Trials and tribulations

Based on Matt’s analysis an investor would have made the following rates of return based on credit grade:

• * AA: Expected Rate 9.5% (Start with an average rate of 11% and subtract 1% for defaults and the 0.5% Service fee)
• * A: Expected Rate 9.5% (Start with an average rate of 13% and subtract 3% for defaults and the 0.5% Service fee)
• * B: Expected Rate 7.5% (Start with an average rate of 15% and subtract 7% for defaults and the 0.5% Service fee)
• * C: Expected Rate 6.5% (Start with an average rate of 17% and subtract 10% for defaults and the 0.5% Service fee)
• * D: Expected Rate 7.5% (Start with an average rate of 21% and subtract 13% for defaults and the 0.5% Service fee)
• * E: Expected Rate -4.5% (Start with an average rate of 24% and subtract 28% for defaults and the 0.5% Service fee)
• * HR: Expected Rate -21.5% (Start with an average rate of 24% and subtract 45% for defaults and the 0.5% Service fee)
• * NC: the performance wasn’t good on these loans, so Prosper has discontinued allowing people with No Credit to borrow

Keep in mind that these stats are based on a historical average which may not predict future results. Also, this is based on only about 18 months of data on 3 year loans. Once more longer term data for a larger number of loans is available these types of statistical analysis will become more precise.

Looking at your profile I see loans in all credit grades. One third of your portfolio (by number of loans) is made up of E, HR and NC loans. The percentage of your loans that are have defaulted or are late loans in these categories are at 27%, 22% and 60%. In C and D categories your default rates are running much lower than the average. Based on what I have seen so far (and I haven’t lent any money yet) it seems a good idea to stay totally clear of all E’s and HR’s.

By the way, I like your site. The Mac Lenders’ articles about Prosper are very informative.