Prosper Portfolio Planner
November 5th, 2007 | ProsperProsper recently introduced a new feature on their system called Portfolio Plans. It essentially is a set of standing orders to help lenders invest based on their tolerance of risk.
Some thoughts came up after seeing this and hopefully everyone reads the footnotes like me. If you haven’t here they are:
- “Estimated average annualized loss rate based on the historical performance of Prosper loans for borrowers with similar characteristics, originated between Jun-01-2006 and Oct-05-2007, measured as of Oct-29-2007. Actual performance may differ from estimated performance due to many reasons, for example, worsening economic conditions.”
- “Estimated average annualized return is intended to help you understand the risks and return associated with this listing. Lenders should make their own judgments with respect to the risk of default associated with individual loans. Actual performance may differ from estimated performance due to many reasons, for example, worsening economic conditions.”
I think the idea is a step in the right direction, however I don’t think the Prosper marketplace is sufficiently large enough to sustain any sort of mass standing orders such as the ones that will be created by the Portfolio Planner. (At some point your standing order just won’t fill because there are so many similar orders.)
November 17th, 2007 at 8:29 pm
Did you bold the ‘worsening economic conditions.”?
I guess even if you didn’t it may be worth discussing. It does feel like I’ve read a few blogs lately that indicate there is a recession on the horizon. How do you think this will effect Prosper loans?
I suspect the riskier loans would take the biggest ROI hit, with AA effected the least.
November 18th, 2007 at 11:38 pm
Yes, I bolded the worsening economic conditions part since I think this is on the horizon. (You can check out my other Investing posts, they haven’t been very bullish per se.)
Like the saying goes “A rising tide lifts all boats” so in a bad economy you can assume the opposite. Unless we get a really bad recession I actually think the delinquency rates will do no worse then what we have been seeing in subprime (20% delinquencies). As lenders become more risk averse the premium you take for investing will increase.
From a contrarian perspective, whenever I see extremes I usually like to take the opposite position. (If no one is willing to lend, then its probably the best time for you to lend.)