Let's dissect Prosper's response. Shall we?
Today, The Big Money, an outlet we and many others respect, published a disappointingly inaccurate story about Prosper and the peer-to-peer lending industry. It’s unfortunate that the author’s data analysis and perspective relied almost entirely on a hodgepodge of anonymous sources. If higher reporting standards had been upheld, the reality that Prosper has shown great promise and performed well on a relative basis over the last three-years would have been self evident
Yes, Fred93's years of research on data that Prosper makes publicly available for download and is 99.99% pure (those new agency test loans screwed things up plus the fraud loans).... is totally hodgepodge.
Fred has been consistently generating the same trend graph for years now. Years. Prosper dicks around with the Performance Page on almost every site update. And the interest rates quoted on the front page change all the time, and Prosper never explains what prompts the changes or where they sourced the calculation from. Never. In a million years.
We’ve requested that the editors at The Big Money retract Mark Gimein’s erroneous perspective on Prosper and the peer-to-peer lending industry. We look forward to their response. In the meantime, we’d like to set the record straight.
Not happening. You have no more money left to sue people willy nilly and I'd like to see how you're going to prop up a libel case against Slate. You better win that round of VC money coming--and hope the VC community doesn't read that article or you won't get any money to pay the lawyers with.
Mr. Gimein discusses Prosper’s loans in the context of only cumulative unit default rates rather than in terms of the average annual returns lenders have earned. For example, Mr. Gimein states that 39% of loans that have had a chance to come to maturity (originated prior to 12/31/2006) have defaulted. What he doesn’t say is that the annual yield on these loans was 16% and the annual loss experienced by lenders was actually 20%, resulting in an annual average return of negative 4%. Although this return is negative, put in the context of the largest recession in generations, and the performance of other asset classes during the same time period, this paints a very different and more accurate picture of how lenders have fared on Prosper.
Other asset classes? I thought P2P was a unique approach to banking. Now it's just another bank product like a signature loan from a bank? See when I go open a signature loan, the bank actually asks about my income and they do a manual pull of my credit and review it.
Prosper does not do this. Why do borrowers even state their incomes when it's all lies and, as stated by your own employees... should not be your primary consideration when bidding on a listing because the information was sourced by the borrower?
Mr. Gimein continues to use his flawed methodology to state that 54% of loans with an interest rate of 18% or greater have defaulted, leaving the impression that lenders on these loans have lost over half of the funds that they lent, and that losses ran roughly three times the interest rate on loans. Again Mr. Gimein is equivocating annual interest earned with cumulative default rates over a three year period. Lenders on these loans lost 10% on an annual basis, and while not positive, it’s a far cry from the 54% loss that Mr. Giemein flawed analysis leads the reader to believe.
Wow Prosper, you're actually admitting now that most lenders lose on Prosper. You are so awesome. Congrats on being you.
After quoting these cumulative loss results out of context, Mr. Gimein’s bottom line is “After you take defaults into account, investors have lost money on most of their Prosper lending.” Mr. Gimein makes this statement without providing any actual returns data, again leaving the false impression that lenders have lost 39% to 54% on their Prosper lending. The truth is that the median return across all Prosper lenders was negative 3.2%. In addition, 39% of lenders have made money on their Prosper investment. While we would have preferred all of our lenders to have made a profit, a low single digit loss for Prosper lenders in the context of the worst recession since the Great Depression shows great promise for peer-to-peer lending as an alternative asset class for investors. Even a broad index like the S&P 500 saw an annualized loss of 6% in the past three years. Most individual investors have experienced performance substantially worse than this in their investment portfolios and 401k accounts. Something Mr. Gimein fails to discuss.
Who cares? The most important fact is the majority of lenders lose on Prosper. That fact is irrefutable even by you. These are fixed term loans... like bonds. You're supposed to be risking and pricing the bonds in your beauty pageant contest marketplace. How can we possibly do that when you yank every negative experience off the site and flob off "success" stories on the lenders and telling them it's all roses when MOST Prosper lenders do not prosper?
Every time the lenders wanted to discuss strategy--you pulled the plug.
So fuck you.
Mr. Gimein also fails to mention that historically there has been a significant amount of social lending through Prosper’s marketplace. Social loans are deliberately underpriced relative to their stated risk by lenders in order to benefit borrowers with unique or challenging circumstances. Although we do not have a way to isolate the impact of these loans on performance, there is no doubt that they have had a downward impact on some lender returns.
OK OK WAIT A SECOND. First you say "ignore all the credit crisis loans", but then you tell us to look at them again because that's where most of your loan portfolio is... back in Prosper 1.0 and 2.0. Which the fuck is it, do you WANT us to look at your old crappy loans or don't you?
Mr. Gimein also seems to find fault with the steps Prosper has taken to improve the lending process and provide lenders with additional information to improve their lending decisions. Prosper has instituted a minimum credit score requirement of 640 to request a loan from Prosper’s lenders as well as a bid floor. Prosper also introduced a new rating system in July 2009 that incorporates the historical performance of over 29,000 Prosper loans into the rating of new borrowers looking for loans. Although the new rating system uses the same letter grades to rank order risk, the meaning of the letters has changed significantly. This has resulted in a change in the composition of Prosper’s listings, which allows lenders to more accurately assess risk and set prices for prospective borrowers. This change in rating methodology is well documented on Prosper’s site and lenders can easily compare the impact of Prosper’s new rating system on loans originated under the older system.
The early results from the new rating system are excellent. Prosper is estimating returns for lenders above 10% for loans originated since our July re-launch and the early data supports these expectations. Below is a graph comparing the delinquency performance of loans originated by year with the loans originated in the third quarter of 2009. As you can see, the proportion of loans that are 31 to 120 days past due for the loans originated under the new rating system are dramatically lower.
Hey, we the lenders said "hey we really need to see the actual credit score, and we need to see the 30/60/90s on all accounts closed or open" in order to make some better lending decisions here, but you said no.
And now that you're flat broke, you can actually give us FAKOs--which we asked for all along?
What the fuck is wrong with you?
Idiots.
