Prosper recently added a new loan status Defaulted (PaidInFull). These loans will be grouped under the Paid loan status instead of defaults. (I think this status encompasses loans that were in the charge-off status but were fully paid).

The nightly update is patched to reflect these changes as of today.

This update fixes/enhances a couple of front end issues.

• Renamed “Defaulted - Repurchased” to “Defaulted - NAT” (NAT = New Agency Test Loans). These loans were previously picked up through an automated script, however Prosper has now recategorized them as Defaulted. Per user request, we have hardcoded these loans as “Defaulted - NAT”. (this in no way affects roi calculations)
• Fixed a bug on the loan map page where Louisiana wasn’t showing up correctly.
• Restructuring backend/infrastructure. (You won’t notice anything different on the front end)

Stumbled across this little gem from the Fed today. The map shows breakdown of mortgages by state, city and zip code. You can use it to check out how your area is doing.

The thought that came across my mind was to avoid lending to areas with the most problems. I compared the mortgage map to the prosper loan map. There is some correlation but as much as I thought, maybe someone out there will find this useful.

Some recent events if you haven’t been keeping up:

• Light Crude closed above $100 today.
• The market is pricing in a 50 basis point rate cut by the Fed in March which will drop money market rates to around 3%.
• Widespread pessimism in the housing market and subprime mortgages.

This actually looks like a better time to invest money into Prosper then 2007. Your going to get similar rates on loans compared to last year and you get some extra wiggle room since money market yields are around 2% lower then last year. My gut is telling me delinquency rates will also improve for loans vested in 2008 vs 2007.

I’m currently sitting at my computer and CNBC is interviewing Renauld Laplanche from LendingClub about peer to peer lending. They also mentioned Prosper and Zopa in a text blurb at the bottom of the screen. Prosper should get themselves an interview on CNBC. :)

In other news “AIG said it would need to alter the way it values credit default swaps involving collateralized debt obligations. CDOs are funds that contain slices of bonds, some of which are backed by mortgages.” (link)

I found this picture particularly interesting to sum up the current environment.

Prosper said a few months back that they were going to tackle collections and try to improve collection rates (Prosper Tackles Collections). It now appears that Prosper has been keeping their end of the bargain. Penncro collection rates have now improved across all credit grades from around 12% in August to 14% in November.

I think this is great for lenders, real props to Prosper for listening to lenders on this issue.

Prosper 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.)

It appears Prosper is planning on setting up a secondary market in the near future to allow lenders to buy/sell notes. You can find the details on the S-1 registration the company filed yesterday.

“Prior to the date of this prospectus, the Notes have been non-transferable except by assignment to a collection agency upon default. As soon as practicable after the date of this prospectus, Prosper intends to establish a secondary trading market online auction platform, or the Resale Platform, on which the Notes may be resold to other Lenders after three months following the date that a selling Lender acquired the Note from Prosper (or immediately if the selling Lender acquired the Note on the Resale Platform).”

Here’s are the most important parts:

• A lender can sell a loan they have after holding it for 3 months.
• “Selling Lenders who post resale listings will be able to specify a listing duration of three, five or seven days.”
• “Prosper intends to charge all selling Lenders a nonrefundable resale listing fee of $0.25 per Note being listed for auction sale, or $0.50 per Note being listed for auction with an automatic sale feature.”
• “Prosper also intends to charge the selling Lender a resale transaction fee equal to 1.0% of the sale price, subject to a minimum fee of $0.50, which will be deducted from the sale proceeds at the time a Note is sold to a subsequent Lender.”

At first glance this is looking like a sour deal for the seller and a great deal for the buyer of a note. A seller is going to be charged 1% + $0.25 per loan sold whereas the buyer gets charged nothing. If a savvy investor can get a good estimate of the delinquency rate and default rate as well as when they are likely to occur in the life of a loan then they can make a nice profit in this market.

The number of active lenders on Prosper took the first dip ever in September. (A lender is active if he/she made a bid in that month.). If your an active lender on Prosper this is probably good news for you since it means less competition. On the other hand the number of active borrowers in September took a dip again. This means fewer listings to bid on for lenders.

As a lender I would like to see the number of active borrowers go up month after month. Hopefully we’ll get a pop going into the end of the year. You can check this out yourself on the Membership Growth page.

I was playing around with the customization on the lender profile pages and came to the conclusion that the best credit grade to invest in is C.

How did I come up with this conclusion?

1) C credit grade of lender portfolio’s seems to return the highest ROI.
2) AA, A, B borrowers tend to have their rates bid down too low.
3) D, E, HR borrowers have their rates capped under 30%, the rates may not be high enough to compensate for default rates.