Sunday, October 4, 2009 - 10/2009 late loan stats update

Here's the October 2009 update to to my late loan statistics charts.

These charts show statistics for the performance of all 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's performance web page.

The worst month so far is October '06. Of the loans originated by in October'06, 43.5% have now gone bad.

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 = 43.5% gone bad.

October'06 is not alone. Many other months have produced similarly bad performance.

More detail can be found in my earlier posts.

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.

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.

Click on the chart to see a larger clearer version.

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

Explanation of methodology can be found in my prior postings in this blog, and in forum discussions on the old prosper forum, now archived at

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.

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.

First, there's another fellow doin' it already. Check rateladder's blog. Here's one of his recent charts. (Click on it for a larger copy).

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 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!

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.)

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.

I do believe there's value in observing the behavior of loans in aggregate, even if that doesn't give lenders insight into exactly how they should pick loans.

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.

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. Loans go bad over time.

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.

PS: The best discussion among P2P and lenders are found on See you there!

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