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 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...... - 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)......
- 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......
- Lender Due Diligence I liked the previous rgf post so much I went and looked up another of his posts... This one is on Prosper Lender Due Diligence. The forum thread is here. Enjoy: Those that have followed my posts know that I lend money for a bank for a living (an underwriter).......
- Prosper IRR Lender “Game” Jun 07 Update It is time for the June 2007 update of the IRR Lender âGame.â Since the last update there has been a delinquent debt sale. This is a major event for our IRR game and it remove assumptions about defaulted debt by solidifying losses and increasing the cash position. This will cause the......
Related Websites -
A Review of My Actual Prosper Account I have mentioned in the past that I really like P2P Lending, or Person to Person Lending. I had previously talked about Prosper, when they brought back lending to New York, and most recently as an alternative source for liquid cash, but I have never given details about my...... -
How To Determine And Track Your Net Worth Proverbs 24:3-4 - Through wisdom a house is built, and by understanding it is established; and by knowledge the rooms shall be filled with all precious and pleasant riches. Today is the last day of the month for July and as I do every month, I spent the morning...... - Net Worth Update - April 2007 Since it's the middle of the month, it's time to take a look at my net worth. Overall it's been a very good month - my best in quite awhile. My retirement accounts just topped the $100K mark in total. This is bad considering that I'm only 31 and spent......
- 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......
-
How to Go Into Debt to Get Out of Debt This really sounds like the ultimate oxymoron, but one of the best ways to get out of debt is to go a little bit further in. What’s that? First, to help this make more sense, let’s clarify – if you need to get out of bad debt, going into good......
- Swim Caps Swimwear & Safety Sale
- Collection Nugget Gold Bullion Coins & Paper Money
- Collection Bars, Rounds Silver Bullion Coins & Paper Money
- Timeshares for Sale Real Estate Opportunities
- Collection Bars, Rounds Silver Bullion Coins & Paper Money
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