Prosper Collection Process

One of the things that I like about Lending Club is that they list their attempts to reach out to a delinquent borrower to collect on a late loan.

A week and a half ago Social Lending Network had an article detailing Prosper's collection process. It's nice to see the efforts they're making, too--though I would still appreciate a view into that world, just so that I can see that my interests, as a lender, are being watched out for.

LendStats Filters Down

Bummer. From KenL, creator of LendStats:

My original goals with LendStats were to find out what the real returns were and to figure out how p2p lending could be profitable for lenders (remember people... there was a time when p2p lending was not profitable for lenders). Both of those goals and a whole lot more have been accomplished. So I feel no urgency to get the filters up and running again. Also with all the negativity out there aimed at LendStats, I'm really not that interested in keeping things going anymore. I was working on LendStats largely because I found it fun, but the fun has slowly disappeared and with that so has my motivation to keep working on the site.

and

I'm just tired of it, and I don't feel like wasting my time and energy anymore. And after 3 years if LendStats is still in an embryonic state, then I guess I really should call it quits.

It's too bad. LendStats has been a great resource for the community and helped me, personally, with my returns on Prosper and LendingClub. Additionally, LendStats has one of the best P2P forums on the net--with participants who are genuinely thoughtful and helpful.

Ken, thank you for all of the work you've put into LendStats. I have certainly appreciated it. I'm sad to see the feature go, but I certainly understand the desire to move on. Good luck in whatever you choose to focus on next!

Prosper Loan Types vs. Returns

Thought I'd look at ROI by loan type on Prosper, as well. Once again, these numbers are from Lendstats.com.

And, for comparison, the Lending Club data I posted a few days ago.

So many new things...

Feels like Christmas morning at Prosper... I see:

• Automated Quick Invest
• A view of their annualized return calculation
• Pretty, personalized charts
• Lender promotion percentages

Now we spend the rest of the day playing. :)

Inquiries vs. Returns

Just over a year ago Ken from lendstats.com made a graph showing Returns vs. Credit grade (among other interesting graphs.) I found this fascinating and since I read it I have started investing in listings with only small numbers of inquiries.

I wanted to see if this trend is continuing so, using lendstats' complete performance breakdown I put together the following graphs for both Prosper and Lending Club:

To me it looks like, in general, the trend is holding true. Loans with more inquiries appear to have a lower ROI than loans with fewer inquiries. There may be some bobbling at 5+ inquiries but there seems to be much more variation. Indeed, looking at these four graphs the deviation for the 0-inquiry loans is always the smallest and, as we move to more inquiries, the deviation seems to get larger and larger.

It's also nice to see, in Lending Club loans, how the 0-inquiry loans appear to gain a 1%-2% ROI each year that passes for the past 4 years. Looking at the spread between all loans and D's and below, it looks like much of that gain has come from the lower-rated loans.

Prosper's Top Tips for Borrowers

On Friday Prosper blogged their Top-Tips for Borrower Success. Among the highlights is the following tip:

Write a thorough loan purpose and description.

This one strikes true, especially after my post the prior Tuesday. Allow me to post the graph of my 2010 findings for loan description length again:

Borrowers: it looks like you are already writing longer descriptions when you have a lower Prosper rating (the blue line) which, in my opinion, is a good thing. When we take a look, though, we see that Lenders are funding loans which have even higher character counts than average (the red line.) Indeed, at a B grade and lower it appears that loans that are funded have about 50 more characters than the average request. And HR Grade loans are funded, on average, with even more characters than that. (The aforementioned post from Tuesday shows similar results for 2009 and Pre-2008 requests.)

The data is correlational, not causal, so I can't say that having a longer loan description will make it more likely to get funded -- but it certainly doesn't hurt. Plus, from personal experience, I'd rather fund a loan when I have a clear idea of how my money will be used (and repaid.)

Loan Description Length: More Recent Loans

On Sunday I showed findings that, at least for Prosper loans before 2008, lower rated borrowers tend to write longer descriptions for their listings.

From this graph I saw three things:

1. The lower the credit rating the longer the loan description a borrower writes. (The blue line.) 
2. Lenders tend to fund loans with higher than average character counts. (The red line.)
3. Of those loans that are funded, the ones that went on to become Paid tended to have fewer characters than the average funded loan. (The grey line.)

Let's see if these trends hold up for more recent listings. First, we'll look at the number of characters in the listing description, by credit grade, for Listings in 2009:

And now for 2010:

Let's revisit the three conclusions:

• The lower the credit rating the longer the loan description a borrower writes. (The blue line.) 

This seems even more true now than it did before. Before 2008 there was a peak in characters at around the D rating and then a decline. In 2009 and 2010 we see some very small drops from one credit grade to the next, but for the most part borrowers with a worse credit grade write longer descriptions than borrowers with better credit grades.

•  Lenders tend to fund loans with higher than average character counts. (The red line.)

This continues to hold true. We still don't know if lenders are funding loans because they have longer descriptions or because long descriptions correlate with some other factors that affect default rate beyond the Prosper rating (low delinquencies, few inquiries, etc) but longer descriptions definitely get funded more.

• Of those loans that are funded, the ones that went on to become Paid tended to have fewer characters than the average funded loan. (The grey line.)

This does not seem to remain true. It sure looks to me like the Paid/Current descriptions have roughly the same number of characters as the average funded listing. At this point I would posit that this conclusion from my post on Sunday is false.

Prosper Adds New Verification Stage To Listings

Prosper was unavailable for a long time last night, and now we see why. They've added a new verification stage progress indicator to their listings (at the far right.)

Along with a tooltip describing what the stage means.

Way to go, Prosper! More information is always a good thing.

Edit: Prosper has a page up detailing the new feature here.

Loan Description Length: Prosper

Inspired by a post by Smart Peer Lending, on Tuesday I looked at how the length of a loan's description compared to whether or not the loan was currently Current or had ended with a Paid status for Lending Club loans.

What I found was the opposite of what I expected: loans with shorter descriptions appeared to be Paid or Current more often than loans with longer descriptions. In this post I'll take a look at loans from Prosper and see if the numbers agree.

Pre-2008 Loans (Raw data below.)

Amazingly we see almost a smooth decline between loan groups and percent of loans Paid. I looked, further, at 2008 and Later loans (many of which are still under way) and saw the following results:

Loans from 2008 and Later (Paid and Current) (Raw data below.)

Loans from 2008 and Later (Defaulted and Charged Off) (Raw data below.)

It's easiest to compare the Default and Charge-Off data, which is, again, smaller for less lengthy descriptions and larger for more lengthy descriptions. However, looking at the Paid and Current chart we see that shorter descriptions have fewer Paid loans and more Current loans. This could mean that newer loans have shorter descriptions and older loans have longer descriptions--at least in loans since 2008.


I wanted to go a little farther with these sets of loans, so I further divided the loans between credit grades. I looked at AA, A and B as a set of loans and C, D and E as a set of loans (once again using completed loans made before 2008) and found the following results:

Pre-2008 Loans By Credit Grade (Raw data below.)

For both groups we see the same thing: the fewer characters in a listing, the more likely it was to finish off having Paid.

Well this is certainly an unexpected result. It's worthwhile to keep in mind that these are all loans that funded. It could be that this is a characteristic of Lenders choosing loans with short descriptions only if all other characteristics look good.

But the more I look at this data, and the results of words like "need" and "help", the more it would seem that writing a description is more of a detriment to a borrower than not writing one.

Update: There seems to be a very strong correlation between credit grade and the count of characters in the description. Details are available in my post Loan Description Length By Credit Grade.

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Pre-2008 Loans

Description	Total Loans	Paid	Current	Recovered	Never Recovered
Pre 2008 Loans, 0-500 character description	1948	70%	0%	70.8%	29.1%
Pre 2008 Loans, 501-1000 character description	3788	64%	0%	65.4%	34.6%
Pre 2008 Loans, 1001-1500 character description	3431	62.7%	0%	64%	35.9%
Pre 2008 Loans, 1501-2000 character description	2359	60.5%	0%	61.8%	38.2%
Pre 2008 Loans, 2001-2500 character description	1782	55.3%	0%	56.9%	43.1%
Pre 2008 Loans, 2501-3000 character description	1279	54.2%	0%	56.5%	43.4%
Pre 2008 Loans, 3001 and greater character description	2703	51.5%	0%	52.5%	47.4%

Loans from 2008 and Later

Description	Total Loans	Paid	Current	Recovered	Never Recovered
2008 And Later Loans, Description 0-749 Characters	8077	24.7%	62.3%	24.9%	10.5%
2008 And Later Loans, Description 750-1250 Characters	7764	34.5%	45.5%	34.9%	17.1%
2008 And Later Loans, Description 1250 Characters or More	7186	44.3%	28.4%	44.9%	24.5%

Pre-2008 Loans By Credit Grade

Description	Total Loans	Paid	Current	Recovered	Never Recovered
Pre 2008 Loans, AA, A, B All	6078	75.4%	0%	76.7%	23.2%
Pre 2008 Loans, AA, A, B 1249 or fewer character description	3231	78.6%	0%	79.7%	20.3%
Pre 2008 Loans, AA, A, B 1250 or more character description	2788	71.6%	0%	73.3%	26.6%
Pre 2008 Loans, C, D, E All	8686	57.3%	0%	58.5%	41.4%
Pre 2008 Loans, C, D, E 1249 or fewer character description	3630	58.8%	0%	60%	39.9%
Pre 2008 Loans, C, D, E 1250 or more character description	4975	56.2%	0%	57.4%	42.6%

Need Series: An Introduction

I look at the titles of many Prosper loans, and they sadden me:

Need money to pay off the high interest credit card bills !!
Fresh Start Needed!
need to build credit
HELP! Need money til I refi

I see borrowers needing money and I want to avoid those loans like the plague. It bothers me. I don't like the idea of needing things from others--and I don't like the idea of others needing things from me. It just seems to me that if a borrower really needs the money then they're not trying hard enough or thinking widely enough about the problem. And I associate that attitude with a failure to pay back loans.

So I set out to explore the question: "Do loans with the word 'need' in the title pay back less than loans without the word 'need' in the title."

My initial results are interesting. As you can see from the first batch of 2008 loans I tested, there was a 5.7% difference in the number of loans that were paid out as agreed:

Description	Number of Loans	Paid
2008 Loans, with "need" in the title	861	48.6%
2008 Loans, without "need" in the title	10704	54.3%

Five percent isn't huge, but it's big enough to keep my interest for a while. In future posts I'll break open the statistics book to start to explore these findings. I'll explore whether the numbers are even statistically significant and I'll see if there is a better explanation for my findings, such as credit rating and current delinquencies. Maybe I'm on to something new. Maybe I'm just tilting at windmills.

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All Articles in the Needs Series
An Introduction
Initial Findings
Correlation Matrix
Comparing to Lending Club
What We Fund