Homeowners
DebInVenice on May 9th, 2008
Are home owners a better bet? I'm not sure anymore and I've been giving listings by home owners more though before bidding recently.
My understanding of how Proser calculates DTI is that they exclude mortgage payments under the theory that rent payments are not included so to be fair neither should mortgage payments. In previous periods this makes a lot of sense, but disconnect between house prices and rent in recent years has created a situation where renters may be the smart (financially responsible) ones and recent homeowners are the folks who are throwing money away.
So I was wondering what the Prosper performance data would indicate. So I looked at loans originated between Jan 1, 2007 and Dec 30, 2007, homeowner vs non-homeowner for several DTI segments.
Play along at home starting with this link.
What I found was interesting. I looked at three segments based on DTI: 30%-35%, 35%-40% and 40%-45%. In each of these the B and C grades for non-homeowners has a better ROI than the homeowners! It is hard to draw any conclusions for AA and A grades because the data for non-homeowners is sparse. And certainly there are lots of other factors to consider.
But I'm having second thoughts about lending to homeowners in states where housing values have become disconnected from reality: Florida, Nevada, etc... And under no circumstances should you lend to a Texas home owner!
My understanding of how Proser calculates DTI is that they exclude mortgage payments under the theory that rent payments are not included so to be fair neither should mortgage payments. In previous periods this makes a lot of sense, but disconnect between house prices and rent in recent years has created a situation where renters may be the smart (financially responsible) ones and recent homeowners are the folks who are throwing money away.
So I was wondering what the Prosper performance data would indicate. So I looked at loans originated between Jan 1, 2007 and Dec 30, 2007, homeowner vs non-homeowner for several DTI segments.
Play along at home starting with this link.
What I found was interesting. I looked at three segments based on DTI: 30%-35%, 35%-40% and 40%-45%. In each of these the B and C grades for non-homeowners has a better ROI than the homeowners! It is hard to draw any conclusions for AA and A grades because the data for non-homeowners is sparse. And certainly there are lots of other factors to consider.
But I'm having second thoughts about lending to homeowners in states where housing values have become disconnected from reality: Florida, Nevada, etc... And under no circumstances should you lend to a Texas home owner!
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Why not 100% verified income and employment status
DebInVenice on May 8th, 2008
Why doesn't Prosper verify income and employment status on all loans? My understanding is that today the verification process is hit or miss, some borrowers are verified and others (the majority?) are not. The income range figures into a couple of important calculations and if it is not reliable it will seriously screw up lenders calculations. The first calculation is DTI, how can Prosper publish a DTI and not verify this number with either pay statements or tax documents? The second calculation is a simple eyeballing the loan amount vs. the stated income range. Some lenders might be reluctant to lend $15,000 to someone who makes less than $50,000 a year but might be ok with someone who makes $50k to $75k. But what if a borrower who makes $45k fudges things a bit and states they make $53k? It could make a difference.