Previously I had some additional questions for the Large Lenders on the Prosper Days Panel.
L5 Returned my email… Here is his response. If you can’t tell L5 is a sharp tack and I knew he was thinking correctly, I just wanted to be sure 
Thanks for your nice comments, RateLadder! Really good to hear your thoughts.You are absolutely right that interest rate – default (or delinquent) rate doesn’t equal yield ROI.What I was doing (a year’s worth of data then using 1 – current loan %) was a CRUDE approximation. My point was that even a crude approximation using real data from Prosper is, I feel, more relevant than using the Experian data, especially since I feel zeroing in on extended credit stats is very relevant.Now that Prosper has released their ROI estimate tool based on their portfolio data, this is clearly the benchmark to use. As they just released this on Monday, I’ve only played with it briefly, so don’t have full comments for you on it. But it has the advantage of being able to filter based on all the different attributes of Prosper loans, while also giving much better ROI calculations. Basically there are THREE “deducts” from the average rate column — the three negative numbers — that, as I understand it, you want to sum and deduct from the interest rate proposed by a borrower to get the expected yield.I attended a session where they talked about their methodology for determining the ROI, but I didn’t take detailed notes as they said there was a white paper on the site (or maybe in the forums) that goes into this in details. So I plan to get the white paper and think others who are interested in this should get it and read it, too. (Maybe you can post a link to this on your blog.)The key thing they use in ROI is a technique called “roll rates” which estimate on a go-forward basis (based on past data) what percentage of loans in one category will “roll” to the next (worst) category in the next month. For example, their data right now suggests that 3% of C loans will roll to 1-30 days late each month; of those, 25% will roll to 31-60 days late — i.e., 75% “cure” and 25% remain delinquent. Of those that are 61-90 days late, 80% roll (i.e., don’t pay anything), while 20% don’t roll and remain delinquent. Obviously the roll rates vary based on the characteristics of the loan class being studied — credit grade, extended credit scores, etc. — and you can filter on that. They also factor in early payoffs, which is nice, but I think not hugely relevant to me.They did say that their calculations were different than IRR… I didn’t understand the exact differences, but I think the white paper goes into.So, anyway, find the white paper and you (and I) will have answers. Good questions.Feel free to post this to your blog if it’s useful.
Wishing you the very best,
- L5
L5 appreciates Haiku… So this is for him:
R O I
Rate Minus Default?
No Markov
I will be tracking down this white paper. Prosper Andrew (Top notch. Be nice to him and doors are unlocked. He would do quite well with a donation button. :) responded to a forums request by posting a link in the forums. Here it is: http://www.prosper.com/public/help/topics/lender-marketplace_performance_calculation.aspx
Update pensioner responds: http://www.rateladder.com/2007/02/14/pensioner-responds-avg-rate-minus-default-rate-does-not-equal-expected-return/
Related Posts -
Portfolio Plans -- The Good, The Bad, and The Ugly I think Prosper is doing some interesting things lately and Portfolio Plans are no exception... A portfolio plan is a series of slices of data that when combined make getting into a diversified investment of Prosper loans extremely simple. There are 4 risk levels for the current plans. Conservative (estimated...... - Prosper vs Lending Club -- The First 100 Days Take 2 Yesterday, in reaction to Lending Club's post 100 Days and a Million Dollars in Loans! I did a straight comparison on loan volume during the first 100 days. A reader pointed out, Lending Club loans are in a smaller credit band than Prosper and wondered how the 2 compared when that......
-
LendingStats Site Update LendingStats has just announced an update... And I think it has 2 cool features and a very nice upgrade to the LendingStats ROI calculation. The ROI upgrade: Updated the collection rates used to calculate estimated ROI corresponding to how Prosper split out the Penncro Collection rates by credit grade. This caused...... -
Prosper Interest Rates On the Rise Prosper interest rates are on the rise -- in case you where wondering this is a good thing for lenders! The release of the lender bidding guidance (general announcement, secondary analysis) seems to line up with a rise in near prime and sub prime interest rates. Similarly, the graph that...... - Prosper vs Lending Club -- The First 100 Days Last week Lending Club had a post about their first 100 days -- 100 Days and a Million Dollars in Loans!... This got me thinking, how does that compare with Prosper's first 100 days? Here are the Lending Club loans from that article... Loans issued  172 for $1,046,000 On......
Related Websites - Ballena Isle Marina Ballena Isle Marina is located in Alameda, CA Phone: 510.523.5528 View Larger Map Website: http://www.ballenaisle.com/ Available Slips: 515 Current Pricing: 22' - $170 per month. Rates go as high as $902 for 70' vessels. Please visit their website for more complete pricing information. What You Need to Know About Pricing:......
- Student Loan Refinance Tips The vast majority federal student loans are eligible for student loan consolidation, which is just a fancy word for student loan refinancing. The student loan refinance rules, like those of most government-mandated programs, can be a bit complex. Federal education loans eligible for refinance include FFEL, Stafford, SLS, Perkins loans,......
-
4/8 Market Comment Thread Good Morning,First a big thanks to those who stood up and donated to the “Fire the Fed” program at SwarmUSA.com, I appreciate it, thank you! Your leadership sets an example for others.Weekly Jobless Claims jumped from 439,000 to 460,000. The consensus was for a drop to 436,000. Since it’s higher,...... -
Getting Out of Debt Quickly pt 3 This is part 3 of a 4 part series on getting out of debt quickly. Make sure that you read all four parts in order to get the most out of this sequence of hints on getting yourself or your family out of the debt trap. Make sure that you...... - In Defense of Prosper.com - Other Common Complaints Rebutted (Jonathan at My Money Blog has a very in-depth two part review of Prosper.com. My Money Blog is one of my favorite sites, which is why itâs in my blog roll and feed reader. Itâs worth familiarizing yourself with that article before continuing here with my rebuttals.) Jonathan notes that......
- Data Logging Infrared Thermometers Garden Dcor Yard, Garden & Outdoor Living Nursery
- Data Logging Rain Gauges Garden Dcor Yard, Garden & Outdoor Living Nursery
- Rock Roll Tabs Harmonica Acoustic Musical Instruments
- Brand New 10 Piece Deluxe Set In Nice Silver Case BBQ Tools & Accessories Outdoor Cooking & Eating Yard, Garden & Outdoor Living Nursery
- Late Summer Perennials Flower Seeds Plants, Seeds & Bulbs Gardening & Plants Yard, Garden & Outdoor Living Nursery
Categories:
Features, Prosper Days 2007, Prosper.com
Tags:
0 comments ↓
There are no comments yet...Kick things off by filling out the form below.
Leave a Comment