A few people have inquired about how the “Consensus Rating” is being generated on the Listing Picker page under Lending Strategies. The idea behind the Listing Picker is to identify listings bid on by lenders who have good estimated ROIs. The more lenders with good ROIs the higher the consensus rating becomes.

The formula that generates consensus ratings is as follows: Look for all lenders with an average portfolio age of greater then 4 months on a listing. If there are more then 3 such lenders then get the average estimated ROI of these lenders. Only listings that have an average estimated ROI of > 5% will be shown on the Listing Picker page.

Qualifications for a lender to be included in generating the ratings are as follows:
1) Portfolio age weighted of greater then 4months.
2) 100 Loans made or $5000 invested

Consensus Rating Breakdown:

0 Stars = 5% - 6% Avg. Estimated ROI
1 Stars = 6% - 7% Avg. Estimated ROI
2 Stars = 7% - 8% Avg. Estimated ROI
3 Stars = 8% - 9% Avg. Estimated ROI
4 Stars = 9% - 10% Avg. Estimated ROI
5 Stars = 10%+ Avg. Estimated ROI

Definitely don’t use this tool blindly to place bids, but I find it helpful for quickly sifting through the thousands of listings on Prosper.

So I logged into my Prosper account today and found that my standing order had actually won a bid today. I have had this standing order running for 3 months now and it has only placed 5 bids with this the only winning one. This is telling me that either the listing quality on Prosper has increased recently or lenders are less willing to lend out money now.

Digging a little deeper we can see that Borrower/Lender Ratio is creeping up and the amount of loans being funded has been dropping off since peaking in April 2007

From a risk/reward perspective I think this is a positive for active lenders.

Slowly getting back on track. If you have questions/comments please post a comment or shoot us an email. We’re still sorting through the mounds of email that’s accumulated the past month, so if you feel your request hasn’t been addressed in a timely fashion, feel free to send us a follow-up email.

• As requested, a Lend To Loan Ratio column has been added to the Lenders Who Borrow page. (A ratio greater than 1 means the borrower has more invested in Prosper then they are trying to borrow) (jcw3rd)
• Fixed a bug where the number of late loans was showing up as zero for some member profiles. (A.J.)
• Fixed a bug where member profile pages weren’t displaying properly after customization. (Tyler)

Mmm thought this was interesting. I think the last time we had anywhere near a 10% correction was 4 years ago? I’m sure some stat guy will come along and give the exact number of days.

If you look at the latest COT report, the little guys (retail investors) have been bullish this whole ride down..

I was looking through the forums today and decided to write a quick guide for new lenders. Hopefully this will save new lenders time and money.

1) Don’t invest in HR rated loans.

You will lose money in them. Here is a month by month breakdown of HR loans and delinquency rates. HR Delinquency Rates

2) Do not fall for sob stories, pretty pictures or empty promises.

This one is extremely hard to do. I’m guilty of this on multiple occasions. If you ever need a reminder of why just look at these 2 loans I made Listing 3151, Listing 4038.

3) Do a lot of research before you start investing. If you found this website then you are on the right track. Another nice place for information is the Prosper Forums.

4) The Experian Default Rates on Prosper are best guess estimates so take them with a grain of salt.

5) Set up minimum interest rates for every credit grade you want to bid on and stick to them.

This means you should not chase good loans down to ridiculously low interest rates. Whatever value there was in the loan would evaporate if the loan gets bid down too low. A good loan might even turn into a bad loan once the rate drops to low.

6) Make sure you account for Prosper loan servicing fees and Group fees when you bid on a listing.

7) If it’s too good to be true… Don’t bid on it.

e.g. AA credit, no delinquencies, 0% DTI, max interest rate and automatic funding.

8) Take endorsements and large bids from group leaders with a grain of salt.

If you see a large bid by a borrower’s group leader initially don’t take it as a guarantee that the borrower will pay. Often times a group leader will bid a large chunk initially on a loan in order to attract other lenders to bid on the loan. The large initial bid made by the group leader will fall off the listing once enough lenders have been sucked in. (pump and dump? not quite but close)

9) Check for inconsistencies when you are bidding on a listing.

Check to see that the story does not change from a previous listing they have made. Did the borrower change the reason for the loan from paying the rent to buying a car?

Check to see that if the numbers make sense. If the borrower says he/she makes $3000 extra a month but needs a 3 year loan for $1000 something is wrong.

10) Start investing in small amounts. You are bound to make errors at the beginning while your learning so make those losses small.

I was going through some of my old saved searches for Prosper and noticed that they were returning a lot of results. I’m not sure whether the quality of the listings have improved or that lender’s have gotten smarter. Listings are not getting bid down to absurdly low rates now and are starting to look enticing.

On a side note, I was glancing over the Penncro collection rates for delinquent loans on Prosper and they haven’t changed much since May. First month recovery rates have gone up from 7.8% to 8.08%. Second month recovery rates have gone down from 2.79% to 2.49% and 3 month+ recovery rates have gone from 2.01% to 2.05%. Basically collection has not gotten better or worse in 2 months, hopefully FirstSource will have better recovery rates once enough data is available.

Recently there has been a lot of news out lately about the sub-prime market. For those that don’t know what’s happening, loans made out to sub-prime borrowers in the last few years are starting to go delinquent at a high rate compared to what the rating agencies such as Moody’s and S&P were projecting. This has caused a number of funds who invested in sub-prime to close up shop. Suddenly lenders became unwilling to lend money at the former rates causing leveraged buyout deals to go sour, banks to take on significantly more risk because they are stuck with bridge loans, etc.

Sound familiar? Well Prosper seems to be a nice microcosm of what is happening in sub-prime now. Invest with care, sometimes a small crack can cause the whole dam to break.

We’re back after a longer than expected hiatus. We apologize for the delay between updates. There’s a saying that things happen in threes, well, in a perfect storm of sorts, our web programmer needed to take a leave of absence last month. Between that, the Prosper data changes, and our backend changes/server migration, we’ve been trying to pick up the slack.

Things should hopefully be back to normal now. We’ve tweaked our site and added a blog to keep you better informed of things like this in the future. We look forward to your comments.