Oct
17
Prosper: In A Quiet Period
October 17, 2008 | Comments Off
Maybe this is a good time to check the performance of my Prosper.com account. They are in a quiet period in which no new loans can be originated. They are going to offer new secondary market features in the near future. It will be interesting to know how that will work out.
The Prosper.com experiment has been better than the stock market, but I can’t say that it has been perfect. Almost everything has performed better than the stock market recently (except for Oil and some other commodities, I guess). I have originated 249 loans with an initial investment of $20,000, and a current value (after collected interest but before losses) of $21,234.06. I have built the portfolio gradually over time since last year both manually and automatically.
17 of the loans have been paid off early: those are the good people. So far 9 are deadbeats (I consider a deadbeat someone that is over 30 days late). Two of them already filed for bankruptcy, and I even think that they knew they were going to file before they got the loan. Most of them had AA, A, or B credit. Being qualified as ‘Prime’ didn’t deter them. They send these to ‘collections’, and although a few get back on track, most of them can be considered lost. $900 so far in losses. That means that I am probably worse than if I had invested my money on a CD or used it to pay off my own mortgage, but not loosing yet. Almost $800 that could be lost there. Some of the loans are collecting a small amount that the Collection Agency is capable of extracting from these guys.
Something I did notice is that deadbeats manifest themselves early in the process: they stop paying early. The deadbeats also tend to be from loans over $10,000 USD. It seems that large amounts of debt are more difficult to pay for most people and they tend to stop paying these first.
The most important differentiating factor found on the deadbeat loans are that they are “Manual” Loans. About half of the portfolio is on “Portfolio Plans” that Prosper suggested. I chose a personal one created with the criteria I like (low DTI, no delinquencies, etc) and I also used their “Conservative” portfolio plan. Both of them are working well with no late payments longer than 30 days. It seems that the discipline of an automated bidder works better than human nature – the natural compassion that made me break the rules that I should not have broken.
At this point Prosper is in a quiet period. No new loans until further notice. They have filed paperwork to allow people to re-sell the promissory notes that they have generated on a secondary market. Kind of what the big banks did with the mortgages they originated, but with personal loans.
At this time I have decided to let the experiment continue. I do not know if I will sell my loans on a secondary market or not. Maybe I will do on a case by case basis. Maybe I will try to sell the more risky ones. Who knows? I will not add more money to loans (I can’t at this time, they are on a quiet period). I will get the cash (generated from payoffs and loan payments) out and put it on an interest bearing account until Prosper returns from the quiet period. At such time I will decide if I put it back to work on Prosper and if I add more or not.
One of the decisive factors will be if my Portfolio Plans continue performing very well. If they continue to show a very low or nonexistent level of deadbeats I might want to add more money into them. I do not think I will do more manual bids in the near future. Browsing the listings provide for a very interesting amount of gossiping material to discuss at the dinner table, but it doesn’t seem to provide as much profits as the plans.
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