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A Look Back at Prosper 1.0 – How Relevant are the Numbers?

by Peter Renton on February 13, 2012

Prosper launched with great fanfare back in 2006. For the first time in this country individuals could act like a bank and earn money from lending to their fellow Americans. Little did anyone know what would happen over the next three years.

It sounded like a great idea at the time I am sure – let the crowd decide what interest rates to charge and allow subprime borrowers to take out loans. But with hindsight we now realize it was a shaky premise. Even before the financial crisis hit Prosper was dealing with default rates well above their expectations. When Prosper closed down for their quiet period in October 2008 most investors were losing money on their investments. This first iteration of Prosper from 2006 until 2008 is what we call Prosper 1.0.

All Prosper 1.0 P2P Loans Have Matured

The last loan issued in Prosper 1.0 was in October 2008 so all of those loans have now reached maturity (they only issued three year loans). When we look at all Prosper 1.0 loans on Lendstats we see that Prosper issued 28,936 loans with 18,480 fully paid off and 10,456 loans that defaulted. This represents a default rate of 36.1%. In absolute dollar terms the performance was a little better (because most borrowers made some payments) – total dollars loaned out was $178,560,222 and total dollars written off was $46,671,123 – a loss rate of 26.1%.

It may surprise you that (also according to Lendstats) many investors actually made money. If you look at all 4,450 Prosper 1.0 investors who invested in at least 100 loans 858 investors had a positive return with the best ROI at 9.8%. How did these people make decent returns when most investors lost money? They avoided the higher risk loans. There is a table from Prosper’s statistics page that gives some detail behind the numbers but below is a chart based on data from Lendstats that breaks down ROI by loan grade.

As you can see the best returns on average were for those investors who stuck with the higher (AA, A and B) grade loans. In fact the graph is pretty much linear – the more risk you took the worse your returns were.

What is fascinating to me is that in Prosper 2.0 the exact opposite is true. Investors have been rewarded for taking more risk and those who stuck with AA loans have actually done slightly worse in 2.0 than they did in 1.0. The chart below shows the ROI on Lendstats for loans that originated from July 2009 until the end of December 2010. We should note that these loans are not mature – they are around 20 months old and so their final ROI will likely be somewhat different. Regardless of the final numbers I think it is safe to say that the relationship between risk and reward for investors completely shifted with Prosper 2.0.

Comparing the Loan Data for Prosper 1.0 and 2.0

When you take a few minutes to look inside some of the loan data on Lendstats of Prosper 1.0 and 2.0 you can start to see why these two time periods are so different. Back in Prosper 1.0 credit underwriting standards were much less stringent than they are today.

Prosper 1.0 (2/06 - 10/08)Prosper 2.0 (7/09 - 12/11)
Number of loans 28,936 18,914
ROI-4.67%9.26%
Interest rate17.29%20.42%
Loan size $6,171 $5,867
Number of inquiries2.91.0
Current delinquencies23%14%
DTI39%24%
Revolving debt $19,667 $18,714
Minimum credit score520640

You can see that on average we are looking at a very different group of borrowers today. Look at their credit data: they have less credit inquiries, a smaller percentage have current delinquencies on their credit report and they have a lower debt-to-income ratio. At the same time they are paying an average of 3% higher in interest.

Probably the biggest difference is that the credit scores minimum has changed. In Prosper 1.0 there were 3,448 loans issued to borrowers with a credit score below 560 and these people defaulted at a rate of over 60%. In Prosper 2.0 the minimum credit score is 640 (for new borrowers) and this factor alone has lead to far fewer defaults.

What Can Investors Learn From Prosper 1.0?

On Prosper 1.0 there were over 50,000 investors and the vast majority of these people lost money. On Prosper 2.0 there are currently over 22,000 investors so it is clear that most 1.0 investors have not come back and invested in 2.0. When you look at the total number of investors who have ever invested in a Prosper loan that number is now over 60,000 – so Prosper has gained around 10,000 new investors since relaunch and 12,000 Prosper 1.0 investors have made a new investment in 2.0.

It is clear that many investors have not forgiven Prosper for their mistakes in 1.0 and that is understandable. I think the real lesson here for investors is to be cautious when starting a new investment. When Prosper began p2p lending was so new that there was simply no track record and with no track record it stands to reason that it was a high risk investment.  While an investment in Prosper loans is certainly not without risk today, there is at least several years of historical return data to analyze now. But If you look too deeply into the numbers for 1.0 you risk coming to some incorrect conclusions.

I know many investors are still sitting in the sidelines waiting to see what will happen with Prosper. Will they keep growing? When will they become profitable? Will these good returns maintained? When these investors decide to invest and start analyzing the Prosper data I think they should give far more weight to the Prosper 2.0 numbers.

I am interested to hear what others think. Were you an investor in Prosper 1.0? Did you change strategies when investing in 2.0? Please leave your thoughts in the comments.

{ 54 comments… read them below or add one }

Terry Peterson February 14, 2012 at 7:51 am

I am a Prosper 1.0 investor who lost a large percentage of the little bit of money I dropped in years ago out of pure curiosity. Recently my wife suggested I do something with the savings bonds we had in our safe (earning 1.5%), so I took another look at Prosper and decided the 2.0 numbers speak for themselves. What little was left of my original investment had continued growing at 14% for the past 4 years with little of my attention. If there’s one lesson to learn with money it’s detach your emotions from it. When the numbers are bad, step back; when the numbers are good, jump in. If Prosper hurt your ‘feelings’ during 1.0, then realize both you AND Prosper took a high risk move that cost you both. The numbers are now good, so do research on which type of borrowers fit your investing strategy and go with it. Your money only works as hard as you do, so due-diligence is your best guard against putting your feelings into your wallet.

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Michael February 14, 2012 at 9:09 am

Peter, this is a phenomenal post! I’ve only invested in Prosper 2.0 so I have no experience to offer with 1.0. Personally, I believe Prosper is just getting warmed up. Their is a lot of innovation going into their platform.

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Peter Renton February 14, 2012 at 5:15 pm

@Terry, Great to hear you jumping back into Prosper 2.0 after your experience. I think you hit the nail on the head with your comment, “due-diligence is your best guard against putting your feelings into your wallet.” Most investors make emotional decisions when investing and this is actually easy to do in p2p lending. You just have to read some of the loan descriptions and it is easy to get derailed from logical thinking. This is why I always recommend a quantitative approach – where you filter loans based on credit data.

@Michael, Thanks for your kind words. I agree Prosper, and Lending Club for that matter, is just getting warmed up. I think we will see continued strong growth from both companies throughout this year and for many years to come.

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Mike February 14, 2012 at 8:49 pm

I haven’t invested in either Prosper iteration, but I’m curious to hear from people who have both Prosper 2.0 and Lending Club accounts. Besides the inability to sell loans on Prosper, what are some of the other differences between the two platforms? Ease of use? Customer support? Fees? Prevalence of scammers?

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Dan B February 14, 2012 at 11:06 pm

Mike………..I don’t think there’s any evidence to suggest that there is a prevalence or even a measurable amount of scammers in either Prosper or Lending Club. Also, you certainly CAN sell your notes on Prosper. The only difference is that you cannot sell your “late” loans with Prosper. Based on my recent personal experience I would even go as far as to say that liquidity in terms of current notes is superior with Prosper right now. That was a bit perplexing but the facts speak for themselves as I had no trouble selling around 50 ($25) notes yielding 18-29% at premiums ranging from 1.3-3% in less than 3 days.

As for the other stuff, & as others here will certainly attest to, I’ve not been Prosper’s biggest fan around here, so I’ll leave it to others to comment/expand on some of your other points. Suffice it to say that there isn’t that great of a difference on most of your concerns.

However there is one category where Prosper wins quite decisively over Lending Club & that is with inbound transfers. (i.e. the time it takes before money you’ve transferred in is available for you to use to buy notes) Both companies primarily use the ACH system that links your bank account to your p2p account for incoming transfers. At Lending Club the process normally takes 4-5 days. In other words, your transfer stays pending until the process is complete. Meanwhile you can’t buy anything.

But at Prosper, transfers of $25 or more are IMMEDIATELY credited into your account for use. Obviously there are safeguards in place to prevent fraud but this is something that all investors find extremely convenient, to say the least.

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Bryce M February 14, 2012 at 11:25 pm

This is a very nice post and introduction to Prosper 1.0. I had looked at it in 2006 and decided to wait until data existed to study, and wound up going with LC. Thanks for the digging here.

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Bilgefisher February 15, 2012 at 11:28 am

The numbers speak for themselves with Prosper 2.0.

I am having some frustrations with a recent trend though. The big investors on Prosper are gobbling up loans before even my autoinvest can get to them. For example E grade repeat borrower listing are posted at 9:00. Most are completely funded by 9:01. My guess is some sort of outside software that invests as soon as loans show up. Either that or folks watching the clock. I’ve had 6 loans recently that met my autoinvest criteria, that I did not get because they funded that quickly. When autoinvest cannot even fund a loan that fits my criteria, I think that’s a big problem.

I’m all for the large investors helping push prosper to profitability, but this problem seems to be growing and has become more than a little annoying. One solution I suggest is limiting the size of money lent until the loan has matured for 12-24 hours. For example max loan amount of $25-$100 till the loan reaches 12 hours old. Just an idea. If this trend continues I’m going to have to take my idle cash to lending club. 10% return over there is far better than 0% idle on prosper.

Jason

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Ryan February 15, 2012 at 11:38 am

Thanks for the insightful article. I haven’t spent any time looking at the details of how the returns varied across the two time periods. As I considered potential implications of the information you presented, I took away that it may be a good strategy to stay diversified across most loan grades (even if AA and A offer less advertised return). Consistent with what I have occasionally seen on this blog, I have moved toward lower grade loans to increase my returns, but I may reconsider adding some high grade loans in the interest of diversification against any potential challenges within Prosper’s grading system.

It makes sense that Prosper is having a hard time getting the 1.0 investors to return. I wonder how long it will take before the returns lure them back (or if they can).

I have both LC and Prosper accounts. I agree with Dan B that the instant transfers with Prosper are nice. I like the portfolio option that LC offers.

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Roy S February 15, 2012 at 12:30 pm

@Bilgefisher, I think Prosper is catering more towards the institutional investors, so I don’t believe that they will change things, at least not openly. I stopped using the Quick Invest feature because I could manually fund the loans faster than that feature. Really, they should run the Quick Invest feature prior to posting the new Notes on the platform. That would actually allow the Quick Invest function to work. Either that, or they should limit the max amount as you say or even allow individual investors first pick for a 24-hour period prior to opening it up to the larger institutional investors (again, not something I think they would be willing to do). I really don’t care what changes they implement as long as it allows greater access to everyone.

I would favor them making the Quick Invest feature work. But I would also like to see them limit the amount anyone can invest in a single loan to 10% for the first 24 hours the Note is listed on the platform. After that, there can be a free-for-all where any investor can invest any amount on a first come, first served basis.

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Bilgefisher February 15, 2012 at 1:43 pm

Roy,

I like those suggestions. Institutional investors are not yet their bread and butter. I think they will have to do something to keep the smaller players in the game. Your auto invest idea is simple and easy to implement without upsetting to many folks. Heck I was surprised to find out that auto invest didn’t fund first. I’m sure I’m not the only one.

Jason

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Roy S February 15, 2012 at 3:28 pm

I did a quick check, and I am noticing worth-blanket is taking all of the loans a couple of minutes after they are posted. These are loans where the only investor is worth-blanket, generally at 9:03am or 5:03pm. This is NOT what p2p-lending is supposed to be about. The point was supposed to be where SEVERAL lenders fund loans, not one giant, bank-like lender funds the vast majority of loans as soon as they become available. Where’s Glenn on this? This process needs to be changed IMMEDIATELY!

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Roy S February 15, 2012 at 4:34 pm
Peter Renton February 15, 2012 at 5:05 pm

@Mike, There are many difference between the two companies and Dan mentioned a few of them. I wrote a post for Investor Junkie last year that discussed some differences and similarities: http://investorjunkie.com/9328/lending-club-vs-prosper/

@Dan, Good to see you can find something positive to say about Prosper – I will have to start calling you “fair and balanced” now. I love the immediate inbound transfer feature at Prosper – I am surprised Lending Club hasn’t matched that feature to be honest.

@Bilgefisher, This is a real problem. I have noticed this as well and I was told that everyone has an equal chance of getting access to these loans but that appears to not be the case. I am going to rattle the cages at Prosper and see if I can get an answer.

@Roy, I think that is a great solution – in fact I am going to say this is an essential solution for Prosper to implement if they don’t want individual investors to leave for Lending Club. Over there institutional money is handled differently and it ensures an even playing field for investors.

Thanks for sharing. I am going to see if I can get an answer to this today.

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Chris Larsen February 15, 2012 at 8:05 pm

In response to several comments about institutional versus individual bidding at Prosper, we are aware that this has become a problem recently as we have secured more investor money onto the platform and have become listing constrained over the last few months. Some of our institutional investors have become very efficient bidders and have been able to take out loans within minutes of listings going live. We are absolutely committed to ensuring that individual investors have an equal ability to secure listings within a reasonable time frame and believe this provides a more durable and sustainable marketplace over the long term. We are in the process of reviewing new procedures that will both address the needs of institutional investors to secure their origination goals while giving individual investors – whether manual, QI or AQI – a reasonable timeframe to execute their bids. In addition, we are extremely focused on the larger solution, which is securing additional inventory across the spectrum through distribution deals and greater investment in borrower marketing. I am very confident that these steps will significantly address this issue. Thank you.
Chris Larsen, Prosper CEO

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Dan B February 15, 2012 at 8:11 pm

All……..As soon as Prosper’s average loan amount increases,…………. & it will in the coming months as the 5 year loans become more prominent, this will become less & less of an issue.

Peter………I hope you’re not implying for a moment that I’ve been anything but “fair & balanced” in the past. Fox News is the authority on the whole fair & balanced thing & I assure you that I’ve always made it my top priority to emulate them when writing my posts/comments :)

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Peter Renton February 15, 2012 at 8:27 pm

@Chris, I appreciate you stepping in here and addressing this issue. It is a real concern for us individual investors. I just had a loan this evening that would have made it into my Automated Quick Invest if Worth-Blanket2 hadn’t gobbled it up by 5:01pm. The sooner you get something implemented to address this the better.

@Dan, You have set a high standard for yourself that is for sure….

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Bilgefisher February 15, 2012 at 9:44 pm

I had an interesting two calls with Prosper. One initiated by me and the other by Prosper. The first person I talked to was sympathetic and claimed to have the same issue when they invested. They also mentioned that it was brought up to management, but no changes are intended. The system is what it is.

The call to me resulted in a very similar chat. I was told if I want to utilize my idle cash, I either need to log in at 9am and 5pm or I need to expand my investing criteria. Then what is the point of auto invest? I really thought the feature was for those of us that don’t wish to live on Prosper. Guess not. Its for those who are willing to accept the scraps left by others.

This is a serious problem that is shared by multiple investors. I really got the impression that they are aware of the issue, but really don’t care unless I am an institutional investor.

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Bilgefisher February 15, 2012 at 9:47 pm

Hmm.. My post went through later then planned. I am glad prosper is working on more borrowers and a solution. I look forward to your resolution.

Jason

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Roy S February 15, 2012 at 10:03 pm

Thanks, Chris! It is much appreciated. I’m looking forward to the solution to this issue.

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Peter Renton February 15, 2012 at 11:30 pm

@Jason/@Roy, Based on an email exchange I had with Chris Larsen this evening I think we will see some changes on this sooner rather than later.

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Shawn February 16, 2012 at 2:15 am

I hope they do make changes… as some said people don’t want to live on Prosper and for someone like me it’s impossible to log in at a certain time… my idle cash is as high as it has ever been and to the point of making me uncomfortable. I have other cash I can add to my account but what would be the point? I wish I could call Prosper up…hopefully they’d listen to a larger individual investor as I’m sure they don’t want me pulling my money out. It’s interesting… since I don’t have the time to check Prosper lately, I simply thought that good loans weren’t being listed, it wasn’t until these comments though that I realized I was just being screwed out of them. And I thought they had a method of balancing the AQI where everyone would get a chance to bid at least some money towards the loan. Hopefully Mr Larsen checks this thread again to see what this is causing.

~Shawn
Prosper lender “shawnw2″

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Roy S February 16, 2012 at 9:13 am

@Shawn, I wouldn’t say that you are being screwed out of good loans. I’m not sure why the AQI never worked the way it came across as though it would. But theoretically, everyone has a fair shot once the loans are listed. The system just breaks down for the individual investor now that there are the larger institutional investors. If worth-blanket2 were not investing on the platform, the way Prosper has been working would more than likely still be working. With the large institutional investors on board and the AQI not working the way I thought it would, the system breaks down. With the way it is currently working, Jason put it well in that those who aren’t able to live on Prosper are now having to accept “the scraps left by others.” Individual investors have to keep in mind, though, that without worth-blanket2 Prosper would further away from their break-even point than they currently are. Institutional investors are a great asset to Prosper and, by extension, to the individual investors. But issues are bound to arise. I am appreciative of Prosper looking into this issue, and I am looking forward to an equitable resolution.

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Ryan February 16, 2012 at 10:39 am

I wonder how much worth-blanket2 will end up investing.

I expect the Prosper has the ability to see how much money investors have sitting on the sideline (uninvested funds). If that number is growing, I hope they will start pushing to get more loans on the platform.

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Bilgefisher February 16, 2012 at 11:04 am

@Roy Your right. I don’t think anyone is discounting importance of institutional investors at prosper and for the p2p lending industry overall.

@Ryan. From my guess they are well aware and that is the reason they are pushing for more borrowers in a big way. From what I gathered on both calls and from Chris Larsen’s post, the primary push at Prosper right now is increasing the number of borrowers. Its a bit of cat and mouse game. To many lenders followed by to many borrowers.

That said, more borrowers doesn’t necessarily solve the problem of quality loans being snapped up at 9:01. Those listings will always be in short supply. They will still be fully funded by large investors at 9:01 unless the current setup is changed to allow more passive investors to invest in those loans.

Jason

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Dan B February 16, 2012 at 11:14 am

Bilgefischer……..Hi Jason. If you look at worthblanket’s profile you will see that it’s a virtual proxy for Prosper, is it not? I understand your frustration & the frustration of others, but perhaps suggesting that “scraps” is being left for you is overstating it a bit? Besides, like I suggested previously, this issue will fade as the average loan size continues to increase, as it surely will with more 5 yr. loans in play.

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Roy S February 16, 2012 at 12:38 pm

@Dan, worthblanket’s portfolio may be a virtual proxy for Prosper, but that is due to the size of the portfolio and the amount of money invested. Assume that there is a subset of $1 million in “quality” loans. Now assume that worthblanket has invested in the entire $1 million plus another $15 million in loans that are not “quality” loans. The quality loans are now only 1/16 of worthblanket’s entire portfolio. So the effect on worthblanket’s portfolio is a lot smaller than it would be on everyone else’s. In addition, worthblanket’s size relative to the overall size of loans funded is getting larger meaning which also skews worthblanket’s performance towards the mean.

In addition, some loans just won’t get funded for whatever reason. With worthblanket investing, there are more of those loans that the money is finding and funding simply due to the higher demand. So mispriced or “non-quality” loans are now more likely to be funded…by everyone else and not worthblanket. Everyone else is left to the option of pulling their money out or funding loans that would not otherwise be funded while being simultaneously shut out of the loans people believe would perform better. And we are left to the lower quality loans without access to any of the higher quality loans. So, my thoughts are that everyone who remains investing and keeps being shut out from the “quality” loans will see higher defaults rates for each grade and overall lower returns.

Hope that makes sense…

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Roy S February 16, 2012 at 1:02 pm

Also, if worthblanket’s portfolio is a proxy for Prosper, then why doesn’t worthblanket just invest in all the loans that are about to expire or have been on the platform for a week without funding. Your argument would lead one to conclude that worthblanket’s portfolio won’t perform better or worse than Prosper overall.

Just some more thoughts…More Notes would be the best solution. But we should also wonder whether supply and demand are demonstrating the Notes on the platform are not priced according to their perceived/real risk. Theoretically, there’s a huge demand for certain loans. So the rates on those loans should decrease. And there are still loans that are not funding. So the rates on those loans should increase. Investors and borrowers will change their behavior according to the change in interest rates and ROI, and we will eventually have market equilibrium. Of course, this is all theoretical and may not explain it fully. I believe there are people who don’t invest in Notes that still have a long way to go before they are fully funded as well as other reasons rather than because the specific Note. So until you have a bunch of people with a lot of money to invest and put in 10% or more of the Note funding, people just won’t invest in the Note even though it might be a better bet.

I’ll lay off from posting again for at least another half-hour. ;-)

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Bilgefisher February 16, 2012 at 4:17 pm

@Dan

You are likely right about the overstatement, but they are still lower quality leftovers in my opinion. I have certain filters to get the best perceived overall ROI based on many hours playing with lendstats filters. When none of those loans are available to me because they are fully funded within one minute, then I am left with lower EV loans. While they may not be scraps as you correctly suggested, they are still leftovers.

I do realize that even an 8% AA loan is better than 0% on idle cash. I would rather get my shot at a loan that has 24% ROI history then a loan which has an 8% ROI history. (Based on my criteria.) I simply don’t get those shots with the current setup.

Jason

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Peter Renton February 16, 2012 at 4:19 pm

@Shawn, I think Chris Larsen is fully aware of the problems this is causing. My idle cash is also high and I was planning on transferring more money in this month but there is no point when I can’t find enough loans to invest in.

@Roy, You make some good points here. If Worth-blanket2 was not being so aggressive then we would likely not be having this discussion. Having such a large investor, who has invested more than the other top 25 investors combined, is going to distort many things.

And I think from Prosper’s perspective they believe that all loans that make it on to the platform are good loans to invest in. But based on history we know that some are better than others. They are always tweaking the rates, though. Just this morning I received an email from Prosper saying that D-grade repeat borrowers are going to be paying lower rates from now on. I think they want to get to a stage where there is not much of a price mismatch anywhere.

And come on now Roy, it has been several hours since you have posted here :-)

@Ryan, Worth-blanket2 has committed to a $150 million investment and they have only put around $19 million to work in about 8 months. So they will be around for quite some time.

@Bilgefisher, I agree that more borrowers doesn’t solve the problem. They could have 10 times more borrowers on the platform and WB2 could still be snapping them up. I am guessing they are investing using the API so they completely bypass the usual setup.

@Dan, Like most investors, I doubt that WB2 think of themselves as a proxy for the platform – if they did that then they would be investing across the board. The trouble is that for most of the loans they have been investing in this month they are the only investor because they invest within 1-2 minutes, whether or not the rest are scraps is up for debate but I know I would like the chance to at least invest in all the loans on the platform.

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Roy S February 16, 2012 at 4:43 pm

@Peter, I’d just like to see them fix the autoinvest feature. It would be nice to not have to live on Prosper’s website and wait for the new loans to come out. Of course, I liked the ideas I put forth on one your earlier blog posts (as well as some of the ideas I put forth under this blog post), but just to have it even work the way Prosper put forth would be nice. Again, I turned the feature off when I discovered that I could more quickly invest in new Notes manually than with the feature turned on.

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Dan B February 16, 2012 at 6:40 pm

Roy S, Jason, others………..I guess I’m looking at it a bit differently but I can see your concerns & what you’re saying. Assuming that you all are correct, all that really remains to be seen is whether something is done to fix it or at least make the situation more tolerable.

But while we wait to see what happens with that situation, I’m hoping that more of you share your reactions to the initial topic of Peter’s post which was Prosper 1.0. I’m sure it’ll come as no surprise to hear that I do have a few choice reactions to the whole Prosper 1.0 saga, but hopefully someone else can start us off first.

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Peter Renton February 17, 2012 at 3:04 am

@Roy, I agree they do need to make the Auto-invest feature work first. Right now with WB2 snapping up loans at will is pretty much useless. I don’t why that they can’t run the loans through AQI before they hit the platform – that seems like the fairest thing to me and I actually thought that was the way it was intended.

@Dan, I would certainly like to hear from you and others about the Prosper 1.0 numbers and whether they are relevant to today’s investor.

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Dan B February 17, 2012 at 7:57 pm

I wasn’t a Prosper 1.0 investor but I’m not going to dismiss those results & say that they’re irrelevant. I think that there’s ample evidence that a good percentage of Prosper 1.0 investors aren’t going to forgive & forget any time soon either.

Nevertheless having said all that, I think that there’s also ample evidence to suggest that returns have in fact improved at Prosper. To have suggested otherwise 6 months ago may have been prudent & potentially accurate, but to suggest otherwise today & more importantly 6 months from today is unlikely to be accurate. After all at the end of the day one of the top (if not the top) concern for all investors is return on investment going forward. The extent of this improvement is something that all of us will surely keep a very close eye on with regards to Prosper.

So, no I’m not going to give Prosper a pass on the unfortunate past results &/or say that it doesn’t matter. But assuming that results stay positive, I also have no intention to keep PUNISHING them until the end of time for those same past results………………unless I have reason to believe the mistakes are about to be repeated or evidence to suggest that they’re going down that road again.

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Peter Renton February 17, 2012 at 11:46 pm

@Dan, So I take it you are suggesting that Prosper will provide poor returns going forward? Surely, you don’t think they will return to the numbers of Prosper 1.0 – I see no evidence to suggest that is even a remote possibility. Care to project a number for returns going forward? How about a projection on loans originated in 2011 in a year’s time – as per Lendstats?

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Dan B February 18, 2012 at 12:22 am

Peter……….No, that is not even remotely what I’m suggesting. How you’ve come to that conclusion I’m not even going to try to speculate. I’m not suggesting or predicting any returns going forward at this time. I’m suggesting that if returns continue to remain positive as they have been the last few years then I’m prepared to stop continually holding the Prosper 1.0 returns over their heads. Going forward I see no further point in punishing Prosper for something they did 4-5 years ago…………….unless I see the pattern repeating, which so far I don’t. I can’t imagine you’d disagree with any of this. There is no sinister hidden meaning here. What you see is what you get.

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Roy S February 18, 2012 at 9:22 am

re: Prosper 1.0

When I first heard about p2p lending in 2007, I looked into it and was excited about the idea. But the two things that turned me off from it were (1) it was a completely new industry without any history, and (2) the bidding system. The risks of investing in p2p lending were unknown and therefore too great a barrier for me in 2007 to risk jumping in. Even if I had money that I was able to risk losing, I did not like the bidding system. On such a small scale, the system would be rather inefficient, and I doubted whether people would adequately price the loans. Even now, if the bidding system were still around, WB2 would have a huge effect on the pricing of the loans because Prosper (as well as LC) is such a small market. Instead of trying to be its own marketplace, Prosper needed to realign itself with the overall loan market, which means bringing interest rates in line with the supply and demand of the overall lending industry.

After my initial look at the p2p lending industry, I had actually forgotten about it until late 2010. I did a little more research, and then in December 2010 Prosper stopped their bidding system. With good returns and the bidding system gone, I decided in early 2011 to finally wade in.

Depending on who is calculating my returns, they are ranging from 10 – 14%. I was looking for a minimum of 8%. Given that I, too, initially started in the AA – B range and then moved towards all grades, I think these results are actually very good–I still have 2/3 of my money invested in AA – B Notes. As long as my ROI stays in the 10 – 15% range, I’ll be happy.

I know there are people who are shooting for 20% or more, or are investing in only the lower grade Notes to achieve the highest possible returns. But I prefer to spread my risk out a bit. Though, I am really hoping that interest rates will begin to climb back up again. This low interest rate environment coupled with calculations that we have had a real inflation rate of 4 – 8% for the past 2.5 years really puts a dent in returns.

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Dan B February 18, 2012 at 12:10 pm

Roy S……….With an ROI between 10-14%, after 1 full year at Prosper I’d say you’re doing damn well, especially given your conservative portfolio composition being 2/3s AA-B notes.

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Roy S February 18, 2012 at 12:22 pm

@Dan, The oldest Notes in my portfolio are only 1 year old. I’ve been lucky with defaults in that I have only had 1, but again my portfolio is still young. I do have another that is 91 – 120 days late, though. So that will one probably be charged off, too, and lower my ROI. I’m also looking at another Note that is still current, but the borrower is trying to take out another loan from Prosper. I haven’t yet used folio, but I’m thinking of selling it.

First loan: https://www.prosper.com/invest/listing.aspx?listingID=515221
Current listing: https://www.prosper.com/invest/listing.aspx?listingID=559730

His situation has gotten drastically worse. Any thoughts, Dan? (other than to move over to LC ;-) )

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Peter Renton February 18, 2012 at 4:23 pm

@Dan, I am sorry if I misinterpreted your last post. When you said “to suggest otherwise (that returns have improved at Prosper) today & more importantly 6 months from today is unlikely to be accurate.” It sounded like you meant that Prosper’s returns were going to come down. I apologize if that is not what you meant.

@Roy, I echo Dan’s remarks – I think those returns are excellent. Dan can talk to his experience on Folio but I would think you could sell that loan at breakeven given that it is current and the credit numbers look good. The credit score decline might hurt you a little but I am confident you could still sell it.

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Dan B February 18, 2012 at 10:06 pm

Roy S………..Yeah you’d probably be able to sell that note at break even as Peter noted, if you so choose.

No one currently getting a ROI of between 10-14% at Prosper should think about leaving & going to LC (or anywhere else). As I’ve mentioned previously on a number of occasions, the long term return for the “average” Lending Club investor is very likely to be NO higher than 6-7%. If you doubt that number just ask Peter what is ROI is on his LC managed Prime account.

Like I said, you’re doing really well. How many notes in total do you have again?

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Dan B February 18, 2012 at 10:16 pm

Peter…….No apologies necessary, Peter. Whenever you read my posts you just have to keep repeating to yourself “he’s fair & balanced”, he’s fair & balanced………& everything I write will instantly make complete sense. :)

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Dan B February 18, 2012 at 10:20 pm

Peter……..And you actually misquoted me since I never said that.

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Bilgefisher February 20, 2012 at 8:43 am

I’ve been following the whole quick bid problem on a few sites. My information is 3rd party, so treat this as nothing more than a rumor.

To quote PhracturedBlue at the lendstats forum “Prosper changed the speed at which bids can be placed using the API from ~ 1 second to 60 seconds and then to 90 seconds this week. This implies that either (a) the API is getting so much use it is impacting their servers, or (b) that big spenders were hitting lots of loans as soon as they came available and not letting anyone else get to them. I’m more inclined to go with (b), as while I was seeing increased timeouts, the queries are likely a lot more expensive on the servers than the bids are, and they didn’t limit the query speed.”

It sounds like Prosper took some quick action and we should see loans available for long enough to make bids.

Any other thoughts?

Jason

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Rich February 20, 2012 at 10:48 am

I opened account almost immediately after reading the NY Times article on Prosper back in February 2006. I was taken with the idea immediately, and shocked to think that in 2006 an Internet idea so basic was yet to be exploited.

I am investor #263 on the lend stats page, with an ROI of 2.6%. My strategy was maximum diversification (smallest loan amounts possible) weighted towards higher credit grades (with some HR loans that pulled down by ROI). I was happy with my experience.

I am also active in Prosper 2.0, but despite what this article says have stuck with a strategy of high credit grade borrowers with an occasional flyer on a higher risk borrower.

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Dan B February 20, 2012 at 3:43 pm

I also heard over the weekend that Prosper may have already made an adjustment to improve the bid availability situation for retail investors. Perhaps someone from Prosper could come here tomorrow & give us an official confirmation if this is the case.

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Roy S February 20, 2012 at 4:04 pm

@Dan, I have a smaller portfolio (~150 Notes). I, like a lot of others, began investing a more than the minimum amount per Note (I actually only had 3 Notes below $50 from my initial deposit). Since I know Peter is a fan of the XIRR function, I calculated my NAR to be 13.25% as of today. I have been planning on adding more funds to my account, but I have not done so yet. I’ll probably add to my portfolio at the end of March, but I’ve been saying that for the past few months…

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Peter Renton February 20, 2012 at 4:05 pm

@Bilgefisher, Yes your information is correct. Prosper have been tweaking their API to only allow for one bid every 90 seconds. This was done purely to give the AQI investors a chance. Since they made this change on Thursday I have had several AQI notes funded after having none for the previous two weeks.

It is still a work in progress so I am told but when it is final I will write about it here. WB2 has been investing through the API (along with a handful of smaller investors) and basically finishing up their investing within a minute of the loans hitting the platform. I think this is a stopgap measure but one that should have some affects. Now, if I was WB2 I would be on the phone to Chris Larsen immediately although I am sure there was some dialog before the change was made.

@Rich, With an ROI of 2.6% you have reason to be happy. Your conservative strategy has served you well and will continue to provide you with decent returns.

@Dan, I am working on getting official confirmation on this change from someone at Prosper.

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Roy S February 20, 2012 at 8:08 pm

@Peter, I look forward to hearing about the official solution. I still haven’t seen many loans that fit my criteria hitting the platform. I’m hoping that it’s not because my criteria are too restrictive. The next time I get a few free hours, I’ll create another saved search or two, automate them and then finally make another transfer in Prosper and see what happens.

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Peter Renton February 21, 2012 at 5:47 pm

@Roy, Just heard back from Chris Larsen on this. Prosper have been working on this constantly for the last six days and it looks like they are ready to go public with the changes. I should have a post with more detail tomorrow.

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Chris Larsen February 21, 2012 at 6:06 pm

We have indeed been optimizing both the API and AQI over the last six days. The objective was to adjust the platform so that the API and AQI are essentially equal in average time to market. As of this morning we’ve made another adjustment to optimize even further. Our customer’s financial goals are of utmost importance; we are continuously assessing our technology to assure that it provides the highest standard product for all investors. The investment team is happy to talk in more detail – feel free to reach them directly at 415.593.5486. Thank you.
Chris Larsen, Prosper CEO

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Peter Renton February 22, 2012 at 3:54 am

@Chris, Thanks for letting us know directly. I know for me I have had more AQI notes come through in the last few days so the changes seem to working. I will have a post out about this change later today.

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Commenter on Prosper.Com February 22, 2012 at 10:12 pm

I am being screwed over by Prosper because they refuse to simply do something small as there is no money in it for them, therefore they have absolutely no motivation. I have created a change.org petition in hopes of drawing some attention to the matter. Please consider checking it out and signing it. Thanks. http://www.change.org/petitions/prosper-marketplace-inc-prospercom-san-francisco-ca-94104-forward-settlement-offers-from-defaulted-borrowers-to-the-lenders

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Peter Renton February 23, 2012 at 2:57 pm

@Commenter, Well to say you are “being screwed over by Prosper” I think is a little harsh. How much money are we talking about here? I imagine it would a very tiny percentage of your portfolio.

Having said that, you do make a valid point. If a borrower has defaulted and wants to repay their loan they should be able to do so and the lenders should receive the money. I just don’t know of any instance when this has happened but it sounds like you have seen this first hand.

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Roy S February 23, 2012 at 7:40 pm

@Commenter, I am trying to figure out what your complaint is about. I would think that it would be in Prosper’s best interest to recover as much of investors’ principal from defaulted loans as possible. Not only does it keep their advertised ROI higher, but investors can then reinvest in other loans (creating another revenue stream) and Prosper takes their 1% servicing fee on top of it. It seems to me that it is in Prosper’s best interest to try to collect whatever money they can from borrowers.

Really, from the way everything you have written it seems that you are not a lender, but a borrower. If I am right: The only real power Prosper has is the threat of reporting your default to the credit bureaus. You should know that a settlement will also adversely affect your credit, though not as much as a default/bankruptcy.

One of the unfortunate things about the current set-up is that the system is not as “social” as I would prefer. I know that barrier is there to protect both the lenders and borrowers (as well as Prosper), but it becomes just as impersonal as dealing with banks. From an investors end, we can only hope that both Prosper and the borrowers show good faith when the unfortunate scenario of late payments and defaults arise. But I have know knowledge of what happens once a Note goes late. I have seen how LC has a comment section with more detailed information and payment plans, and I do wish that is in the works or is on the list of changes Prosper plans on implementing in the near future.

I wish you luck in getting your issue resolved. Unfortunately, I must decline signing your petition as it is too vague for me to understand the exact issue you are dealing with and my lack of knowledge/experience with what I think I understand to be your grievance.

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