zcommodore

A couple of weeks ago, Bama and I got into a discussion about whether or not Prosper was pushing through a lot more loans at the end of the month.  I eventually agreed that there was some evidence that this may be the case.  Well, now I have another explanation and that is borrowers may actually be the ones who are setting their origination dates for the end of the month.

First, here's an updated version of my daily loan origination graph after a couple more weeks of data:

As you can see, since the end of the month, the 10-day average has steadily dropped after it peaked right at the end of the month of July.  This steady drop is part of why I agreed with Bama that Prosper was pushing loans through at the end of the month.  Note also that in the first part of the graph, there is a peak roughly once a week at regular intervals but the last few weeks of the graph, peaks vary a lot more.

One fact occurred to me recently and that is Prosper made a change to the loan origination process a few weeks ago.  Here is a quote from their June 24 blog:

As of today, borrowers will be required to return to the Prosper site and sign the promissory notes which evidence their loan, before loan proceeds are disbursed. Until now, borrowers have not had to sign all of the notes themselves because they authorized Prosper to do so on their behalf.

This change caused a bit of discussion among lenders about whether loans prior to June 24 were legal or not.  I'm not going to comment here about that.  The interesting artifact of this change is that now borrowers are the ones who "control" the origination date rather than Prosper.

Traditionally, when looking at the number of loans originating on any given day, the 2nd business day of a given week had the most loans by far compared with the rest of the week.  Recently, though, I noticed that I often would see a different day of the week have more loans than Tuesday.  Here is a graph showing the number of loans originating based on the day of the week:

As you can see, Tuesday is usually the top line until the last few weeks with a couple of notable exceptions.  The first non-Tuesday peak corresponded with April 30th, a Wednesday, when Prosper originated more loans than they have ever originated on any other day in their history.  This peak certainly supports Bama's theory since Prosper was in charge of when loans originated at that time.

The following week there was a "low peak" on a Thursday which I have no explanation for.  Later, in late May, we see a "Wednesday peak" but it followed Memorial Day so it is "typical".  Nothing else is really notable until we get to the middle of July.

Keep in mind that usually, when Prosper makes a change, the changes don't take effect retroactively.  So, most likely, all loan requests that were submitted prior to the June-24th update did not require the borrowers to "accept" the loan.  So really we wouldn't expect to see much difference in loan origination dates until a week or two later, roughly corresponding with the middle of July.  Since that time, Tuesday is the "peak day" only twice and one of those times only barely so.  This tells me that borrowers may be waiting to "accept" a loan until they decide when they want it to originate rather than Prosper "pushing" through a lot of loans.

I haven't actually communicated with any borrowers about this and I have no idea what Prosper may tell them in their communication.  However, it is an interesting possibility so I thought I'd share.

Yes, it happens once in awhile.  A borrower comes to Prosper and asks for the maximum at a high rate and actually pays it off.

This morning, I had one borrower do just that.  About a year and a half ago, in IRC, Bama told me he wouldn't pay for another 6 months, that he would default.  I didn't save the log so I can't prove it but, suffice it to say, he was wrong.  At any rate, since pensioner had over $18K of that loan, I'm sure he's happy with the results.

I did a bit of checking on ericscc.com and found that between Prosper's launch and the end of February 2007, 24 borrowers were successful in getting $25K loans at rates 25% or higher.  Of those, 10 are current, 5 are paid and 9 are 1-month late or worse.  Obviously, with rates even 25% or higher, if 37.5% default, you're not going to make any money.  And, incidentally, I was on one of those defaulted loans as well.  In that case, the borrower declared bankruptcy and it was recently finalized.

Oh, and one other thing, the borrower I had who paid in full got a new loan for nearly $22K at 35% about a month ago.  I have no idea how he's going to make any money paying those kinds of rates but he seems to think it's possible.  I wasn't aware he was seeking a loan until just the other day when I saw his previous one was paying off.  All I can say is, "good luck" to his new lenders.

Once again, lenders on Prospers.org have come up with another complaint against Prosper; this time in regards to a possible ID theft.  You can read about it here in the lobby if you're interested.

One of the pervasive notions on .org is that the only time Prosper really honors it's guarantee is when the lenders cause a big ruckous in the forums.  They usually cite the storm raised by Leporello over one particular loan, or the Victoria Crawford case where one borrower managed to steal the identities of a number of coworkers and obtained loans through Prosper with them.  Looking at the facts, I think they portray a different story about Prosper.

If you look at the catalog of repurchased loans on the wiki hosted by this site, you will see there have been a total of 49 loans in the list of "typical repurchases" including one added only a week ago.  Separately listed are the 10 Victoria Crawford loans.  Notice that the "Leporello ID theft loan" is indicated in the list.  Of all 59 repurchased loans, I'm only aware of a huge discussion of those repurchases in two cases covering 11 loans.  This leaves 48 loans that have been repurchased by Prosper without hardly any mention of this fact by lenders until after the fact, if at all.

During Prosper Days 2008, a couple of Prosper employee's discussed what they are doing about collections and ID theft.  You can watch the video yourself but it is rather long and the part about ID theft is buried quite a ways in.  Fortunately, while it was happening live, a couple of attendees of the presentation posted about it live on IRC.  Here is the part about ID theft they mentioned:

<Gogmagog> Every loan goes through filters to check for theft, if there is a no-first payments
<beerbud1> collectionsw account disputes hey this account is not me
<Gogmagog> they investigate customer reported frauds
<Gogmagog> also pre-debt sale they have to investigate all of them
<Gogmagog> They can only have a valid ID theft claim, if they can contact the victim
<Gogmagog> The victim has to sign an affidavit that the loan isn't their
<beerbud1> statement of unauthorized loan request
<Gogmagog> They also have to file a police report and FTC report
<beerbud1> prsecution to the fukllest extent possible
<Gogmagog> because lots of people will sign things, but they won't file a police report :-)
<Gogmagog> PRosper will only rebuy if the Victim does all this stuff
<beerbud1> ing local and state authoritiesu
<beerbud1> state fbi and us postal service
<Gogmagog> because the victim is sometiems lying. :-)
<beerbud1> they say there all workiong together
<Gogmagog> 30 laons repurchased via guarantee

Basically, what this says is that Prosper has fairly high standards that have to be met before they will actually repurchase a loan.

• They have to contact the victim
• The victim must sign an affidavit that the loan isn't theirs
• The victim must file a police report
• The victim must file a FTC report

Given these high standards, I'm not surprised that there haven't been a lot of loans repurchased.  Also, I'm not sure that all the loans in the "typical repurchases" list met those standards.  Prosper seems to have a limited number of ways they can report the status of loans.  In the IRC chat log, it says only 30 loans have been repurchased due to the guarantee and the list has 49 (59 if you count the Victoria Crawford loans.)

At any rate, my point is that Prosper repurchases loans, not because of what is said in an anonymous forum, which is a good thing, but rather when certain standards have been met.  I don't know if their standard is really set too high or not but that is not my concern.  Really, there are a lot of other reasons loans are going bad on Prosper and the ID theft guarantee is not going to cover most of them.  I think there are a lot of less-than-honorable borrowers out there who know ways to game the system and that's the real problem Prosper faces and that lenders need to be aware of.

"Loans go late over time."  So says Fred93 and others who have studied delinquency rates of loans on Prosper.  The question in my mind has always been, at what rate? and does that rate change?  Well, I've compiled a lot of data from Prosper's performance page and now have some interesting graphs to present.

First, I want to tell you that I've gone through and collected information from eric's on repurchased loans as I mentioned in a previous blog post. I have subsequently added all repurchased loans and their "late history" back in to all my graphs.  I will be updating some wiki pages as I get time with my updated graphs.  In the mean time, I wanted to share my findings of this study.

First, here's a graph showing what the percent of unpaid loans go late relative to the previous month. (Note that you can click on each graph to bring up a larger version.)

This graph shows all loans since March 2006 through March 2008.  The X-axis is the age of the loans in months.  The graph starts at 1 month and includes all loans 1-2 months old.  The red line is an average of all new lates in a given month as a percent of all current loans in the month.  As time goes on, some loans are paid in full or go late are subtracted out.  Also, lates tend to accumulate so each prior month late totals are subtracted from the current month's late totals resulting in the number of "new lates".

You will notice there are a small handful of months where the datapoint is actually below zero.  These are months where the total number of lates actually went down from one month to the next.  It doesn't seem to happen often but it does happen once in awhile.

One thing I was curious about was whether changes to the Prosper platform, particularly changes related to lender information, made any difference in the rate at which loans went late.  So I broke down the total data set into three different segments: Early loans (March 2006-February 2007), New Extended Data (March 2007-October 2007) and Lender Guidance (November 2007-March 2008).  Here are those graphs:

Keep in mind that the last graph, Lender Guidance, is really too new to draw many conclusions from since there are only ~5 months of data available.  Really, this is true for all the last 6-8 months of data from any of the graphs.  The last data point on any of the graphs is from only one month's worth of data (the oldest month in the data set) so as those loans age and I have time to update the information, the average may change.

Ok, so those graphs are nice but how do they compare with one another?  Well, here's my final graph that shows each of the "average" lines superimposed on one another with the same scale for all of them.

So, what can we learn from all this?  Well, looking at the oldest set of loans, it appears that over time, even considering the fact that the number of current loans is going down, the rate at which they go delinquent seems to go down as well.  The peak rate of going late seems to happen in the first 6 months of the loans age.  Some loans still go late over time but not at the same rates seen in the first 6-12 months.

The earliest loans seemed to go bad at a much higher rate out of the gate but as more information became available to lenders the rate went down initially.  However after a certain period of time, it appears that all loans start to behave in a similar fashion.  Two different things could be at work here: Prosper could be doing a better job of weeding out ID theft and other fraudsters and/or lenders may have enough new information in order to weed out the borrowers who will default right out of the gate.

I intend to track this over time and may post about it again sometime.  I don't anticipate things changing a whole lot but I'm especially interested in how the "Lender Guidance" loans behave so I'll be watching those for sure.  Unfortunately, it will be at least a year before we have enough data to start to make many conclusions about those.

Feel free to comment on this blog or, if possible, I'm hoping to get a thread started in the lobby of the .org forums about this as well.

ETA: After a little bit of discussion on the .org forums, I found a mistake in some of my calculations.  I've made corrections and have updated the graphs above.  It appears that the conclusions are still the same though despite the error.  I've also modified the text of this post to reflect the changes.

I had been thinking about doing this for a long time but never got around to it until now.  I created a list of all loans repurchased by Prosper.  I created this list using Eric's handy loan search tool. One of the cool things about looking at loans on Ericscc.com is that he includes a status history so you can see when a loan switched from one status (current, late, repurchased, etc.) to another.  It appears that Eric started doing this in Aug. 2006 though so some early loans don't have accurate status data.

On the list, I found 3 different categories of loans that were repurchased. Typical fraud loans (presumably) where the real person must have filed police reports stating the loan wasn't their's.  (I'm not convinced this is the case for all of them but have nothing to base this on other than circumstantial evidence and speculation.) A set of 10 loans taken out by Victoria Crawford using stolen identities of people with good credit (including one using her own identity.)  And finally, 66 loans included in the New Agency Test that are being sued by Prosper.

I noticed a few interesting cases on that list.  For example, there was one $25K loan where only one lender bid the entire balance.  The status history is a bit sparse but looking at the loan participants, it appears both borrower and lender were suspended.  Honestly, I can't figure out how/why someone would do this unless they knew each other.  The whole thing just doesn't make a lot of sense.  Maybe someone else can figure out what might have happened.

The first loan in the list of Victoria Crawford loans appears to have been current at the time it was repurchased.  I surmised that it was taken out using her real identity although the name on the listing is male, not female (similar to most if not all the other loans she took.)  I included it in the list because of the date (4/5) that it was repurchased, close to the time all the others (4/3) were repurchased as well.

In the list of New Agency Test (NAT) loans, I found 4 that appear to have started trying to catch up but apparently were "defaulted" and later "repurchased" anyway.  I don't quite understand why they were defaulted (although none were "current") since apparently the threat of a lawsuit was having some kind of an effect.

One other note about these NAT loans: several lenders have collaborated to create a wiki page about the status of the lawsuits by Prosper against these borrowers.  We are trying to create a list correlating the loan numbers with listing numbers and names of the borrowers.  If you have any information you would like to add, feel free to do so.  It is a wiki after all.