Tuesday, June 3, 2008

Prosper.com - 06/01/08 late loan stats update

Here's the June update to to my late loan statistics charts.

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

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

06/01/08 small late loan chart

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

5/15/08 slid

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

You can plainly see that Prosper loans are going bad at about 20% per year. Just look at the 360 day point on that last chart. As I've reported before, you will see many references in various newspaper and magazine articles that the Prosper loan default rate is 3% per year. These statements are just completely wrong. It is amazing how often this incorrect statement has been reprinted. Prosper's own data (as seen above) shows the correct number is about 20%/year.

The most recent repeat of the lie can be found in Lendoza's blog
http://www.lendoza.com/2008/05/28/marketplace-protection-collections-a-closer-look/ where he wrote:

we will assume that Prosper's numbers are accurate?.in which case there is a default rate of 3%

He obviously hasn't actually looked at the data. He must have simply copied that from one of the newspaper articles. Prosper's data does NOT show "a default rate of 3%". The only polite word for that is "wrong".

Zcommodore recently showed us another way to look at this same data.


You can read from his graphs a default rate of a little less than 2%/month. That's about the same as 20%/year I've repeatedly described.

An important factor in prosper.com loan results is how well Prosper collects the payments due on these loans. Please see my prior writings on that subject, including:

Written 05/06/07: Collections is broken

Written 05/04/08: Collections is not improving

Prosper has recently advised us that the most recent auction of old bad loans has failed, and as a result they no longer intend to auction off old bad loans. Failed. Dead. Nobody wants to buy the stuff! As a result of this, Prosper has told us that they intend to stop selling such loans, and instead apply "post charge-off collection techniques" while us lenders still own the loans.

This could be a very positive development. The old auction/sale process was very bad for lenders, as no one ever tried very hard to collect before the loans were sold, and the sale triggered very bad tax consequences for lenders. As I wrote about a year ago in Collections is broken I think this is an appropriate thing to do ... IF Prosper takes this responsibility seriously.

My concern, and the concern of many other lenders, is that Prosper will not take it seriously, as they have never taken their responsibility to lenders with any seriousness. I recently wrote about how slowly Prosper is proceeding with the legal test against 66 deadbeat borrowers. Will they proceed more gusto against 1000 or 2000? Or does "post charge-off collection techniques" mean letting old loans gather dust on a back shelf?

PS: The best discussion among Prosper.com lenders can be found at http://prospers.org/

No comments:

Post a Comment