Monday, February 12, 2007

Prosper 2.0

Today is the first day of Prosper Days in San Francisco. The lucky Prosperites are all there, the rest of us are sitting at home, hoping for news from the convention.

They are off to a good start. This morning when I opened my mail, there was an announcement from Chris Larson himself. A great number of changes indeed. You can read about it in this post on the Prosper forums by Prosper Andrew.

It is gratifying to see that a concept I have been touting since the early days I've been blogging has been implemented. Lenders will now be protected from their irrational impulses.

Gone are the days of NC (no credit history) borrowers. The bottom of the HR (high risk borrowers) are also excluded from borrowing on Prosper. The range for the remaining HR and E borrowers have been adjusted to better reflect the new spread of credit grades. Some borrowers that previously were E-grade will now fall into the HR grade.

Prosper has also taken steps to improve its profitability by charging both lenders and borrowers more for listings in the lower credit grades. That means that borrowers have to borrow slightly more and lenders have to charge slightly more to maintain the status quo. Whether rates will reflect this is anyone's guess. My guess is that we'll actually see rates decline even more.

The new Q&A feature is interesting, it circumvents some of the crazyness in the forums. My beef? You can't bookmark a listing that you have asked a question of. Please Prosper, help us out, give us a way to store listings that we are interested in! How do you expect us to keep track of all the listings we've asked questions of?

There are other beneficial changes, such as the expanded ScoreX data. I'm delighted. For the next few weeks I'm pausing all my Standing Orders until the dust settles somewhat and all the pre-Prosper 2.0 listings flush out of the system. that will give me some chance to reflect on how I want to adjust my SOs to take the expanded data into account.

Oh. An interesting feature is the ROI calculation in the Marketplace Performance data page. For kicks I decided to check out how Prosper has performed during my tenure there.

The ROI data is only available on seasoned loans, so the ending date for ROI calculations must be at least 5 months past the date of observation. This means today (Feb 2nd, 2007) we can only check out the ROI up to October 11th. Well, that works nicely, I've been at Prosper since May 11th.



For AA grade lenders, the overall Prosper performance over that time is a respectable 9.10%. For A, B, C and D grades, 10% isn't so bad. But look at the E and HR data. A lender who concentrated on E-grade loans would be down the tubes for -2.9% and the poor HR lender a whopping -25.6%!

No wonder Prosper is trying to curtail lending on those grades - the numbers are awful! Crazy loans have been funded and some lenders must have sad-looking portfolios .

So, reflect on that while you surf over to Prosper and investigate the goodies on offer. Remember: high interest rates are commensurate with high risk. Play with HRs and you will get burned.

Kudos to Prosper for a job well done and thank you for the Marketplace ROI data - it is a sobering reality check for lenders.

3 comments:

Anonymous said...

Here is my presentation I gave in the 3rd Party Showcase: http://rateladder.com/2007/02/12/rateladder-presentation-at-prosper-days/

Anonymous said...

Are you sure about the 5 months of aging? I read that your start date needs to be at least 5 months old and the end date 1 month old to include loans with at least one payment.

Anonymous said...

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