L5 is the 6th largest lender (pick your favorite stats site to verify) and he was on the large lender panel at Prosper Days. I asked him for insights in the aftermath of the latest debt sale that his portfolio might have uncovered. As a smaller lender I don’t necessarily have enough vision to be able to draw the most complete conclusions. He has been forthcoming and generous. Enjoy.
My conclusions:
1. Prosper’s current borrower agreement and collection methods lack teeth in subprime. I knew HR’s would be garbage, but E’s have disappointed, too. I suspect some of this is just macro: subprime is overextended and melting down across the board. Thus, E’s and HR’s are best avoided except in rare circumstances.
2. The higher credit grades are now performing better than mid-credit / near-prime (we already have ruled out subprime).
3. For new investments, AA and A seem best poised for solid (if uninspiring returns); B, C, D would be opportunistically and selectively attractive.
4. Homeowners seem to net $.15/dollar while non-homeowners net $.05/dollar or less. Debt sale amounts have been disappointing to say the least. I think a lot of this has to do with how the Prosper borrower contracts are written and structured — I’ve told Prosper they should have stronger default clauses. For instance, > 3 months late and the whole loan should be callable. This would increase aftermarket bad debt sales amounts, I believe. Ditto there should be more / escalating deadbeat fees.
5. I have been impressed that Prosper has stood behind any loans with bad data and bought them back, I’ve had a few of these. So kudos to Prosper for living up to its identity theft guarantee. This frankly reinforces the higher grade credits where this was one of my bigger concerns — seems Prosper will buy them back in ID theft cases ( i.e., they take full responsibility for ID vetting).
Net for me: I’m going to give it more time to see how my portfolio matures. I expect I will get a high single digit positive return from my portfolio when all is said and done. This is OK (I think I will make money), but probably for me at least not enough of a return to warrant the work that’s involved.
If Prosper changes some of its borrow agreement terms to give them more teeth, I think that would change the game and potentially lure me back in. They just aren’t set up to be bad ass enough to deal with subprime deadbeats at present.
(To be clear, I’ve had some really GOOD subprime borrowers, it’s just that the deadbeat loans are defaulting with a higher % and lower collection figure than I had projected, which washes out a lot of the D and all the E returns I had been modeling.)
Well, live and learn — the community is evolving and I think getting better, net. I just need it to improve a bit more before I’d jump back in.
- L5
Related Posts -
Prosper Default Debt Sale As loans become seriously delinquent on Prosper (4+ months late) they are sold to debt buyers. These debt buyers pay pennies on the dollar and then attempt to collect on the debt. I have often wondered exactly what pennies on the dollar meant. I gathered anecdotal evidence from some of...... -
RateLadder at Prosper Days Day2 I have been playing with the new ROI tool this morning. In some ways it is quite cool, but I don't have a good feel for what it is trying to tell me except stay away from the old HR. No problem there the RateLadder Portfolio is AA-D with a...... -
Another Step in the Prosper Lawsuits Against Borrowers As I have talked about before Prosper is going to sue deadbeat borrowers and I have opted to join the suit as opposed to receiving an equivalent to the last junk debt sale buyout. For me this meant giving up ~$30 to remain on the lawsuits of 6 of my delinquent...... -
Prosper Delinquent Debt Sale In Progress Yesterday Prosper began a delinquent debt sale. This happens when loans are 4 months or more late and are sold to delinquent debt buyers... Loans receive different amounts depending on the credit grade and other borrower information. From my standpoint (observer as I have no loans in the debt sale)...... -
Prosper IRR Lender “Game” September 07 Update It is time for the end of September 2007 update of the IRR Lender âGame.â This month was just a regular month. A Collections guru was hired and I did have a collections paymnet at the last second that saved me from a negative model IRR. Hopefully, a sign of......
Related Websites -
Prosper and high-risk loans Jonathan over at My Money Blog posted on the possibility that returns on Prosper.com will drop as defaults increase. (Prosper.com is a site that facilitates person-to-person lending, giving borrowers a competitive rate by pitting lenders against each other auction-style.)Up until a couple of months ago my loans were performing well,...... -
Web Marketing Strategy Number 9 - Social Media For Your Home Internet Business Opportunity Social Media as a internet selling strategy is all about building trust and relationships with your potential business partners. Social Media is great vehicle that allows your prospects the chance to induce to know you on a personal level while not any sales pressure. Potential business partners are given...... -
Borrowing one's way to prosperity doesn't work Jonathan over at My Money Blog commented on this Wall Street Journal article about Detroit neighborhoods getting hit with foreclosures.He snickered a little at the article, and after reading it myself I was doing pretty much the same thing. Homeowners are caving in under rising payments on their adjustable, subprime...... -
Prosper Winners and Losers Personal Finance blogger left a comment during Prosper week. He suggested that: The GIGANTIC WINNER isâ¦Prosper No risk All reward The RUNNER UP isâ¦the Borrower Pool of available lenders where more traditional methods have failed Will always get a better deal than they could have gotten otherwise No pre-payment penalty...... -
Taking the ROI bull by the horns Found out through the blog grapevine that Dual Income No Kids is putting $70k on the line for person-to-person lending at Prosper.com, mainly with the intent to loan to high-risk, high-return borrowers. I'm a lender at Prosper.com and I've currently transferred a mere 0.1% of that amount. It won't bankrupt......
- VI Return of the Jedi Star Wars Science Fiction Collectibles
- SPF 25 and Higher Sunscreen Sun Care Skin Care Store
- Sharks Teeth Fossils Rocks, Fossils, Minerals Collectibles
- Credit, Charge Cards Trading Cards Collectibles
Categories:
Prosper Days 2007, Prosper.com, Statistics
Tags:
9 comments ↓
The loan is ‘callable’. It has a loan acceleration clause in the promissory note.
I couldn’t agree more with this analysis. I’m pulling out of the D and E grades at this point.
I am still ok with super clean high rate Ds. But there aren’t many of them.
Lazy Man and Money –
I find your choice funny. My stats have the trouble point breaking between D and E. D’s are 5% worse than D.
Mike
Ack… Should’ve read E’s are 5% worse than Ds.
Yes, E’s are by the worst. I think I’m lucky if I’m breaking even on them. D’s are better, perhaps I’m making 5% on them. Everything above that is even better than D’s. For the amount of money that I’m putting in ($25 a day), I am finding plenty of AA-C loans (perhaps too many, I might need to be even more restrictive), so I’m finding that I don’t really need D loans at this point.
I think there’s room for some profitable D loans (higher rate, super clean ones like Kevin mentions), but I’ll look at them when the AA-C market dries up.
They should also require the borrowers to pay the collection fees. Lenders should not have to pay them. That is absurd and I’ve never seen a loan agreement where the lender pays other than Prosper.
HI!
Remember the most important in credit card debt is to always know how much cash you have on hand. Credit cards should only be used when you need them, in many situations it is always better to use cash on hand or debit cards/prepaid cards.
Best Credit Card Debt resource Online. Don’t be a victim. Stop credit card debt now. We can help.
HI!
Remember Credit cards should only be used when you need them, in many situations it is always better to use cash on hand or debit cards/prepaid cards.
Best Credit Card Debt resource Online. Don’t be a victim. Stop credit card debt now. We can help.
Leave a Comment