Interesting New Study Published About Prosper Returns
Prosper has done a lot of work to make data transparent. Increasingly economists and credit analysts have started to study the Prosper model.
Economists Ginger Zhe Jin and Seth Freedman of the University of Maryland have just published a study looking at Prosper since inception to determine average returns.
The most interesting finding is that the probability for a loan to default peaks at around the 10th month and then goes down from there. Prosper's average portfolio as a whole is currently 9.7 months which is the peak of the curve.
The study also showed that the best returns were seen for loans whose interest rate was up to 25%. The implication is that borrowers willing to pay the higher rates are riskier. Maybe an obvious conclusion but there are many folks that come to Prosper seeking only high risk loans and quickly get into problems and become dismayed. Balanced portfolios do better.
The study, titled "Dynamic Learning and Selection: the Early Years of Prosper.com" is a very interesting read for anyone interested in the metrics behind lending.
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When Judging a Loan, Homeownership Only Seems to Matter for HR Grade Loans
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.
Are Delinquencies More Likely for a Specific Region or State in the US?
When I divided lending statistics by region, the southern United States had a slightly higher default rate than other regions, the east had the lowest rate of default:
Some states (with more than 50 loans) which had especially problematic delinquent rates are New Mexico, New Hampshire, Texas, Alabama, Idaho, Georgia, California, and Missouri (in that order). New Mexico, New Hampshire, Texas and Alabama’s delinquent rates were all above 20%, a truly terrible rate of delinquency.
You can view the entire list at LendingStats.com here.