Rethinking Our Prosper Strategy
Yesterday afternoon we took a look at the status of our loans on Prosper.com. To our chagrin, it seems 8 of our 34 loans are late. This means that approximately 23% of our prosper portfolio isn't current. To some degree a high level of delinquencies was to be expected, especially since we made a conscious decision to invest in high risk loans, but 23% of our loan portfolio being late is not exactly what we had in mind.
So, for future loans via prosper we've decided to change our lending standards. We are going to target pretax returns of 18% for lenders who have prosper ratings of C or better. The graph above shows how Prosper assigns a value to roughly approximate a borrower's credit. It may take more time to find suitable borrowers, but time is something we do have.
Best,
James&Miel
Stumble It!
3 comments:
Ouch.
I think the lowest credit rating I loaned to was D. About 75% of my loans were AA or A. Granted, I'm only making 10-11% but so far no late payments.
I can see this really driving down the rates on the better credit risks.
First, I have a basic economic thought: I believe as a diversification tool and risk-free rate of return investment (if spreading out your loans thinly enough, you can achieve the avg loan rate net of defaults as posted at prosper) of 9%+, smart investors will pile in within the next year or two driving up demand for loans (and hence agressively decreasing the average interest rate since lender supply outstrips borrower demand). Therefore, I'm investigating and loading up on 3-year lockins now. Anyone else feel this way? Here is the latest on my experience:
I’ve been using prosper for a few months now and I’m quite pleased with the results. I have over 20 loans out with an avg rate of over 13%. All loans that have existed for a few weeks are current with their payments. I’ve posted on top groups and strategies for those interested at my blog. There are groups to avoid and strategies to employ to weed out the bad apples. Good luck!
http://www.everydayfinance.blogspot.com
I've been using Prosper since early 2007 (before the crunch). I currently have over 50 loans outstanding, and most of them are doing well.
At first I was doing all kinds of analysis to find the 'good' borrowers. But recently I've done some analysis on the actual loans over the past 2+ years, and found that one could have over 95% current loans with very little work. The secret? Low balance. You can read the details and my discussion of the inherent risks of this strategy on my blog.
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