When Judging a Loan, Homeownership Only Seems to Matter for HR Grade Loans
DebInVenice on January 11th, 2008
When judging a loan within Prosper.com, I’d always assumed that homeownership was always a good thing when it came to the potential for default. Well, interestingly, it turns out that the only credit grade in which default rates increase is HR (High Risk).
I looked at Prosper's performance data for all loans, all income ranges, and credit histories to see if there was any conclusive evidence of whether homeownership really mattered. My criteria for analyzing performance data was exactly the same, except that one set was for homeowners and the other was for non-homeowners. Statistically, default rates were virtually identical except for HR credit grades where there is almost a 7% difference in the default rates. Interesting information, and news to me.
Even at the D and E credit grades, there was no statistical difference between the default rates of homeowners and non-homeowners.
So, when considering an HR loan, homeownership is definitely something to look for, at other credit grades it does not really seem to matter.
I looked at Prosper's performance data for all loans, all income ranges, and credit histories to see if there was any conclusive evidence of whether homeownership really mattered. My criteria for analyzing performance data was exactly the same, except that one set was for homeowners and the other was for non-homeowners. Statistically, default rates were virtually identical except for HR credit grades where there is almost a 7% difference in the default rates. Interesting information, and news to me.
Even at the D and E credit grades, there was no statistical difference between the default rates of homeowners and non-homeowners.
So, when considering an HR loan, homeownership is definitely something to look for, at other credit grades it does not really seem to matter.
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