04.28.09
Prosper.com Postmortem
I was an early lender on Prosper.com and I even garnered an appearance on local St. Louis TV news where I was interviewed about my experience lending money. I have written about my lending there previously on this blog. Considering that Prosper.com has reopened for business to California borrowers and lenders (after some SEC troubles), I thought I would revisit my Prosper.com loan performance.
Of my initial capital of $3500 in July 2006, I have now withdrawn $2294.47 and have a remaining loan balance of $1062.58. This puts my total loss so far at $142.95 or -4.1%. While that beats the stock market over that period of time, it fails miserably when compared to bonds, especially considering that Prosper.com loans are not liquid. If you wish to see more details on my performance, check out LendingStats.
Probably the most damning statistic is that my total recovery on $1469.51 in defaulted loans was $26.93, for a recovery rate of 1.8%. That is horrible even for unsecured consumer loans.
Tom said,
April 28, 2009 at 1:34 pm
If you stuck to AA, A, and B’s it looks like you would have done alright. Your C’s and below defaulted at greater than 50% totally killing your returns.
Tastylunch said,
April 28, 2009 at 4:06 pm
Bummer
well at last you didn’t get wrecked. Your biggest loss was probably time spent.
pretty cool stat tracker, kinda interesting the spammier sounding the loan title the worse of a problem it seemed to perform to be for you in some cases
“I can do all things through CHRIST and hard work”
“Anointed Ones”
“Got caught in payday trap when husband laid off”
“RE-ESTABLISH CREDIT AND GET BACK ON TRACK”
all defaulted
I have to admit I’m surprised
“EXPAND BUSINESS! LOAN VERY LOW RISK AND HIGH RETURN”
&
“AlWAYS LOOK ON THE BRIGHT SIDE OF LIFE”
did not (although they was rated higher than the previously mentioned)
it does look like you if you had stayed with the A and above stuff you’d might have been alright. But who knows that might not be true now in the new credit environment.
That recovery rate is absolutely abysmal. Makes sense I guess since you have little leverage to collect through something like Prosper and you are probbaly last on the totem pole behind bigger players they may owe money too. I imagine also it feels easier to welch on some small debt to some faceless entity online than to say the guy who turns your water off.
The illiquidity of the loans is what turns me off the most about the service.
GreenerView said,
May 26, 2009 at 2:37 pm
I was originally very interested in peer lending but after checking into Prosper.com and realizing that you would be entirely dependent on them for the quality of the collections, I was scared off. I guess that was good instinct.
LendingClub.com has a similar problem. If you dig through their Prospectus, you realize this is a third party transaction where you have no direct recourse:
https://www.lendingclub.com/info/prospectus.action
“Moreover, member loans are obligations of borrower members to Lending Club, not obligations to holders of Notes. Holders of Notes will have no recourse to borrower members and no ability to pursue borrower members to collect payments under member loans.”
BEWARE!