369.post-15336889082255015482009-08-23T12:10:00.001-07:002009-09-06T00:12:20.867-07:00Prosper.com - Its a Deadbeats' PartyApologies to Oingo Boingo. I borrowed that title from one of their songs.<br /><br />Now on to Prosper.com, and the sad story of "<span style="color: rgb(255, 0, 0);">P</span>ost <span style="color: rgb(255, 0, 0);">C</span>harge-<span style="color: rgb(255, 0, 0);">O</span>ff <span style="color: rgb(255, 0, 0);">C</span>ollection <span style="color: rgb(255, 0, 0);">T</span>echniques".<br /><br />Of great concern to folks who lend thru Prosper.com is just how hard Prosper actually tries to collect loan payments from borrowers. Sadly they don't try very hard at all. I've written about this before, so I'll skip much of the history, and just talk about recent revelations, and some juicy revelations they are!<br /><br />Here are some links to some prior discussions:<br /><a href="http://fred93blog.blogspot.com/2008/10/open-letter-2-collections-is-broken.html">May 6 ,2007 Collections is Broken</a><br /><a href="http://fred93blog.blogspot.com/2008/10/prospercom-collections-still-wanting.html">October 14, 2007 Collections Still Wanting</a><br /><a href="http://fred93blog.blogspot.com/2008/07/prospercom-collections-you-have.html">July 26, 2008 Collections: You have forsaken lenders</a><br /><br />Remember that while lenders supply the money, Prosper.com takes full authority and responsibilty for servicing the loans. That means only Prosper.com can take collection actions. Only Prosper can remind borrowers to pay. Only Prosper can hire collection agents. Only Prosper (or their agents) can call the borrower, knock on their door, etc. Therefore, if Prosper doesn't do these things well, or doesn't do them at all, then money doesn't get collected, and lenders lose. With that in mind, we're gonna discuss what happens to loans that go very late.<br /><br />Originally, Prosper.com loans that went 4 months late were declared "in default", and were sold by Prosper to a junk debt dealer. This action was codified in a <span style="font-style: italic;">contract</span> between Prosper.com and lenders called the "lender agreement".<br /><br />But then one day in May of 2008, Prosper decided to stop selling these loans to junk debt dealers. The decision was unilateral, without the consent of lenders, and in violation of the lender agreement. Lenders at the time scratched their heads about Prosper's willingness to ignore the contract, but lenders didn't raise a legal fuss. Prosper after all argued that they were going to do something even better than sell to junk debt dealers. They were going to apply "<span style="color: rgb(255, 0, 0);">Post Charge-Off Collection Techniques</span>"! Hallelujah, lenders thought. They're finally gonna get serious!<br /><br />In <span style="font-weight: bold;">May of 2008</span>, <a href="http://blog.prosper.com/2008/05/30/debt-sale-update-2/">Doug Fuller of Prosper wrote on the official Prosper.com blog</a>:<br /><span style="font-style: italic; color: rgb(0, 153, 0);">We believe the prudent course of business is to not sell at this time. Instead, we are going to consider the loans as charged off, and keep them and continue to try to collect them as charged off debts. You will continue to own the loans as we apply <span style="color: rgb(255, 0, 0);">post charge off collection techniques</span> to these accounts. We recognize that this is different than our normal process, but firmly believe that it will result in a higher return for our lenders.</span><br /><br />Lenders mused ... What the heck are these "post charge off collection techniques" anyway? We coined the acronym <span style="color: rgb(255, 0, 0);">PCOCT<span style="color: rgb(0, 0, 0);"></span></span>. What the heck is PCOCT? In our fantasies, big knarly biker bar bouncer guys knocked on borrowers' doors and politely asked for payment. In the back of our minds we suspected that PCOCT meant precisely "nothing". In spite of much prodding from the lender community, Prosper never defined PCOCT, and in fact never said anything at all about it. ... until now.<br /><br />More than a year later, <span style="font-weight: bold;">August 2009</span>, <a href="http://blog.prosper.com/2009/08/10/debt-sales-and-charge-off-collections-%E2%80%93-status-and-plans/">Doug Fuller of Prosper wrote in the official Prosper blog</a><br /><span style="font-style: italic; color: rgb(0, 153, 0);">Starting now, our plans relative to charged off accounts are as follows:</span><br /><span style="font-style: italic; color: rgb(0, 153, 0);">1. We continue to monitor the distressed debt market and to see if a sale is a possibility.</span><br /><span style="font-style: italic; color: rgb(0, 153, 0);">2. Until such time that the expected sale price exceeds the projected net recoveries for the first 12 months after charge-off, we are not going to sell.</span><br /><span style="font-style: italic; color: rgb(0, 153, 0);">3. We <span style="color: rgb(255, 0, 0);">are going to</span> place the accounts with a collection agency that specializes in charged-off accounts (the first agency has been identified and the contract is in the works).</span><br /><span style="font-style: italic; color: rgb(0, 153, 0);">4. The agency <span style="color: rgb(255, 0, 0);">is going to</span> employ a settlement strategy with settlement authority based on age, charge-off balance and current credit score. For post charge-off accounts, this is the best strategy to maximize total dollars recovered.</span><br /><br />Well that was a letdown. Remember that <span style="font-style: italic;">more than a year has passed</span> since Prosper began putting our loans into the PCOCT basket. It is shocking therefore to see this official statement discuss collection actions in the <span style="font-style: italic; color: rgb(255, 0, 0);">future tense</span>. We "<span style="font-style: italic; color: rgb(255, 0, 0);">are going to</span>" place the accounts... The agency "<span style="font-style: italic; color: rgb(255, 0, 0);">is going to</span>" employ a settlement strategy...<br /><br />In other words, in the more than a year since Prosper began throwing our loans into the PCOCT pile, Prosper has not hired an agency to carry out the post-charge-off collection techniques plan. In line with lender's worst fears, the true meaning of PCOCT was "The loans just sit in this pile here, and we don't do anything."<br /><br />This is not an idle issue, because as you can see from the late loan statistics charts I publish almost every month, about <span style="color: rgb(255, 102, 0); font-weight: bold;">40% of Prosper loans go bad</span>. That means we're talking about what happens to 40% of Prosper loans. And what happens is that those 40% of loans go into a pile where nothing is done. Think about that when you lend money via Prosper.<br /><br />The execution is lacking. Caveat Emptor.<br /><br />PS: As always, great discussion among Prosper.com lenders is found at <a href="http://www.prospers.org/forum/">prospers.org</a> .Unknownnoreply@blogger.com7tag:blogger.com,1999:blog-2211186543498959369.post-76727546080130609272009-08-02T22:50:00.000-07:002009-10-20T00:06:32.267-07:00Prosper.com - 08/01/09 late loan stats updateHere's the August 2009 update to to my Prosper.com late loan statistics charts.<br /><p>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.</p><p>Loans created in the worst month so far, October '06, have now gone past <span style="color: rgb(255, 0, 0);font-size:130%;" ><span style="font-weight: bold;">43%</span></span><span style="color: rgb(255, 0, 0);"> </span>bad!<br /></p><p>Click on the chart to see a larger clearer version.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-08-01.gif"><img style="cursor: pointer; width: 445px; height: 388px;" src="http://fred93.com/fbi/prosperlate-2009-08-01-small.gif" alt="" border="0" /></a><br /></p><p>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.</p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-08-01-slid.gif"><img style="cursor: pointer; width: 445px; height: 431px;" src="http://fred93.com/fbi/prosperlate-2009-08-01-slid.gif" alt="" border="0" /></a><br /><br />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<br /><br />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.<br /><br /><span style="color: rgb(255, 0, 0);">The basic fact about Prosper.com loans so far is that about 40% of the borrowers are not paying back the loans.</span> 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.<br /><br />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.<br /><br />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.<br /><p>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.<br /></p><p>Prosper's 01/15/2008 email promised ...</p><blockquote><p><em>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 <span style="color: rgb(255, 0, 0);"><strong>the accounting provided on a monthly basis in a supplementary statement</strong></span>.</em></p></blockquote><p style="color: rgb(255, 0, 0);"><strong>However, Prosper has never bothered to send lenders any of these promised supplemental statements!</strong> $735,000 of loans have simply disappeared from lender's view.</p><p>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! </p><p>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.<br /></p><p>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.)<br /></p><p>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.<br /></p><p>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.</p><p>So what does that tell us?<br /></p>PS: The best discussion among P2P and Prosper.com lenders are found on <a href="http://www.prospers.org/forum/">prospers.org</a>. See you there!Unknownnoreply@blogger.com3tag:blogger.com,1999:blog-2211186543498959369.post-72425357181479475672009-06-05T00:59:00.000-07:002009-10-25T00:26:32.078-07:00Prosper.com - 06/01/09 late loan stats updateHere's the June 2009 update to to my Prosper.com late loan statistics charts. Prosper remains closed for (legal) repairs, but we can (and do) still track the performance of the 28,939 loans they made before the hiatus.<br /><p>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). The horizontal axis is the observation date. All data comes from Prosper.com's performance web page.</p><p>Click on the chart to see a larger clearer version.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-06-01.gif"><img style="cursor: pointer; width: 445px; height: 388px;" src="http://fred93.com/fbi/prosperlate-2009-06-01-small.gif" alt="" border="0" /></a><br /></p><p>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.</p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-06-01-slid.gif"><img style="cursor: pointer; width: 445px; height: 411px;" src="http://fred93.com/fbi/prosperlate-2009-06-01-slid.gif" alt="" border="0" /></a><br /><br />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<br /><br />Many of the earlier 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.<br /><br />On June 1st, Prosper.com made their <span style="font-weight: bold; font-style: italic;">fifth try</span> at submitting an acceptable <a href="http://www.sec.gov/Archives/edgar/data/1416265/000110465909035890/a08-29602_5s1a.htm">registration statement</a> to the SEC that will enable Prosper to reopen. Good luck Prosper. This is a huge document, and I've just about given up on following the changes. With each version it appears that they're becoming more like Lendingclub. Other opinions welcome.<br /><br />Great discussions among P2P and Prosper.com lenders are found on <a href="http://www.prospers.org/forum/">prospers.org</a>.<br /><img src="http://notifications.tdameritrade.com/351483963.1173562.0.-1" width="1" height="1" /> <img src="http://notifications.tdameritrade.com/351483963.1173562.0.-2" width="1" height="1" /> <img src="http://notifications.tdameritrade.com/351483963.1173562.0.-3" width="1" height="1" /> <img src="http://notifications.tdameritrade.com/351483963.1173562.0.-4" width="1" height="1" /> <img src="http://notifications.tdameritrade.com/351483963.1173572.0.-2" width="1" height="1" />Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-2211186543498959369.post-90772511403405860122009-05-23T17:52:00.000-07:002009-10-20T00:16:21.019-07:00Lendingclub - 05/2009 late loan stats updateThese charts show statistics for the performance of all <span style="color: rgb(255, 102, 0);">Lendingclub.com</span> 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 Lendingclub's performance web page.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/Lendingclublate-2009-05-01.gif"><img style="margin: 0pt 10px 10px 0pt; cursor: pointer; width: 445px; height: 375px;" src="http://fred93.com/fbi/Lendingclublate-2009-05-01.gif" alt="" border="0" /></a><br />The curves are "noisy" (ie they jump up and down a lot) and are not as orderly as the curves on the prosper chart. That's because the volume of loans at Lendingclub is still too low to get really good stats.<br /><br />Lets slide these curves over to a common origin, so we can visualize how common their shapes are...<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/Lendingclublate-2009-05-01-slid.gif"><img style="margin: 0pt 10px 10px 0pt; cursor: pointer; width: 445px; height: 390px;" src="http://fred93.com/fbi/Lendingclublate-2009-05-01-slid.gif" alt="" border="0" /></a><br />Just look at where these curves crossed the 390 day line, (ie 30 days after the 360 day line, because it takes 30 days for a loan to become 1 month late) or visualize where they might cross the 390 day line as they extend, and that tells you what fraction of loans went bad in the first year. This is then an estimate of the annual default rate for Lendingclub loans.<br /><br />Yipes! What you see is that these various cohorts are defaulting at rates between 9%/year and 17%/year. Conclusion: These are pretty junky loans. It seems unlikely that lenders will do well when such a large fraction of borrowers are not repaying lendingclub loans.<br /><br />The best discussion among P2P lenders occurs at <a href="http://www.prospers.org/forum/">www.prospers.org</a>. See you there!Unknownnoreply@blogger.com5tag:blogger.com,1999:blog-2211186543498959369.post-16502517613418287552009-05-02T13:53:00.000-07:002009-10-20T00:17:27.061-07:00Prosper.com - 05/01/09 late loan stats updateHere's the May 1, 2009 update to to my Prosper.com late loan statistics charts.<p>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). The horizontal axis is the observation date. All data comes from Prosper.com's performance web page.</p><p>Click on the chart to see a larger clearer version.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-05-01.gif"><img style="cursor: pointer; width: 445px; height: 388px;" src="http://fred93.com/fbi/prosperlate-2009-05-01-small.gif" alt="" border="0" /></a><br /></p><p>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.</p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-05-01-slid.gif"><img style="cursor: pointer; width: 445px; height: 411px;" src="http://fred93.com/fbi/prosperlate-2009-05-01-slid.gif" alt="" border="0" /></a><br /><br />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<br /><br />For the "big picture" you can just look at that last chart. From the point of view of these performance statistics, Prosper.com loans run about 1150 days. (1 month before the first payment is due, 36 months during which payments are due, and another month before that last payment is declared 1 month late) The numbers aren't final for another 2 months, because it is possible for loans to recover during the next three months before the loan is charged off at the 4 month late point. Therefore about 1250 days is the final point. Look at the curves, and extend them to where you believe they will be at 1250 days.<br /><br /><span style="font-weight: bold;">Looking at the first year of Prosper.com loans, it is pretty clear that they're headed toward something like 42% bad.</span> Loans that originated later (the shorter curves) are doing a bit better. They might end up around 35% bad. <span style="font-weight: bold;">Big picture: On the average, these are junk loans.</span> Caveat emptor. Any investor who doesn't realize this will do very poorly loaning money to folks who about 40% of the time don't pay you back!<br /><br />This month, after a several month hiatus, Prosper has done more "unoriginations". For those of you who haven't followed these statistics for a long time, this requires some explanation. On the Prosper performance web page, they show a number labelled "loans originated". One might assume that this is the number of loans that were originated. It is not. This number goes down over time. Loans are from time to time removed from the set of loans described by these statistics. I track this, and count loans that are removed as having gone bad. (The name "unoriginated" comes from a word I learned in the third grade. In the old Sovient Union, people who were an embarassement to the government became "unpeople". Record of their existance was simply removed.) It is important to understand that these unoriginated loans are not loans that paid off, or are late, or have been charged off. Those categories are explicitly shown. The unoriginated loans are never explicitly shown. They just disappear.<br /><br />The numbers I chart above are ratios. The numerator is the number of loans that have gone bad, and the denominator is the number of loans originally created (originated). Although Prosper reduces the number "originated" in their display over time, I keep the number constant, the original number of loans made. A ratio with a constant denominator is easy to understand as it evolves over time.<br /><br />Lets look at an example. Consider the loans Prosper originated in October 2006. Initially there were 743 loans in this cohort. That's the number I use as a denominator. Starting in April '07, Prosper showed that there were only 742 loans originated in Oct '06. History changed. Starting in August '07, Prosper showed that only 740 loans had originated in Oct '06. Starting in March '08, Prosper showed only 736 loans originated in Oct '06. History keeps changing. In July '08, Prosper changed the number back to 740. Some unoriginated loans suddenly un-unoriginated themselves. I couldn't make this stuff up. In May '09 Prosper changed the number to 738. Here and there a few loans seem to come and go from the database. Nevertheless, I hold the denominator constant at 743, the number of loans actually created in October 2006. The latest statistic for Oct'06 is then calculated like this: The numberator is 16 loans in the 1-3 month late category + 281 loans charged off + 5 loans unoriginated = 302 bad loans. The denominator is (of course) 743 total loans. Finally 302/743 = <span style="font-weight: bold;">40.65%</span> <span style="font-weight: bold;">of the Oct'06 loans have gone bad so far</span>.<br /><br />Oct'06 is not the only month to have recent unoriginations.<br /><br />Nov'06 originally 701 loans, in Apr'09 they showed 698, in May'09 they show 697.<br />Dec'06 originally 969 loans, in Apr'09 they showed 965, in May'09 they show 964.<br />Mar'07 originally 1161 loans, in Apr'09 they showed 1160, in May'09 they show 1159.<br />Apr'07 originally 1101 loans, in Apr'09 they showed 1098, in May'09 they show 1097.<br />Jun'07 originally 951 loans, in Apr'09 they showed 950, in May'09 they show 947.<br />Jul'07 originally 935 loans, in Apr'09 they showed 934, in May'09 they show 932.<br />Sep'07 originally 758 loans, in Apr'09 they showed 758, in May'09 they show 757.<br />Oct'07 originally 928 loans, in Apr'09 they showed 928, in May'09 they show 927.<br /><br />I could go on, but I'm sure you get the idea. What causes these loans to be removed from the data? In the early days of Prosper, there were some cases where the loan origination numbers went down like this, and we were told that it was due to loans where identity fraud had been discovered. Prosper decided to treat those loans as if they never existed. There was some merit to their position, because at that time Prosper repaid the lenders (investors, note purchasers) in full for these loans. However, in later years, although I have been in discussion with a large number of lenders, I have never heard of Prosper repaying a lender in full for any loan. Therefore, I doubt that admitted identity theft is the reason now. (Prosper employees, feel free to add a comment to this blog explaining where these loans have gone.) Whatever the reason, this is a detail that adds complexity to the task of understanding loan performance. I wish they wouldn't rewrite history.<br /><br />A few days ago Prosper ended their self-imposed quiet period, and has started originating loans again. They've changed the credit score limits, and a few other things that seem likely to change the statistics a bit, but it doesn't look like they've done anything to fix the structural problems which I have often discussed. Therefore I expect that as in the past, a large fraction of the loans will go bad.<br /><br />The best discussion among P2P and Prosper.com lenders always found on <a href="http://www.prospers.org/forum/">prospers.org</a>.<br /><img src="http://notifications.tdameritrade.com/351483963.1173562.0.-1" width="1" height="1" /> <img src="http://notifications.tdameritrade.com/351483963.1173562.0.-2" width="1" height="1" /> <img src="http://notifications.tdameritrade.com/351483963.1173562.0.-3" width="1" height="1" /> <img src="http://notifications.tdameritrade.com/351483963.1173562.0.-4" width="1" height="1" /> <img src="http://notifications.tdameritrade.com/351483963.1173572.0.-2" width="1" height="1" />Unknownnoreply@blogger.com9tag:blogger.com,1999:blog-2211186543498959369.post-26765216125065500802009-03-05T22:28:00.000-08:002009-10-20T00:22:21.838-07:00Prosper.com 03/01/09 - late loan stats updateHere's the March 1, 2009 update to to my Prosper.com late loan statistics charts.<p>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). The horizontal axis is the observation date. All data comes from Prosper.com's performance web page.</p><p>Click on the chart to see a larger clearer version.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-03-01.gif"><img style="cursor: pointer; width: 445px; height: 388px;" src="http://fred93.com/fbi/prosperlate-2009-03-01-small.gif" alt="" border="0" /></a><br /></p><p>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.</p><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/prosperlate-2009-03-01-slid.gif"><img style="cursor: pointer; width: 445px; height: 411px;" src="http://fred93.com/fbi/prosperlate-2009-03-01-slid.gif" alt="" border="0" /></a><br /><br />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<br /><br />A milestone was reached this month when one cohort, the <span style="font-weight: bold;">loans prosper.com issued in October '06, have hit <span style="color: rgb(255, 0, 0);">40% bad</span></span> (ie 1 month late or worse). Well actually only 39.97%, but that rounds to 40%.<br /><br />Oh my god. How can anyone make money off loans that go bad at this rate? Prosper never implemented proper fraud control, collections, legal practices, etc required to operate a successful lending business. How could that have happened?<br /><br />I now believe my trust in Prosper.com's founder Chris Larsen was misplaced. I based that trust on the fact that he had created the successful (I thought) loan company E-loan. Now I realize that E-loan wasn't really a loan company at all. It was yet another marketing front, part of the giant machine that gathered up borrowers and stuffed them into securitized loan packages, to be owned by someone else. Somebody else's problem. <span style="font-style: italic;">Who cares if they pay the money back.</span> E-loan was part of the problem that drove our economy to disaster.<br /><br />After buying <a href="http://en.wikipedia.org/wiki/E-loan">E-loan</a> from Larsen, Banco Popular gave up and shut it down. It is now just another chapter in the history of the mortgage fiasco.<br /><br />The best discussion among P2P and Prosper.com lenders always found on <a href="http://www.prospers.org/forum/">prospers.org</a>.<br /><img src="http://notifications.tdameritrade.com/351483963.1173562.0.-1" width="1" height="1" /> <img src="http://notifications.tdameritrade.com/351483963.1173562.0.-2" width="1" height="1" /> <img src="http://notifications.tdameritrade.com/351483963.1173562.0.-3" width="1" height="1" /> <img src="http://notifications.tdameritrade.com/351483963.1173562.0.-4" width="1" height="1" /> <img src="http://notifications.tdameritrade.com/351483963.1173572.0.-2" width="1" height="1" />Unknownnoreply@blogger.com7tag:blogger.com,1999:blog-2211186543498959369.post-65948494752837992422009-02-17T18:52:00.000-08:002009-04-25T14:09:31.390-07:00Prosper.com - SEC Offer of SettlementBack on 11/24/08 the Securities and Exchange Commission issued a <a style="font-weight: bold;" href="http://www.sec.gov/litigation/admin/2008/33-8984.pdf">Cease & Desist order</a> which told us that Prosper.com had violated the securities act. That SEC order mentioned that the SEC had accepted Prosper's "offer of settlement", but the offer was not made pubic at that time. Prosper's offer has now been released by the SEC, and <span style="font-style: italic;">we bring it to you here and now</span>.<br /><br />I've transcribed Prosper's offer letter below, and provided a link to a scanned version. The transcribed text differs in formatting, but is identical in word.<br /><br /><hr /><br /><div style="text-align: center;">UNITED STATES OF AMERICA<br />Before the<br />SECURITIES AND EXCHANGE COMMISSION<br /></div><br />ADMINISTRATIVE PROCEEDING<br />File No.<br />In the Matter of<br />Prosper Marketplace, Inc.<br />Respondent.<br /><br />OFFER OF SETTLEMENT<br />OF PROSPER MARKETPLACE, INC.<br /><br />I. Prosper Marketplace, Inc. ("Prosper" or "Respondent"), pursuant to Rule 240(a) of the Rules of Practice of the Securities and Exchange Commission ("Commission") [17 C.F.R. § 201.240(a)], submits this Offer of Settlement ("Offer") in anticipation of cease-and-desist proceedings to be instituted against it by the Commission, pursuant to Section 8A of the Securities Act of 1933 ("Securities Act").<br /><br />II. This Offer is submitted solely for the purpose of settling these proceedings, with the express understanding that it will not be used in any way in these or any other proceedings, unless the Offer is accepted by the Commission. If the Offer is not accepted by the Commission, the Offer is withdrawn without prejudice to the Respondent and shall not become a part of the record in these or any other proceedings, except for the waiver expressed in Section IV with respect to Rule 240(c)(5) of the Commission's Rules of Practice [17 C.F.R. § 201.240(c)(5)].<br /><br />III. On the basis of the foregoing, the Respondent hereby:<br /><br />A. Admits the jurisdiction of the Commission over it and over the matters set forth in the Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing a Cease-and-Desist Order ("Order").<br /><br />B. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. § 201.100 et seq., and without admitting or denying the findings contained in that Order, except as to the Commission's jurisdiction over Prosper and the subject matter of these proceedings, which are admitted, Prosper consents to the entry of an Order by the Commission containing the following findings:<br /><br />1. that Prosper violated Sections 5(a) and (c) of the Securities Act; and<br /><br />2. ordering that, pursuant to Section 8A of the Securities Act, Prosper cease and desist from committing or causing any violations of, and committing or causing any future violations of, Sections 5(a) and (c) of the Securities Act.<br /><br />IV. By submitting this Offer, Respondent hereby acknowledges its waiver of those rights specified in Rules 240(c)(4) and (5) [17 C.F.R. § 240(c)(4) and (5)] of the Commission's Rules of Practice. respondent also hereby waives service of the Order.<br /><br />V. Respondent understands and agrees to comply with the Commission's policy "not to permit a defendant or respondent to consent to a judgment or order that imposes a sanction while denying the allegations in the complaint or order for proceedings" (17 C.F.R. § 202.5(e)). In compliance with this policy, Respondent agrees: (i) not to take any action or to make or permit to be made any public statement denying, directly or indirectly, any finding in the Order or creating the impression that the Order is without factual basis; and (ii) that upon the filing of this Offer of Settlement, Respondent hereby withdraws any papers previously filed in this proceeding to the extent that they deny, directly or indirectly, any finding in the Order. If Respondent breaches this agreement, the Division of Enforcement may petition the Commission to vacate the Order and restore this proceeding to its active docket. Nothing in this provision affects Respondent's: (i) testimonial obligations; or (ii) right to take legal or factual positions in litigation or other legal proceedings in which the Commission is not a party.<br /><br />VI. Consistent with the provisions of 17 C.F.R. § 202.5(f), Respondent waives any claim of Double Jeopardy based upon the settlement of this proceeding, including the imposition of any remedy or civil penalty herein.<br /><br />VII. Respondent hereby waives any rights under the Equal Access to Justice Act, the Small Business Regulatory Enforcement Fairness Act of 1996, or any other provision of the law to seek from the United States, or any agency, or any official of the United States acting in his or her official capacity, directly or indirectly, reimbursement of attorney's fees or other fees, expenses, or costs expended by Respondent to defend against this action. For these purposes, Respondent agrees that Respondent is not the prevailing party in this action since the parties have reached a good faith settlement.<br /><br />VIII. Prosper states that it has read and understands the foregoing Offer, that this Offer is made voluntarily, and that no promises, offers, threats, or inducements of any kind or nature whatsoever have been made by the Commission or any member, officer, employee, agent, or representative of the Commission in consideration of this Offer or otherwise to induce it to submit to this Offer.<br /><br />10th day of November {2008}<br />Prosper Marketplace Inc<br />By: {signature}<br />Print Name: Christian A. Larsen<br />Title: CEO & Chairman<br /><hr />Here's a scanned version of <a href="http://www.prospers.org/blogs/media/blogs/Fred93/Prosper-SEC-offer-of-settlement-2008-11-10.pdf">Prosper's Offer of Settlement</a>.<br /><br />Doesn't make for very exciting reading, does it?<br /><br />When I read the SEC Cease & Desist order, and saw that it said the SEC had accepted Prosper's offer of settlement, I wondered whether the offer (and therefore the acceptance by the SEC) had contained some elements not found in the SEC's public Cease & Desist order. For example I wondered whether Prosper had agreed to any specific actions that had not been made public. Turns out, there aren't any such agreements in the offer. Most of the words in the offer simply say that if the SEC agrees to end the matter by issuing the Cease & Desist, then Prosper won't argue about it. It looks to be all boilerplate. Its like something from a sci fi horror flick:<span style="font-style: italic;"> Sign here so the shock treatments can begin.</span> <span style="font-style: italic;"> Then we can set you free.</span><br /><br />Thank you to the SEC for releasing this document to the public.<br /><br />For those of you who have read the above and are completely baffled, be advised that the SEC <a style="font-weight: bold;" href="http://www.sec.gov/litigation/admin/2008/33-8984.pdf">Cease & Desist order</a> makes much better reading. It actually sets the stage by explaining the context of the SEC's action.<br /><br />The best discussion among peer-to-peer lenders takes place at <a href="http://prospers.org/forum/">prospers.org</a><br />See you there!Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-2211186543498959369.post-27253465737242406372009-02-10T22:58:00.000-08:002009-10-20T00:24:19.222-07:00Prosper.com - one of your loans was charged offIt is so sad. Day after day, lenders see loan after loan go in the toilet. "Charged off" in prosper lingo. Here's my Prosper.com in-box...<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/2009-02-08-loanschargedoff.gif"><img style="cursor: pointer;" src="http://fred93.com/fbi/2009-02-08-loanschargedoff.gif" alt="" border="0" /></a><br /><br />I've written extensively about the lack of moxy in Prosper's collections department. (and that's the most polite way I can say it) In May 2007 I wrote an open letter to Prosper.com .<br /><a href="http://fred93blog.blogspot.com/2008/10/open-letter-2-collections-is-broken.html"><br />May 2007 - collections is broken</a><br /><br />A year later I wrote another appeal to prosper to get their collections act together.<br /><br /><a href="http://fred93blog.blogspot.com/2008/05/prospercom-heres-what-you-should-do.html">May 2008 - here's what you should do with the lawyers</a><br /><br />They never listen.<br /><br />They never respond, except to say "One of your loans was charged off".<br /><br />PS: The best discussion among P2P lenders occurs on <a href="http://www.prospers.org/forum/">prospers.org</a>Unknownnoreply@blogger.com6tag:blogger.com,1999:blog-2211186543498959369.post-86196936152768410352009-02-05T19:00:00.000-08:002009-10-20T00:26:34.734-07:00lendingclub - 02/01/09 late loan stats updateThese charts show statistics for the performance of all <span style="color: rgb(255, 102, 0);">Lendingclub.com</span> loans. (If you were looking for <span style="color: rgb(255, 102, 0);">prosper.com</span> stats, find them <a href="http://fred93blog.blogspot.com/2009/02/prospercom-020109-late-loan-stats.html">here</a>.)<br /><br />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 Lendingclub's performance web page.<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/Lendingclublate-2009-02-01.gif"><img style="margin: 0pt 10px 10px 0pt; cursor: pointer; width: 445px; height: 363px;" src="http://fred93.com/fbi/Lendingclublate-2009-02-01.gif" alt="" border="0" /></a><br />The curves are "noisy" (ie they jump up and down a lot) and are not as orderly as the curves on the prosper chart. That's because the volume of loans at Lendingclub is still too low to get really good stats.<br /><br />Something odd is happening in the last month. Looks like lendingclub must have goosed up their collections activity. Bravo!<br /><br />Lets slide these curves over to a common origin, so we can visualize how common their shapes are...<br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://fred93.com/fbi/Lendingclublate-2009-02-01-slid.gif"><img style="margin: 0pt 10px 10px 0pt; cursor: pointer; width: 445px; height: 390px;" src="http://fred93.com/fbi/Lendingclublate-2009-02-01-slid.gif" alt="" border="0" /></a><br />Just look at where these curves crossed the 390 day line, (ie 30 days after the 360 day line, because it takes 30 days for a loan to become 1 month late) or visualize where they might cross the 390 day line as they extend, and that tells you what fraction of loans went bad in the first year. This is then an estimate of the annual default rate for Lendingclub loans.<br /><br />The best discussion among P2P lenders occurs at <a href="http://www.prospers.org/forum/">www.prospers.org</a>. See you there!Unknownnoreply@blogger.com3