Browsing some Prosper lending statistics at LendingStats.com, I noticed that Pennsylvania loans are exceptionally late. 23% of the loans by dollar volume have already defaulted — despite the low rate cap of 6%. The low rate cap presumably should keep higher risk borrowers from receiving a loan. See Pennsylvania Loans Sorted By Origination Date. Other lower end rate cap states like Hawaii and Arkansas also have low loan volume and a default rate much lower than Pennsylvania. The state of Delaware’s return was saved by a repurchase — excluding that case of fraud (since Prosper repurchased the loan) its default rate is also much lower.
Before looking at the Pennsylvania detail, I thought that one loan must be skewing the numbers because of the small volume of loans — only $48K. At that volume, a single $25K loan in default would case over a 50% default rate. The sample size is small, but it is the details behind the defaults that is most amazing.
What were these early Prosper lenders thinking?
There are six loans in default for an average dollar amount of $2,100. Every loan in default was graded as HR. The most amazing part if that the average interest rate charged for these six HR loans, was only 2.87%. These were all originated 2006.
Here are the details behind some of the defaulted loans in PA:
Loan 58577 — Interest rate of 1%. BorrowersGL loaned out the full $1,000
Loan 58756 – -Interest rate of 1%. BorowerGL loaned out all but $50 of the $1,000.
Loan 54897 — Interest rate of 5%. MuleShoes loaned $2,950 of $3K.
Loan 53022 — Interest rate of 5%. MuleShoes loaned all $2K.
Loan 47411 — Interest rate of 0.21% (Yes, less than 1% interest). Again MuleShoes for the whole $2,600.
Loan 45007 — Interest rate of 5% on $3,000 by MuleShoes.
What were these lenders thinking? Interest rates of 1% and less when Prosper also takes a percentage point of the interest paid. 47411 was a money loser automatically — even before default. These loans do not make any logical sense. So, I must check… How are BorowersGL and MuleShoes doing on their rate of return on Prosper peer-to-peer loans:
Update: Be sure to read the comments below because there were several interesting items posted. Â
BorrowersGL extended $65K in loans. 41% of the loans are in default. The estimated ROI for GL is negative 17%, but Eric’s CC estimates the ROI at negative 23%.
MuleShoes loaned out nearly $400,000 putting Mule in the top ten Prosper lenders. The rate of return is negative 18%, but the Eric’s ROI estimate is negative 31%. 45% of the loans are late or in default. Check out the graph of bid history — MuleShoes jumped in head first without checking the water depth.
I am shaking my head, wondering what to comment further on this. I think I’ll just let the biding pattern and loan performance speak for themselves.