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Misleading statistics

Comment a comment by leporello, published on 24 June 2007
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Only 9 Prosper loans have defaulted because of bankruptcy, but 345 have defaulted because of delinquency, and over 500 more are on their way to defaulting because of delinquency (two months or more late).

Prosper has serious customer-service issues, and their collections efforts are scandalous — essentially nonexistent.

Believe me, I know, because I am one of top 60 lenders on Prosper, with over $75,000 invested. The scenario isn’t as rosy as you’d have readers believe. Three of the top five lenders with seasoned portfolios have stopped lending because their ROI didn’t justify the risk.

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RE: Misleading statistics by tomtolman :: NR5

Leporello – thanks for the feedback and tempering my optimism. It’s always good to get all the facts, especially the ugly ones before making an investment and that’s what I was hoping to get in feedback to this article. One thing I think is important to note is that there are only 18 months of data on Prosper loans. Since loans are made for a period of three years we still do not know the full default rates. Unfortunately, returns on investment can only get worse – not better. As I have been reading the Prosper forums over the last week I sense a lot of negative feelings among lenders. Returns have not been what investors had hoped for and there has been a very high default rate among the high risk and E loans. The delinquency rate was even so high among no credit borrowers that Prosper does not permit them to use the site anymore.

You’re right, the overall default rates are much higher than just the default rates due to bankruptcy and I should have included that as well in the article. Thanks for bringing it up in the comments. There was no intent to mislead.

From a look at your portfolio it appears that you are actually doing very well. Out of 245 loans to AA, A, and B none of them are late. Of course your average loan age is 3-4 months so this could get worse. It looks like the biggest hit to your portfolio has been the E and HR loans with 7% (9/122) and 9% (7/80) defaulting.

Based on your experience, would you recommend Prosper to new investors? I see that you still have 102 active bids so it appears that you still see some value in making loans. What would you recommend to new investors?

Posted 25 June 2007, Hide, Parent, Reply

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