Monday, January 15, 2007

Do Lenders Learn From History?

I always espoused the thought that new lenders were lured into bidding on higher-risk loans because of the high interest rate. I also thought that lenders would learn and adjust their bidding patterns accordingly.

But is that truly the case? Take a look for yourself. I took all winning bids made on Prosper (the data is roughly similar if I take all bids, but I was interested in where lenders' money ended up) and correlated the bids with the lenders length of tenure on Prosper. So all lenders have made bids in the 0-month category, but only those lenders from the pre-public days have been around to make 15-month old bids. Capice?

So, if we as lenders unwisely lent to high-risk borrowers, the HR and E categories should comprise a large part of our early (first 3-4 months?) lending, and then a tapering off, or a switch to lower-risk loans should be observed.

Well, here's the chart:



It looks to me as if beginning lenders don't en masse jump into the deadly high-risk pool, but there seem to be a definite shift in attitude occurring around months 10-12 (the earliest public Prosper Lenders). Months 13-15 are data from when Prosper wasn't publicly available.

1 comment:

Success Warrior said...

Why do you think there's a switch in thinking? Success at lower risk levels giving courage for higher risks?