Prosper - Let’s Bank on Eachother
This is on YouTube, but I’d like to share it with my readers:
Prosper.com Interest Rates are Increasing
An increased hesitancy to lend to high-risk borrowers is also apparent in moving Prosper.com interest rates for E and HR credit scores:
After comparing these rates to interest rate trends over the last year, it is quite clear that Prosper.com rates most closely mirror the mortgage market:
 And they don’t tend to follow the consumer lending market:
 If you’re looking to predict Prosper.com interest rates, look toward the mortgage market, not the consumer lending market. P2P/Social Lending is so new that much of the interest rate growth could simply be a result of lenders becoming more saavy about default rates, fees and other expenses of lending.
 What do you think? Can we use mortgage rates or consumer lending rates as social lending indicators?
Social Lending and the Credit Crunch
There is no doubt that the last 6 months have made it more difficult for individual and commercial borrowers to get credit. How will social lending and peer to peer communities pick up the slack? My guess is that, in times when banks are fearful and investors are turned off by the stock market, social lending communities make perfect sense for both borrower and lender. Lending on Prosper is certainly lower risk than shorting in a bear market or trying to dollar-cost-average your way through the lull on Wall Street. I’m going to try to find some figures to align growth in loans originated with a decrease in commercial credit. Stay tuned…
The Last 6 Months on Prosper.com
I funded my first Prosper.com loan in the middle of February, 2008. I’ve been participating in social lending on Prosper.com for 6 months now. Side note: I remember that because I started dating my current girlfriend around the same time I funded my first loan. So far, my returns have been solid and Prosper.com has performed well-above my expectations. For the first couple of weeks, I browsed borrower profiles and hand-selected some borrowers. After realizing I didn’t have time to evaluate each person’s financial needs, I set up a solid standing order that has yet to disappoint me. I used Prosper.com API data as served up by Eric’s CC to identify sensible lending criteria.
I’ve funneled $1600 into Prosper.com. My initial investment was $1000, followed by a $500 input and another $100 input.
And here are my results:
Net Gain:Â $99.14
Total Value of Loans: $1707.95
Daily Interest Accrual: $0.61
Avg. Interest Rate: 13.47%
I must say I’ve been quite pleased with my results. I have 0 defaults and only a couple of payments that have come in late. I’m funding 23 loans.
Prosper has definitely treated me much better than the stock market. The S&P 500 is down 4.98% since February 15th.
How have your Prosper results been? Am I getting lucky?
Dan
Data-driven investing thanks to Eric and an API
Props to Eric over at Eric’s Credit Community for providing Prosper.com data to help us all build standing orders that work. If you haven’t used Eric’s data to put together an investment strategy and understand your current portfolio, you aren’t taking full advantage of data-driven investing.
 I most recently took advantage of the Borrower by Segment report to ban my Propser standing order from bidding on certain high-risk professions.
The key to good social lending is to take advantage of both data-driven investment strategy and more holistic ideals that I mentioned in Are your borrowers doing the right things?
 Has anyone done any more advanced analysis or aggregation of the data at Eric’s CC?
Are your borrowers doing the right things?
It’s easy to get caught up in credit profiles, debt ratios and delinquency counting when making lending decisions. Often, I think lenders ignore some of the broader, more holistic repayment factors. Lenders may be doing themselves a disservice by focusing so much on the numbers and not asking themselves the simple question:
Is this borrower moving toward financial health by taking a loan?
When I put together standing orders, I only bid on lenders that are consolidating debt, investing in a business, or their education. I see home improvement loans and car loans as liabilities, not assets, and lenders shouldn’t be putting their own financial health in the hands of someone who is only acquiring liabilities that they can’t afford.
Debt consolidation - Generally, a smart borrower can lower their interest rates on outstanding debt, decreasing their liabilities and supporting their financial health.
Business loans-Â While business loans are risky, we can only assume that business borrowers are maximizing their capacity to take a calculated risk in their business, providing the lender a second layer of risk mitigation.
Education loans- While, as many people know, a college degree doesn’t guarantee a higher salary, it is certainly a step toward greater financial health.
 So ask the question, are borrowers doing the right things or the wrong things?
A growing market for peer-to-peer loans
Celent research shows online loan origination has increased over 4 major loan categories:
Retail mortgage
Home equity
Credit card
Auto
Additionally, the USA today reports:
The market for the loans is still relatively small but growing fast, according to Celent, a research firm. Celent projects that $5.8 billion in peer-to-peer loans will be made in the USA by 2010, an 800% leap from the amount this year.





