Jan
One Year Review: My Prosper Lending Experience
It has been some time since I have opened my Prosper account. Finally, I logged on a few minutes ago to transfer out money again because I want keep my account free of cash since the SEC cease and desist order against Propser and the quiet period have increased the possibility that Prosper could fold. I have been worried about the default rate since that order. The SEC actions combined with all the talk on the internet of how many loans on Prosper go into default probably trigger some people to feel stupid for actually paying on their Prosper loans despite the obligation and the impact to the credit score.
So how are my Prosper Marketplace P2P loans fairing? My loans’ average loan credit grade is an A minus so I have not been chasing 30%+ low-credit-score loans. Currently, I have three late loans out of 16 loans, so 18% of my Prosper loans are late.
Update: See the bottom of this post for an update. From the time I drafted this post until a few days later, another loan is now late.
According to Eric’s CC, my estimated return is NEGATIVE 4.4%. LendingStats estimates that my Prosper ROI is between negative 4.9% and negative 9.8%. Below are the screen shots to capture the point in time statistics of my Prosper return.
I must thank the unofficial Prosper forums. Despite occasionally being a bit caustic, the members there have gathered enough information and been passionate enough in their opposition that they prevented me from losing more money on the Prosper Marketplace P2P Lending platform because I probably would have waded in a little faster without their commentary.
If you are thinking about P2P lending, read the advice to new lenders.
How is your return on investment with Prosper? Are you happy with it?
UPDATE:
Before I had time to take all the screenshots, write up a description and click the publish button on this post, a fourth of my Prosper loans is now late. It will likely to continue to go downhill from here.
Prosper Lending Portfolio Update (Jan 12, 2009)
That’s tough news.
Luckily I just had an early payoff. That’s my fourth A+ borrower that paid his loan back early. I’d much rather take the pre-payment risk than have a loan go late or default.
I hope things don’t get worse for you (or me).
Ah, I am disappointed, but not horribly surprised after seeing the late curves that Fred posts. THe longer they go, the more loans that become late running all the way up to about 38% of the loans on average. I thought staying on average A- would help avoid the problem, but it does not look like it.
How are your loans doing?
You did some analysis of pre-payments and I ranted about pre-payments.
I still don’t understand why someone would go through the hoops of taking out a Prosper loan only to pay the whole thing back in less than two months.
I have been using Prosper Since June of 2007. Currently I have 44 Loans at approximately an initial investment of $50 each. My Credit Score Borrower Average is C-. My current rate of return as listed on ECC is as follows:
Portfolio Performance
Avg Interest Rate (unweighted): 25.53%
Avg Interest Rate (weighted): 25.66%
Experian Estimated ROI: 19.94%
EricsCC Estimated ROI¹: 22.31%
I have only one loan late, 98% of my loans are on time.
I have seen the rants on Fred’s and I fully believe that in order to generate a high return many lender’s have failed to take the time to do a detailed statistic dive of key determining factors to use to select loans. The same lenders are quick to reference Prospers propaganda rates of default and return to use in order to make there decision. Prosper and Lending Club both provide all the statistical data needed to make informed decisions. Also, it must be remembered that once a statistical understanding is set, one will require a minimum of 30+ loans all of the same $ value in order to achieve a sample portfolio that drives in accordance with the statistical population. Besides statistics people need to take the time to think about the “credit cycle†that most people go through – Many A borrowers are young and have not gone through a full cycle…usually when this happens their scores quickly drop. My experience has been that as much time in investigation has to be spent on an A rated lender as on an E.
I also use Lending Club. I have 78 Loans, 0 late, and I am generating a 11.6% return. NOTE: separate statistical models must be built for each specific site.
Feel free to comment or ask me questions at byronheadrick [(at)] aol [(dot)] com.
Editor’s Note: I modified the email address to try to keep Byron’s email from being picked up by email sucking spam bots.
Holy smokes Byron. That is a great return — especially when you consider that you have pulled it off cross platform.
What about the lake of age of the average lending club loans? Wouldn’t that make it difficult for a model to predict what is going to default.
By the way, when I started lending w/ Lending Club, the site was nearly brand new. They had not even started publishing the stats yet at the time.
I am interested in seeing what key variables Byron is looking at. Could you tell us those?
Why should prosper shut down just because some lenders were stupid with thier money and are taking a loss? I have almost exclusively lent money to bad credit +20% loans and I have never even had one late. I am generating a 20.47% average rate of return on over 50 loans. Have some common sense about who you are lending money to and there is no problem. I have seen some postings that I would not lend $1 to that have tons of people bidding $50 and over. They deserve to lose thier money just like the banks have.
Some people made some really bad moves — possibly even stupid. Many others did not. Most of my loans are better credit risks, but I have had several of them go bad — enough to make the estimated return negative on my Prosper portfolio.
It was not stupidity in general that caused Prosper to shut down. I am not calling a Prosper a ponzi scheme, but would you not shut down a Ponzi scheme just because it was only idiots who invested? Ponzi schemes are closed because they are illegal. The government’s case is pretty clear in the Prosper case, but I still think that they were heavy handed.
Did I personally know what I was getting into with Prosper? Yes, so I am not complaining for myself, but I know much more about finance then the average person. Prosper did not explain the risks well and used very young loans to inaccurately estimate average returns to investors.
I had to do research well outside of Prosper to find out about the risks. When Prosper users started to uncover the risks they purged the forums and banned negative posts causing so much ill will that they created a small army of haters. Instead, Prosper should have been focusing on operations — loan validation and collections — rather than trying to manipulate bad press. I think the feds did the inevitable and that Proper was doomed due to poor execution. In fact their rate of member growth had already reached a significant inflection point before the feds stepped in.
Back to your Prosper return though… I think that you are mistaking extreme good fortune and luck with intelligence. Here is why I think your are just lucky…
If you search all the lender portfolios who have loaned on more than 20 loans, only 26 of them have a higher return than you claim. That is 26 out of 19,355 people. That means only 0.13% of people have that return or higher estimated per LendingStats.com. (I use 20 ore more loans because there are a handful of people who have 34% interest rate loans to one or two people who are still current so they totally throw off the statistics.)
And if you further limit the report to loans older than six months, only 17 out of 18,764 have the return you are claiming. That is 0.09% of lenders.
Please post your profile name for all to see and then go into your prosper account and add to your profile page “I posted my Prosper name to prove to PLP that I am a lending master.” I still will doubt that you have the master formula due to it likely being a statistical outlier, but maybe you can convince someone else.
By the way, Lending Stats actually estimates ZERO people with more than 50 loans have the return you are claiming. Are you using a different measure?
I am a borrower who has a loan with Prosper. It originated August 21, 2007 and has been providing 24% interest to the lenders. There has never been any late payments. This August will make 2 years of perfect payments to the lenders. I am seeking more money. If interested contact me at NHLguy(at)comcast(dot)com.
As Steve suggested, some of my best borrowers have been the highest risk i.e.,29% while most of the defaults have been in the A avg. range, so I am glad someone has the brains to use statistics to make money. With all the intangible variables involved, IMHO Einstein would not fare much better, so my hat is off to anyone whom has made big $$$ w/ Prosper.
I have 19 defaults out of 81 loans, and since I reinvested all the P & I, I will be lucky to recoup a Break-even. Prosper seems to have taken down all the analytics and charts we had at one-time, but maybe that is because I live in Indiana and cannot loan any longer.
I am going to try trading the Notes at Lending Club and see if the loans are screened better that at Prosper.
It seems like a lot of people have been concerned about prospers stability but i really think they are doing great. I have done some reading and it sounds like prosper has made some internal changes and is actually stronger than ever!