Wednesday, March 31, 2010 - backloaded months

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

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

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

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

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

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

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

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

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

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

The best discussion among P2P and lenders is found on I hope to see you there!

1 comment:

  1. Interesting, I don't really see the purpose of closing loans by the end of the month. They're a private company, unless investors are literally breathing down their neck every month what's the point?