zcommodore

With Prosper so young and with defaults so high, this doesn't happen very often.  However it does happen.

My very first loan is now on the gravy train (I've received more in payments than I originally bid).  Ultimately, the lenders are probably lucky on this one in the grand scheme of things.  Of my original $50 bid, I've received $53.20 in payments (it actually hit the gravy train last month but the payment was late).  If you don't feel like looking at it, it's a E grade loan in a "bad group".  It has been late a number of times and I've received some late fees along with normal interest and principal.  Based on the original payment schedule, the borrower is behind on his payments even though the loan is listed as "current" due to all the late payments.  He still owes me over $20 of my original bid where he should be around $18.42 if he had been paying on time every time.

It's nice to see a few good loans sprinkled in with all the lates and defaults in my account.

I've been a member of Prosper for over 2 years now.  Oddly enough, until this week, I had never met anyone who had anything to do with Prosper.  This past weekend, at a meet and greet organized by vsqueen, I finally got that opportunity.

First, I want to send a big thanks to vsqueen for organizing the weekend.  Unfortunately, I was unable to attend any events except the dinner on Sunday, Oct. 12 but I understand there were a number of activities planned for the entire weekend.  Either way, for the short time I was able to attend, it was fun to put some faces to the names.

I can't remember all the names whe attended the event but here are some that I do remember: vsqueen, soupy1 and his wife luana.  The warm and friendly islandmele and her friend Brenda came all the way from Hawaii. Jazzpianist and gogmagog were there also.  A couple of relatively local people showed up as well, zaun and ran-ran.  There were a couple of people who came but aren't participants of Prosper yet, namely Hillary, a friend of islandmele's and zaun's wife who's name I have forgotten.

The topics of discussion mostly centered around Prosper with complaints about borrowers not paying and people's various issues with Prosper's operations peppering the conversations.  Of course, there were some off-topic discussions as well like my discussion with zaun and ran-ran about Creation/Evolution and a few hints of the various political races.  Overall, the time was very enjoyable and I hope to have more opportunities to meet Prosper people in the future.

Finally, just today, I got to meet one other Prosper person, zadrock.  Incidentally, he is the campaign manager for Mike Hargadon who is running for congress in Maryland's 7th congressional district.  Currently, this district is represented by Elijah Cummings, the head of the Congressional Black Caucus.  Ultimately, Mr. Hargadon will most likely not win but either way, it was nice to meet both him and zadrock.

This quiet period that Prosper announced is a two-edged sword.  Apparently it is necessary as has been seen in the LendingClub situation.

If the quiet period doesn't last too long, it could be a huge boost for Prosper.  Once a secondary market is included, it will add a huge revenue stream for Prosper since they will be able to get fees for each loan transaction, not just loan originations.

In the interim, they have a problem where current lenders will see the effects of their previous bidding decisions.  For lenders who were taking a lot of bad risks, they will probably see the error of their ways and likely never return except to sell their loans.  Unfortunately, a lot of lenders could be in this category so Prosper will have to start over attracting new blood.  Having a more liquid platform for lenders should help with that.

Also, I don't know what "alternative means" Prosper has to fund borrowers but LendingClub didn't do a whole lot of funding while they were "quiet".  I don't anticipate Prosper doing a whole lot either so the total numbers of loans originated aren't going to look too great for awhile.  However, once Prosper's "quiet period" is over, I doubt they will have much trouble attracting borrowers since there is always a market for people who want/need money.

One of my main concerns is whether or not Prosper will be like LendingClub and only allow lenders from certain states.  If Prosper only allows lenders with certain minimum resources like LendingClub is doing, it will adversely affect their popularity.  Admittedly, there's the 80-20 aspect where the 80% of lenders who can't participate due to a lack of resources only affected 20% of their bottom line so ultimately, it probably won't really be a problem.  However, if there is a list of states and it is the same as the one for LendingClub that can/can't lend, that will be a bigger factor to how many people will be able to participate and will hurt their bottom line and their ability to recover from the "quiet period".

Ultimately, I think Prosper will come back and a secondary market will be good for them.  The question will be in the end, whether or not Prosper can become profitable after they restart their operations.  Based on their last 2+ years of operation, I'm not convinced they will be but I'm open to the possibility that they might.

Just today, I received the latest "Market Survey Results" from Prosper.  A cursory read of that letter would make you think Prosper is growing by leaps and bounds, and that the latest economic turmoil was accellerating the growth.  Well, the truth ain't quite so pretty.  Here's the evidence....

Chris Larsen said: "the percentage of borrowers with sterling credit that are listing and getting funded on Prosper remains at record levels"

Well, maybe.... (I don't have information on the number of "sterling credit" listings but I do know what the funded loan percentages are.)

I'm not sure what his definition of "sterling credit" is but for him to say it's at "record levels" is a bit of a misnomer.  The total percentage of borrowers with AA/A credit grades getting loans has been gradually trending down since it's peak in November last year.  Here's a better look:

For whatever reason, the percentage of loans going to the poorest grades of borrowers is trending upwards while the other borrower percentages are going down.  This is not good news for Prosper because with the increase, overall default numbers are going to go up.

I will admit that since November, the top level of borrowers getting loans has been a lot higher than earlier in Prosper history but that was largely due to the lender guidance and also the portfolio plans rather than lender's raw choices.

On to the next one.  Here's a good quote, a whole paragraph: "Another key trend we’re experiencing is that as consumer borrowing from traditional financing sources is shrinking, Prosper is experiencing solid growth. Year-to-date, the number of loans in terms of units is up 24% over the same time period last year, and up 37% in September 2008 compared to September 2007. At the same time, loan originations year-to-date in terms of dollars have increased 8% over the same period last year, and are up 7% in September 2008 compared to September 2007."

Well, isn't it convenient that September of 2007 was a low point in an otherwise flat loan-origination trend:

Of course, the increase in dollars loaned of 7-8% year over year is nice but given that even at 2007 levels, it is known he admitted they needed to increase volume by 4-500%, a 7-8% increase isn't very helpful.  Also, the fact that the total number of loans has increased 24% only says they're doing more work per dollar earned since the cost of originating a loan most likely stays roughly the same even if the size goes down.

He made a comment about loan sizes: "At a time when every sector in the economy seems to be under pressure and shrinking, the growth Prosper has experienced is very respectable. However, some may wonder why there is a disparity between unit growth and loan dollar volume growth. The answer lies in the average loan amount being funded on Prosper. Year-to-date the average loan amount is $6,047, down 13% or $925 compared to the same period last year. In September 2008 the average loan amount was $5,544, down 23% or $1,631 from September 2007. This indicates that lenders on Prosper are being more cautious by directing their bids toward listings with lower requested loan amounts."

Here's the real trend:

As you can see, the trend in loan sizes has been smaller overall since November of last year.  In other words, Prosper is doing more work for less revenue at an increasing rate over most of the last year.  Obviously, that's not good.  (Yes, I know they increased origination fees and a number of other things over that time period.)

It's always amazing to watch someone pull out a set of numbers and use them for marketing purposes.  I suspect Chris Larsen is using his "select index" for his figures which excludes a lot of activity on Prosper.  Well, as you can see either way, the overall trend is what Prosper is going to make its money on (or not) so just picking out some subset of numbers and marketing them as indicative of Prosper's performance as a whole is just putting lipstick on the pig.

I hope Prosper is keeping track of these real numbers and acting accordingly.  If not, they're going to be very surprised when they discover things aren't quite as rosy as they're trying to promote. Prosper has a lot of work to do if they hope to become profitable. I'd recommend working on improving collections.  If lenders see improved performance on late loans, they might start bidding again.  I don't think the overall economic turmoil is the problem.

Some time ago, it was announced that a group of lenders are considering suing Prosper for a variety of reasons.  I don't remember the details and I don't even know what the status of that potential lawsuit is.  I think they're idiots and here's why:  What they should have done, instead of hiring a lawyer to investigate whatever claims they have against Prosper is to hire a good lobbyist to Congress.

As most people who aren't living under a rock know, today Congress decided to pass a huge bill that bails out a bunch of banks that made bad loans for houses and stuff like that.  In addition, there is gobs of other pork that will keep taxpayers paying for this bill for who knows how long.  Obviously, when people make bad loans, the taxpayers will bail you out.

So, these lenders, if they had been smart, should have hired a lobbyist to get Prosper loans included in all this pork.  After all, the biggest reason why so many are going under has nothing to do with the fact that some people just can't/won't pay, and has everything to do with the fact that the economy is going south and so the taxpayers should pay to fix it.  Besides, we're only talking about a few million dollars.  It's not like this would increase the bill that much.  And one side benefit might have been the lenders could have gotten Prosper to help with the lobbyist fees.  Prosper would look good for getting lenders a better return on these bad investments and it would have provided a way for some of these disgruntled lenders to get back on the pro-Prosper bandwagon.  It would have been a win-win situation!

As it is, these Prosper lenders just screwed it up.  Now everyone is mad and Prosper isn't making as many loans as they could have.  Oh well....