I complained in my 7/30 post that the uncertainty surrounding Prosper community's personal loan performance is discouraging me to participate in more loans. Compared to the 46 loans and $4,029 I underwrote in July, so far in August, I only lent out $958.62 in 12 loans.
Today, Prosper answered the call to more visibility into loan performance data by providing "Marketplace Performance", a versatile page that allows people to look into the community's underwriting results, delinquency data and default statistics.
Some quick take on the data:
1. Prosper is Thriving
As of August 19, 2,164 loans have been originated in the Prosper community for a total size of $9.75M with average size of loan over $4,500. Prosper is also picking up more momentum lately, as its monthly number of closed loans steadily rose from 294 in April to 551 in July.
2. Early Payoff Happens Frequently
While lenders can count on earning interest that is much higher than the best online savings accounts can provide, seeing your high interest loan getting paid off well in advance of the 3-year term is demotivating. Take 2006 H1 data as an example: as of August 20, 70 out of the 1,592 loans have been paid off. Especially, over 10% of the safest AA-credit-grade, and over 8% of A and B-grade loans have been paid off. (Note: AA-grade borrowers have a credit rating over 760, A-grade borrowers' between 720 and 759, B-grade borrowers' between 680 and 719.)
Out of my 120+ loans, already 2 loans have been paid off, and another one is in the process of full payoff. Lenders who focus on high grade loans should realistically discount profit per loan by taking into consideration the payoff data.
3. Finding Sweet Spot in Low Credit Grade Loans?
Again, if we take all loans originated in 2006 H1 as the sample, there is only slight difference in delinquency ratio between AA-grade and D-grade (credit score between 600-639). If more data proves this point, smart lenders should consider more exposure to C-grade and D-grade loans for better yields.
4. High Risk Loans are Truly High Risk
The same report also revealed that high risk loans where borrowers have credit scores below 540 or with no credit history is truly high risk. over 20% of these high risks loans originated in H1 is already deliquent. This should be very discouraging news for those who tried their lucks in those sub-sub-prime loans.
A key element of understanding the Prosper community is that we are all members of the community and it is out collective behavior that will drive the dynamics of the community. With the universal accessibility of the performance data, borrowers and lenders may form and act on different assessment of the same data, and thus will change the performance and dynamics of the community in the long run. As such, lenders cannot solely count on these performance data to devise investing strategy. After all, lending is art as much as science.