Prosper Now Showing the Verification Stage for Each P2P Loan

Prosper Verifies P2P Lending Borrowers

Investors visiting Prosper.com in the last day or so will have noticed something new. On the browse listings page there are now little numbers (1, 2 or 3) next to every loan listing. These numbers correspond to the verification stage for each loan.

Here is an excerpt from Prosper’s page explaining this new Verification Stage feature:

The Verification Stage indicates the progress on your Prosper loan application, based on Prosper’s verification of information and documents you’ve submitted. Verification Stage icons tell you and prospective investors how far along Prosper is in verifying the information you submitted, in order to process your application. The higher the Verification Stage, the more attractive your listing is to investors. You can help improve the Verification Stage to get your loan application completed sooner—and your money faster—by submitting required documents promptly upon request.

One of the problems for p2p investors is that you never know if the loan is going to survive the verification process. So you can invest in what looks like a good loan only to have your money returned to you because the borrower failed a part of verification. Sometimes this means your money is tied up for 14 days before it is returned to your account.

Now, you can see what stage of the verification process each loan is at before deciding whether to invest. I am already using this new information. This morning I was about to invest in a loan and I saw it was still at stage one so I decided to wait and see if it progresses further along before investing my money.

In a conference call with Prosper management this morning they said they are already seeing an acceleration in the verification process as borrowers now want to move quickly to stage three so their loan will be more appealing to investors. So this move looks like a win-win for all parties. Investors get more complete information, borrowers can get their loan funded more quickly and Prosper encourages borrowers to do the work to verify their information which means more successful loan originations.

Looks like a good move to me. What do you think?

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Dan B
Dan B
Sep. 14, 2011 7:11 pm

Sounds phenomenal. Please update us in a month or so & tell us how many fully funded #3 notes end up still getting stuck in “pending” status for days & days on end.

Shawn
Shawn
Sep. 14, 2011 10:15 pm

Personally, I think it’s a good thing and it’s good they’re showing constant improvement, which also seemed to echo in my call with them today. They still have a lot of work to do and I keep harping on them to improve their investor tools and to make the data available more robust (ROIs, expected payments schedule, graphs, etc), but it’s good none-the-less.

And I’ve also seen (though obviously anecdotal) loans funded faster. I had a couple both finish listing and fund today, so not bad. I haven’t checked to compare #3 and #2 notes, for instance, though, but they still seem to be funding faster.

~Shawn
Prosper lender “shawnw2”

Dan B
Dan B
Sep. 15, 2011 2:27 am

Oh I have little doubt that this will make loans fund faster. My question is whether this will have any effect on the loans issuing faster after they’re funded. After all once loans get to #3 everything is done right? So there shouldn’t be any excuses for loans to sit around in pending for day after day…………& sometimes over a week.

Of course perhaps these are no longer issues. I haven’t been an active Prosper investor for a few months now & it’s entirely possible that they’re a super on the ball outfit these days, just oozing efficiency! 🙂

Charlie H
Charlie H
Sep. 15, 2011 7:51 am

Honestly shouldn’t the loan already have gone through and passed the entire aproval process prior to listing.

This is something I don’t like about both P and LC.

Once I apply my filter, I sort the loans that pass by % funded and fund the loans nearest to 100% funding.

Having dead money for 14 days is anyoing.

Shawn
Shawn
Sep. 15, 2011 8:09 am

Well, I guess terms are getting messed up… when I say fund, I mean the money has been issued to the borrower and the loan becomes active/current. So yesterday, I had 4 loans that finished their listing, and were funded/issued same day and appeared in my current loan listing. Meaning, that their verification was entirely complete so as soon as the listing was good, the loan was created, no wait time.

~Shawn
Prosper lender “shawnw2”

Kyle
Kyle
Sep. 15, 2011 9:37 am

Shawn, are some of those notes both funding and going active the same day, return borrowers? It would only make sense that a return borrower would be verified faster.

One thing I would like to see is what has been verified. Perhaps this would be a better forum topic, but what is verified each stage?

Bilgefisher
Sep. 15, 2011 9:56 am

I like it. The simple fact that it encourages borrowers to get off their tail and get their info to prosper. Add up thousands of loans that some folks have and the delays associated with slow approval and that adds up.

Jason

Shawn
Shawn
Sep. 15, 2011 10:47 am

@Kyle, for the 6 that I noticed, 5 were repeat borrowers, though I could be off on the exact listing end time, but I do know it was a lot quicker than I was used to. And I agree, I would be interested to see what each stage means… does 3 mean everything is done and they’re just waiting for the listing to end? Does 2 mean they have only half of it done but will only take a day after funding, etc?

, completely agree, every little bit helps… just 1 day average faster over a thousand loans is about 3 years worth of time saved and interest earned faster, etc.

~Shawn
Prosper lender “shawnw2”

Roy S
Roy S
Sep. 15, 2011 10:49 am

They have fixed one of the most annoying issues I had with them. I’m hoping that this speeds up the entire process for everyone. It definitely sends a message to me as an investor if a borrower has reached stage 3 relatively early in the verification process as opposed to someone who only has a day or two left for the loan listing and is still at stage 1.

I’m wondering whether anyone has attempted to chart loan performance (i.e. default rate) versus length of time from when the loan is fully funded to when it completes the verification process? I’m assuming that those loans that are still in the verification process a week after the loan is fully funded have a higher default rate than those where the funds are dispersed the following day.

Shawn
Shawn
Sep. 15, 2011 10:54 am

, sorry, didn’t see you had respondedd first… should’ve refreshed the page before replying.. good to see some of those answers.

Also, crazy that you’d be an E rating even with that income ‘issue.’ The credit profile is outstanding and one that I would bid on for a first time borrower, which I rarely do. It’s also odd since it seems a lot of the score comes from the bankcard utilization and yours is at 0. The fact that it funded that quickly, even for a small loan, seems to tell me that they over estimated your risk. I think they’re erring on the side of lenders right now, which is great for lenders but don’t know how sustainable it is long term. I suggested to them on the phone yesterday that they take into account things like blenders and those reinvesting (like I did with my loan), which would help things a lot, but they said they don’t have enough data to model it or create a solid algorithm yet. I don’t know how true that is, but there should be some way to incorporate that information and prevent under or over valuating. I guess I’ll just keep taking advantage of the discrepancy as a lender until then. =)

~Shawn
Prosper lender “shawnw2”

Roy S
Roy S
Sep. 15, 2011 12:37 pm

, I don’t think I’d use the application date. There are probably some loans where the borrowers had everything in, but the loan took a long time to fund. I don’t know whether it is something that can be easily modeled or charted. A loan might be funded within a day or two of when it appears on Prosper, but it might take a full 10 days from the initial application to when the verification process is complete. Another loan might have the verification process only take 5 days, but the loan doesn’t get fully funded for 10 days. A third loan might take 10 days to both fund and go through the verification process. Each would be 10 days from the application time to the issued date, but it would be for very different reasons. There might be too little information available for investors to do the proper analysis.

Dan B
Dan B
Sep. 15, 2011 2:21 pm

I just received my Prosper email today & now that I’ve read it, it appears that we’ve misstated things a bit. Verification #3 does not say that everything has been verified. It says that “most” information has been verified & that additional verification may still be required. So perhaps there should b a #4. Come to think of it I don’t see much difference between stage 2 & stage 3 the way it’s currently spelled out. Maybe I’ll spend the next 45 seconds, rewrite the whole thing & send them a bill for my services.

Peter…………..Nice interest rate on that loan of yours. That’s got to be a record for you. 🙂

Dan B
Dan B
Sep. 15, 2011 2:29 pm

Shawn, the Prosper note picking Guru…………I didn’t realize you’ve joined our discussion or I would have stopped watching soccer & come to pay my respects earlier. Please, you must update us on how that 21+% Prosper ROI that you mentioned last month is doing. I can only imagine how much you’ve been able to augment that number to new heights since then. Please share your words of wisdom with us. 🙂

Charlie H
Charlie H
Sep. 15, 2011 5:28 pm

This is what I talked about when I mentioned that I think that Prosper mislabels loans. Rating some one with a FICO score of >850 as an E rated loan with a 30% interest rate is just silly. So silly that the “high risk” E loan funded in less then 24 hours.

The active smart investors noticed REALLY quickly and snatch up the miss priced loan.

Michael
Sep. 15, 2011 7:50 pm

Roy S & Peter

I looked into the prosper data, they have two dates of interest:
creation date and origination date.

According to the API documentation:

Creation date: The date the Listing became a loan.

Origination date: The date that Borrower receives
funds and amortization begins.

But I don’t think these are accurate at all. The average date spread I get is around 1.5 days. There are even negative numbers meaning the origination date was before the creation (see loan key: 9DBA3365379285514C35A90)

I think, correct me if I am wrong Roy, you are looking to see if there is a correlation between the eagerness to get the loan originated and default rate. I don’t think this is possible to determine with the data as you hypothesized. Sorry!

Roy S
Roy S
Sep. 15, 2011 7:53 pm

@Charlie, If it is so silly, why wouldn’t the person requesting the loan just go elsewhere and get a less “silly” interest rate. You are assuming that the investors are better at evaluating risk than the platform. I’m not sure you can make that statement and have it be true in all situations.

Had someone gone and looked at Peter’s screen name and then followed the link to his website, and maybe even used a site like Lendstats to look at his holdings (after all, he is listed as a lender on his profile page not to mention on this site, too), then I would say that specific lender may be better at evaluating risk. But I doubt even half of the investors did that much legwork, let alone Prosper.

I would assume that if Peter were really looking for a loan, that he could go elsewhere and find a lower rate. And if he were really looking for a loan, he probably would have gone elsewhere. If he could not get a loan with a lower interest rate elsewhere, then 30% would appear to be the market rate for him. Every institution has their own model, you can’t assume that you’d get the same interest rate everywhere you go. I would be surprised if part of their model is not based on self-selection, too. Peter’s profile may simply fit into their models for the types of people who choose Prosper because they have difficulty getting credit elsewhere even though they have a high credit score. And so while he may fit the profile of an A loan in the overall US market, he fits an E profile in the Prosper market. Maybe we should even ask Peter whether he would have gone to Prosper for a loan (other than to shop for a rate) if he were really in the market for a loan?

Roy S
Roy S
Sep. 15, 2011 8:02 pm

@Michael, I don’t want to say “eagerness” to get a loan. I would liken it more to someone who is on top of things. If a platform requests information, and someone gets it in in a timely manner, I would think that they are organized and a better risk than someone who waits a few days to get their documents in. If someone is a little more “lazy” in getting in their documentation, then that might mean that they are a little less responsible. I think there might be other factors, too (like eagerness to get a loan and difficulty to provide documentation and overall volume of loans that Prosper has to go through at a specific time) which would be confounding variables that would be difficult for us model and chart. I’m thinking that it would have to be a more basic chart with the hopes that there is enough of an influence of the borrowers habits to be able to say there is a trend. The more I think about it, though, the less confident I am that it is possible for investors to determine any of this with the data provided to us.

Dan B
Dan B
Sep. 15, 2011 8:27 pm

Roy S……….I disagree. Whether someone can go another route to get a better rate is beside the point. The platform has to function in such a fashion that presumes every listing as an attempt to obtain a loan, nothing more nothing less……………..& price it accurately & accordingly. Clearly it has not done so here. Perhaps these types of screwups partially explain why Prosper is having such trouble getting loan volume to where it needs to be.

For some reason every time I rub up against Prosper I get this feeling that they don’t quite have it all together.

Bilgefisher
Sep. 16, 2011 7:40 am

@Kyle
I only invest in repeat borrowers. A few fund within a day or 2 but most take 5-7 days. I have also seen some not fund at all. I’m thinking repeat borrower doesn’t impact much. It can be up to 3 years between loans. A lot can change in the borrowers status during that time.

Roy S
Roy S
Sep. 16, 2011 11:13 am

@Dan, I was specifically talking about self-selection. I would assume that most people in Peter’s situation would self-select themselves out of the pool of borrowers Prosper would normally handle. Therefore, the pool of people who fit Peter’s profile on Prosper is smaller subset of the overall population.

Maybe this will give you a better idea of what I’m talking about…If there are 1,000 people who fit Peter’s profile in the US, and 95% are a good credit risk, then there are 50 who are not. Further, let me state that there are 100 people who fit this profile who would not qualify for a loan because the model a BAC or WFC uses would exclude them. Let us further assume that their models aren’t full proof and of this group of 100 people only 25 of the 50 bad credit risk people get approved by BAC and WFC. So now you have 100 people who can’t get a good loan elsewhere so they go to Prosper. Of these 100 people, 25 are a bad credit risk. Now should Prosper use the same model as BAC or WFC or should they use a different model that says 25% of this population is a bad credit risk? This is why I think Peter’s loan is priced how it is, and why we can’t flat out say that Prosper UW is crappy.

Shawn
Shawn
Sep. 16, 2011 11:31 am

Ahh, Dan, my old nemisis and guru of sarcasm and unjustified bitterness towards Prosper, we meet again… =) While lendstats is several days behind and incorrently counting a large loan of mine as late, even though I have received its payment, I did get an update from Prosper on my returns, and I have been devastated down to 20.41% currently… and if I account for the loan being on time with lendstats it’s 20.8%… so I will engorge on my humble pie as I watch my returns crush me… Well played my good man. I guess I will now have to be satisfied with 20-21% ROI, which when lendstats catches up will probably be higher. Good enough? 😉

~Shawn
Prosper lender (and note picking guru) “shawnw2” 😉

Dan B
Dan B
Sep. 16, 2011 12:10 pm

Shawn………….I’d whip out a calculator & look at that Prosper email twice if I were you. After all mine was off by $1450 on the total investment table & stated my return to be -27.5%!. I’ll happily forward a copy of mine to Peter if you think I’m making this up.

Who knows, perhaps mine is the only one that’s messed up. I’m sure.

Charlie h
Charlie h
Sep. 16, 2011 12:15 pm

Not all loans fund on prosper… Yet a subset fund in less then 24 hours. I would say that indicates that the platform is not pricing loans correctly.

Shrug

Dan B
Dan B
Sep. 16, 2011 12:22 pm

Shawn………I’m sorry I meant to say -24.2%, which is off by at least 30%, perhaps 35%.
So, just to be clear, your saying that Lendstats understates your real returns by 4-5% due to what exactly???

Roy S
Roy S
Sep. 16, 2011 1:50 pm

@Charlie, I don’t think you can necessarily come to that conclusion based on how quickly loans fund. There may just be a higher demand for loans with certain characteristics over others. If you adjust the interest rates a bit, there may be more outflow of capital than by leaving them as is due to lower ROI’s. You are assuming that it is the pricing mechanism that is wrong rather than there being a smaller supply of loans at certain interest rates. I don’t think it’s a good idea to start messing with the interest rates based on the demand. I’d rather them base the rates on the risk of default and ROI. That being said, I do think that it will take some time for them to build better risk models which will lead to better pricing practices by their UW. Even then, there will be “mistakes” in pricing.

Shawn
Shawn
Sep. 16, 2011 6:01 pm

@Dan, this particular discrepancy is due to a loan that was late and has since come due with all fees, etc paid. On lendstats, since the interest payments and all haven’t been updated in a few days, these payments are not reflected, and therefore drag the ROI down. Additionally, there will always be discrepancy based on projected loss rates, folio purchases, etc. But, since Prosper says 20.44% and the numbers I got on lendstats (once I adjusted for the loan that is actually current) is 20.8% or so, I feel confident that this represents my real return. My late loans have actually gone down more than just that one, so might even be higher, but either way, I like 20%+ returns that I’m continuing to get. Don’t worry, I’ll keep you posted. 😉

And on that note, I wish there was better inclusion and integration with folio… first on the stats so that we know how those notes perform and if we can see on folio which notes we’ve already purchased. I know you can go to ‘view listing’ but it would be good to have with all the rest of the loan and payment data in one place to avoid over-exposing myself to one loan. And I know it’s a separate company but would still like better integration.

~Shawn
Prosper lender “shawnw2”

Dan B
Dan B
Sep. 16, 2011 6:41 pm

Shawn…………Wow really, it’s hard to believe that the difference between 1 note being late or not being late can cause a discrepancy of 4+% in a portfolio the size of yours………….. but hey what do I know.

I’m just hoping that someday somehow I’ll be able to demonstrate even half of your note picking prowess. 🙂

Shawn
Shawn
Sep. 16, 2011 7:30 pm

It’s fairly easy actually… first, it’s the size of the note, one of the larger ones in this case. Second, the interest rate affects it (i.e. a higher rate loan going late as opposed to a lower rate one) and my total gains. If I only have total gains of $1000 and a $100 note goes late, that erases 10% of my returns, even if my portfolio is say $50,000.

And you’ll never show my note picking prowess because you’re too afraid to pick anything or move anywhere outside your comfort zone. Your comfort zone extends as far as a couple notes on LC and railing against Prosper and anyone that invests in Prosper. Maybe I accept more risk in my life simply because what I do, but I would rather be the one trying and succeeding or failing based off my attempts than be safe in inaction and sarcasm. History shows time and again that it’s those that dare to dare that have success in the long run, even if they have bumps along the way. So you can continue to cherry pick tidbits of history and regurgitate others’ advice about historical returns and expected returns and use that to justify your reticence to take on some risk, or you can listen to those in the trenches or heaven forbid try jumping in them yourself.

~Shawn

Dan B
Dan B
Sep. 16, 2011 8:00 pm

Shawn………..In terms of what I do, it’s probably best that you not speak of things you know nothing of. In the real world the total dollar amount that I manage at LC would almost allow me to categorize what you’re doing at Prosper as being a hobbyist, but I’m not going to go there. I was just trying to have a little fun with you, that’s all. I apologize if I had offended you in the process.

Dan B
Dan B
Sep. 17, 2011 4:38 am

Peter……….You’re right of course. And I’ve already apologized so……….

Shawn
Shawn
Sep. 17, 2011 12:22 pm

@Dan, hah, no offense was taken… you’re going to have to try a lot harder than some snide comments to offend me in the financial realm as my real job is lot more valuable and meaningful than making money. I’m not going to take it personally, I’m just not a fan of unjustified either bitterness or arrogance, or belittling others based on either their views or their portfolio size. If you give others (people, products and ideas) a chance, you might be surprised. And to bring it back to being light-hearted and in deference to Peter, it’s not the size of the portfolio, it’s how you use it. =)

~Shawn
Prosper lender “shawnw2”

Charlie h
Charlie h
Sep. 17, 2011 7:51 pm

Charlie, I don’t think you can necessarily come to that conclusion based on how quickly loans fund. There may just be a higher demand for loans with certain characteristics over others.

Higher demand for a loan then others MEANS that it is mispriced!
The interest rates for a given loan should be high enough to generate enough interest to fund. If a loan funds in less then 24 hours then the interest rate is too high. If a loan does not fund in a reasonable amount of time then they did not price the rate high enough to generate investor interest.

It’s like an ipo that is underpriced and doubles on the first day. Sure it’s good for the lucky few who can get in on the ipo an flip it on the first day, but it is not good for the company and not good for the health of the market.

Roy S
Roy S
Sep. 18, 2011 8:28 pm

@Charlie, I think you are looking at it from a very basic economic approach that supply should equal demand and the market should clear. You then base your conclusion that because there is a high demand for something that it should be priced more (or in this case have a lower projected ROI). The problem is that market isn’t perfect. There isn’t perfect information and the investors aren’t even rational.

If you’ve been paying attention the last decade, you would have noticed the huge demand for IPO’s that led to the stock market bubble and the huge demand for houses that led to the real estate bubble. Obviously, as the demand grew so did the price for these assets. But left uncontrolled the prices overheated and the bubbles burst, which led to a massive correction in each instance. (Unfortunately, we have a government that loves intervention to help create these massive bubbles but then hates letting markets correct so we get through the correction faster. But that’s a longer tangent…)

The problem for LC and Prosper is also managing risk. I’m sure they would love to have a market that clears in every case and all loans are perfectly priced. But there is a huge lack of information on their part (and an even bigger lack of information on the part of the investors demanding these “mispriced” notes). They are most likely using models based on previous loan data. Since this is a new industry, there is little historical data, which is a big problem for investors, too. There are just a lot of discussions and projections of the default curve here on this blog because there is so little historical data available. Yes, there will be loans that should be given a higher rate and others that should be given a lower rate, but that will always be the case.

In my opinion, Prosper and LC should be more focused on pricing based on their models of risk projection rather than the whims of the investors. In some cases the investors will be right. In other cases the platforms will be right. Further, I’d rather have the platform err on the conservative side, simply because they have more information and more sophisticated models than I do. I’d rather go into an investment thinking I’ll have a 10% return and end up having a 15% return than going in thinking I’ll have a 10% return and actually end up with only a 5% return. And I really think that if they start pricing the notes based on the demand (instead of the risk) of the notes that in the future we would see another correction in p2p lending due to negative returns.

The interest rates for a given loan should be high enough to generate a certain return based on the risk the loan carries with it NOT so the loan will fund. If the average loan that meets a certain criteria should default 15% of the time, then it is only mispriced if those loans default 10% or 25% of the time, not because the loan funded in 24 hours or didn’t fund at all.

Since you believe that those loans that fund within 24 hours are mispriced, I suggest that you try to invest in those loans that fund the fastest. You should then have a lower default rate and a higher return rate than the average loan given a certain grade and interest rate. I’m sure that as there is more historically data available the platforms will have better models projecting default rates, and your ability exploit the platform’s inability to correctly price notes will diminish.

Charlie H
Charlie H
Sep. 19, 2011 10:07 am

“I suggest that you try to invest in those loans that fund the fastest. ”

Indeed this part of what I do. After I run my filters based on Lendingstat data, I sort the loans by %funded.

It is not possible to price the loans perfectly. I admit that. Lending Club has a problem in pricing D and E loans. (Look at the return difference) .
Prosper has a significant subset of loans that fund <24 hours and a subset that don't fund at all.