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.
If you liked this article, vote for it on del.icio.us and stumbleupon.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
Categories:
Prosper Days 2007, Prosper.com, Statistics
Related Articles Related Stores




































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. http://www.stop-credit-card-debt.com
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. http://www.stop-credit-card-debt.com
Leave a Comment