2008

Brief Explanation: These curves show the entire set of prosper loan broken down by credit grade and lined up along the x axis on their origination date… As a loan goes late (1 month or worse) it is counted (either by amount or by count) as late against the population… The curves stop when the loan population falls below 250 (ie there are 249 or less loans that age or older)…

Recently a study from the University of Maryland claimed a peak default date around month 10 of a Prosper loan. This would translate into the largest delta in this graph over a month period. Does this graph confirm or deny that statement? Is it conclusive? Please leave a comment.

Here is the vintage curves by count (click graph for larger version)…

Here is the vintage curves by amount (larger loan go late at a higher rate and therefore on a percentage basis you would expect an increase), (click graph for larger version)…

Here is the SQL that I used to pull the underlying data out of the public and private data downloads…

DECLARE @DTD int
SET @DTD=30
SELECT
cast(aday-originationdate as int) as 'PIT',
l.creditgrade,
sum(PrincipalBalance+NetDefaults) as 'Amount',
count(l.[key]) as 'Count',
sum(case WHEN (mld.DPD!=0 and
       (mld.DPD+(aday-observationdate))>@DTD) THEN
            PrincipalBalance+NetDefaults ELSE 0 END) as 'AmountLate',
sum(case WHEN (mld.DPD!=0 and
       (mld.DPD+(aday-observationdate))>@DTD) THEN
           PrincipalBalance+NetDefaults ELSE 0 END)/
           sum(PrincipalBalance+NetDefaults) as AmountLatePercentage,
sum(case WHEN (mld.DPD!=0 and
     (mld.DPD+(aday-observationdate))>@DTD) THEN
        1 ELSE 0 END) as 'CountLate',
sum(case WHEN (mld.DPD!=0 and
       (mld.DPD+(aday-observationdate))>@DTD) THEN
       1.0 ELSE 0.0 END)/count(l.[key]) as 'CountLatePercentage'
FROM
loan l
inner join creditprofile cp on cp.listingkey=l.listingkey
inner join LoanPerformance mld on l.[key]=mld.loankey cross join alldays
where
mld.observationdate = ( select top 1 observationdate
from LoanPerformance sub
where sub.observationdate < aday
and sub.loankey=mld.loankey order by sub.observationdate DESC )
and aday < getDate()
and aday >= '02/01/2006'
and l.creditgrade!='NC'
group by
cast(aday-originationdate as int),
l.creditgrade
having
count(l.[key])>250 and
sum(PrincipalBalance+NetDefaults)>0
order by
'PIT'

3 Comments | June 12, 2008 | Filed Under Prosper.com, Statistics, Strategy, Tools | 3 Comments

RateLadder IRR/ROI 6/08 Update — 0.57% to 16.64%

My account update for the month shows some general improvement…

One thing to note is that with the loans in the debt sale not sold my IRR calculation is a little out of whack… Hopefully Prosper will create the loan status of “Charged Off” and remove those accounts from my balance which will them cause my IRR to be a clearly representation.

Lending stats changed their ROI algorithm which had a severe effect on my LS ROI… I am not sure the new number is comparable to any previous reading, but I will continue to track it anyway…

Anyway, here is a chart of my updated IRR and ROI values…

No Comments | June 3, 2008 | Filed Under Prosper.com, Statistics, Strategy, Tools | Leave a Comment

Blogger Obtains Loan Using Social Capital

Any regular reader will know that last week I brought my first group listing to the marketplace. (As an aside, a group leader is no longer paid for successful listings and the haven’t been since September 13, 2007: Email To Group Leaders After Recent Changes. I think this was a good change and said so at the time and continue to say so now.)

While I certainly helped to the best of my ability and resources, the borrower did an excellent job of leveraging his social capital…

What social capital?

He made it know that he had a job that supplemented his income. For him that amounted to as much as an extra $900 a month. By putting his blog on the listing he was not only putting his anonymous credit information and verifiable income on display, but leveraging his online assets. By adding the reputation of his blog to the listing, I think he added to the quality of listing immeasurably. Any blogger with any significant track record that puts their blog reputation at risk is serious about the reasons behind the loan and paying off the loan. (His blog is Deep Market.)
He leveraged his interactions with me — a long time lender and p2p blogger. By joining my group and becoming Prosper friends and accepting my endorsement on his listing he was able leverage his interactions with me (email and blog comments for around a year) into additional social capital: my endorsement.
Additionally, he used his blog to advertise his listing: Prosper Loan Listing Review. By offering links and reviews in exchange for bids and reviews he was offering a non monetary but valuable asset in exchange for buzz and bids.

What was the net result? A $25,000 loan at an interest rate he is very happy with 18.5%… His loan was bid down almost 7% from his starting point of 25.45%.

Deep Market, Congratulations and good luck… please keep us up to date with your progress.

5 Comments | May 2, 2008 | Filed Under Groups, Listing Review, Prosper.com, Strategy, Tools | 5 Comments

RateLadder IRR/ROI 5/08 Update — (1.35%) to 15.3%

Well another month down… Nothing major happened that would effect my IRR/ROI (like a debt sale.) It was a fairly uneventful month for my Prosper p2p lending account, but it was a good month… My ROI/IRR is higher on 4/5 of my tracking indices (it will be 5/6 when the statements are available and I update Quicken.) And my EricsCC ROI is within 4 basis points of last month’s value.

When going through my late loans this morning to build these statistics I noticed 2 things. One it is now very easy to tell which loans are in bankruptcy vs which loans are in collections. (3 of my 29 1+ late or worse loans are in bankruptcy.) The second is a more positive development many (more than I have ever seen before) of my late loans have collections payment pending. In fact, 1 of my 4+ month late loans has a collection payment pending, 3 out of 7 of my 2 month late loans have a payment, and 2 out of 3 of my 1 month late loans have a payment. Maybe things are looking up in the collections area? Time will tell.

Anyway, here is a chart of my updated IRR and ROI values…

4 Comments | May 1, 2008 | Filed Under Goals, Prosper.com, Statistics, Strategy, Tools | 4 Comments

For Sale: P2P Lending Technology

(Editor’s Note: This is a serious post and potentially a great opportunity for the right 3rd party. This offer does NOT involve Loanio.)

Company looks to sell all rights to its proprietary P2P lending technology. The company has been quietly in development for the past year, though has now decided to halt launch plans for undisclosed reasons.

It has developed a complete P2P lending web application that will provide any aspiring P2P company with technology to support rapid deployment in any geographical market. It is based on the popular auction-style bidding format for lenders. Front end is fully branded, and sale can be made to include branding, or packaged as a white-labeled solution.

Terms of sale can be negotiated to include customization, enhancements, and project management / consulting.

This is an extremely rare opportunity to acquire the world’s only out-of-the-box P2P lending system allowing the purchaser to enter the red-hot Person-to-Person Lending space.

All enquiries should be directed through the website at: http://p2ptechforsale.com/

Technical specifications, terms of sale, and all other questions will gladly be discussed under terms of a standard Non-Disclosure Agreement.

Serious enquiries only, please.

2 Comments | April 28, 2008 | Filed Under Site Review, Tools | 2 Comments

Quicken ROI Update = 8.99%

With the lender statments taht were released this weekend it is possible to update my Quicken ROI…

Last month being a quiet “normal” month one would expect an increase in the quicken value… My Quicken ROI increased from 8.11% to 8.99%.

No Comments | April 14, 2008 | Filed Under Prosper.com, Quicken, Statistics, Strategy, Tools | Leave a Comment

The WealthBoy Strict ROI for Prosper Lenders

WealthBoy, whom I met at Prosper Days, has just released The WealthBoy Strict ROI for Prosper Lenders – an open source, sql based ROI calculation for Prosper Lenders. His calculation makes use of the public and private data files from Prosper. He was inspired by his Prosper Blog post: The Rule of 72 on Prosper.

TotalROI = (Total Interest Received - Fees - Losses on Defaults) / (Total Loan Originations - Reinvested Loans)

For RateLadder that equates to

Screen Name: RateLadder_com
Total Bid Count: 324
Total Reinvested Bids: 115
Total Originations (total amount loaned): $16,296.50
Total Investment (total amount loaned excluding reinvested bids): $10,500.92
Total Income (total principal and interest less fees): $6,067.12
Total Profit (total interest less fees and defaults): $1,138.48
Total ROI: 10.84%
Average Loan Age: 11.81 months
Annualized ROI: 11.02%

For the initial release he made no assumptions about the value of late loans. But…

It is an open source, sql based ROI calculation for Prosper Lenders… With the calculation being open source it is clear (assuming you can read through about 250 lines of SQL exactly how the calculation is performed… As his sounding board during development I can confirm that WealthBoy put a lot of work into this project. I think this is a great addition to the Prosper tools.

At the moment it takes about 45 seconds to perform the calculation for the largest lenders at ProProsper… It will only take longer as more payments are made. This performance issue is the main reason I have yet to implement it at ProProsper as it will take some back-end engineering on my part to calculate the values in an efficient way in terms of server resources. I expect to add it to ProProsper, but currently I am not able to find the time to do so… Hopefully soon… Or maybe Eric or LendingStats can add it first…

Anyway, I encourage you to check it out. Well Done WealthBoy!

No Comments | April 11, 2008 | Filed Under Statistics, Tools | Leave a Comment

RateLadder IRR/ROI Update April 2008 — (2.6%) to 14.37%

Compared to last month with the initiation of the lawsuits… This was a quiet month. My worst number Model IRR degraded and my best number Default IRR improved. I will update quicken as soon as the lender statement become available.

2 Comments | April 2, 2008 | Filed Under Prosper.com, Statistics, Strategy, Tools | 2 Comments

In Defense of Living Off Dividends

Living Off Dividends (aka WealthBuildingLessons (WAB) on Prosper) wrote a guest post on the Prosper Blog: Why I Love Prosper.com. The blog post has generated some heated comments due to one aspect of the post. WAB claimed “over 13% annualized returns”. When questioned what his calculation actually was he said…

I take the amount I initially deposited across all accounts, subtract that from the current value of my prosper portfolios to get the increase. I multiply that by 100 and divide it by original deposits to get the percentage increase.

The only fault I find with this statement of his calculation is that it does not annualize, even through his post claimed annualized results…

Quickly he was attacked for not estimating losses… Why on earth should he guess at the value of not yet realized losses? When the losses are realized they will be accounted for in his account balance. Simply by continuing to monitor… his Prosper account balance will eventually realize the losses and his return calculation will adjust. He cannot writeoff the losses on his IRS taxes until the point at which his account value has realized the losses.

Here is one of the more coherent comments from Peer Lend… Even this comment is attacking instead of explaining.

Hi - you’re not making 13%.

Your ROI formula is straight out of Fantasyland. Among other things (including lack of accounting for time, in any way) it treats all of your lates as *current*. Can you see how that might muddy up the picture a bit? Sorry to be the bearer of bad news.

The “current value” figure is not reflective of anything other than “what you are owed” - even defaulted loans, until they are sold, show up in current account/portfolio value…

If you’d like to look at a more accurate estimate or two, you can see a full breakdown of your portfolio at the following links:

http://www.lendingstats.com/lenders/WealthBuildingLessons
http://www.ericscc.com/lenders/wealthbuildinglessons

The two estimates of your return (~5% and ~1%) differ due to treatment of lates (you can read into their methodology to see why, if you’re interested - but it essentially boils down to one being more “optimistic” than the other).

The reason they differ from your own estimate of ~13% is because these two calculations factor in time, lates, etc - while yours does not.

The calculation you’re currently using, above, is like trying to handicap horses without taking into account that one (or more) of the horses *actually has a broken leg*.

Here was my response…

In defense of wealthbuildinglessons…

Both EricsCC and LendingStats try to predict (in some fashion) what will happen with lates. The prediction is a guess (based on past Prosper history) and neither formula (the code) is available for public scrutiny. I value their attempts at this prediction, but neither are likely to be 100% accurate (or even near 100%) because of their predictive nature.

The only 100% accurate way to evaluate your return is to look at actual history. And whether you like it or not the only loans that have 100% of their history known are either paid in full, defaulted, or repurchased (except for the new agency test loans which some lenders opted into and other opted out of). The treatment of loans in any noncomplete status is purely a guess.

Personally I track all of the predictive ROIs, my quicken ROI, and 3 different IRR values. My hope is that they will eventually start to converge. My expectation for the convergence has no timeline… particularly while I continue to invest/reinvest funds.

My values for these figures range from (2.11%) to 13.06%. In addition, I have 6 loans in the new agency test. I have very little hope of someone without access to my account transaction history being able to calculate my ROI or IRR. It is a good thing I do it myself.

http://www.rateladder.com/2008/03/03/rateladder-irrroi-308-update-211-to-1306/

WealthBuildingLessons return estimation, while overly simplistic because of the lack of time in the equation, will eventually yield the right answer. Like many things with this brave new world of p2p lending… the final outcome will take time.

and then with this later clarification…

I did not characterize the over looking of estimated loss as overly simplistic.

I pointed out some of the many issues with ALL of the estimated loss calculations… and anything that is predictive is… well predictive. It is the difference between a backward looking factual statistic and a forward looking indicator. One doesn’t even attempt to predict the future and the other is just a guess.

btw don’t even get me started on the enormous bounds in the creidt criteria of the credit grade tranches and the unfortunately small number of loans in each bucket.

All estimated loss calculations have issues. They all also have merit when taken in context.

15 Comments | March 27, 2008 | Filed Under Prosper.com, Statistics, Tools | 15 Comments

The Complete Guide To Prosper.com

A new book on Prosper.com goes on sale today — The Complete Guide To Prosper.com. I meet the author at Prosper Days and he gave me an advanced copy… I have read it and here are my thoughts… Books are a tough medium for an up and coming ever evolving startup… However, this book had some solid advice for prospective borrowers…

As far as I can tell everything is accurate at the time of the release of the book (which is no small feat given the pace of change). If you ever wanted to “just read a book” on Prosper to figure out how it works and what is going on now is the time.

One nice thing about a book is that there are no advertisements… One bad thing is that you have to pay up front.

If you choose not to purchase the book, I assure you that if you continue to read RateLadder.com I will do my best to keep you informed as to all the twists and turn in the p2p lending landscape.

Have any of my readers read the book? Please leave a comment telling me what you think.

3 Comments | March 6, 2008 | Filed Under Prosper.com, Tools | 3 Comments