Note gone delinquent

[thezfunk]

This note seemed like a sure thing to my filter.  Even looking it over, I don't see anything that might stick out.  One payment, then gone.

https://www.prosper.com/invest/listing.aspx?listingID=1648579

[neals384]

Gosh, that listing looks good.  Somehow I missed out on it.

[thezfunk]

Gosh, that listing looks good.  Somehow I missed out on it.

It's a good thing you did since they defaulted after one payment.  Too bad their isn't a way to sell late notes on Prosper anymore, I'd sell it to you!

[Kombinator]

Yep, does look good, although perhaps some secondary screens using more data might have kicked it out.  Sometimes shit just happens:)

[Galli]

One thing i've been looking at lately is note size versus current revolving debt versus stated income.  Even though the borrower states they are consolidating debt, there's no way to gauge whether or not this borrower will actually use the new debt to pay off the higher interest rated debt.

If he/she uses the new debt for something else, suddenly they have a significant payment to handle and their default risk increases.  This in itself is a risk that can't be quantified with the data given.

I wish there was a clause that forced the borrower to pay off existing debt with their new debt.  Otherwise, in this case, the borrower now has 22k in debt to service everything month, on a 50-75k salary, which is difficult

[thezfunk]

One thing i've been looking at lately is note size versus current revolving debt versus stated income.  Even though the borrower states they are consolidating debt, there's no way to gauge whether or not this borrower will actually use the new debt to pay off the higher interest rated debt.

If he/she uses the new debt for something else, suddenly they have a significant payment to handle and their default risk increases.  This in itself is a risk that can't be quantified with the data given.

I wish there was a clause that forced the borrower to pay off existing debt with their new debt.  Otherwise, in this case, the borrower now has 22k in debt to service everything month, on a 50-75k salary, which is difficult

I have often had the same thoughts and concerns.

[Fred93]

I wish there was a clause that forced the borrower to pay off existing debt with their new debt.  Otherwise, in this case, the borrower now has 22k in debt to service everything month, on a 50-75k salary, which is difficult

How would LC "force" them?  Would be quite an administrative burden to do anything with teeth. 

[bobeubanks]

How would LC "force" them?  Would be quite an administrative burden to do anything with teeth.

I don't think there is anyway LC could force a Prosper borrower to do anything.

Prosper on the other hand could send disbursements directly to the creditors FBO the borrower.

[Fred93]

Prosper on the other hand could send disbursements directly to the creditors FBO the borrower.

They could.  However, I think there are several problems with this.  First, if the original debt is a credit card, the guy can just charge more stuff on the credit card, and take his balance right back up.  What would P have accomplished? 

Second, I think for a consumer loan of some sort, forcing the borrower to give up all the information about his other loan (or loanS), contact info for the company, loan number, balance, etc, would be a big hassle, and would deter borrowers.  P and LC have streamlined their web sites to make things as simple as possible for borrowers, so as many as possible will complete the process.  This is important because borrower acquisition costs are significant, and borrower completion rates limit the business.  You don't want to waste them once they come to the web site, so you keep things ultra-simple.  The more web clicks you demand, the smaller fraction of folks complete their loan applications. 

Also, even when the guy does complete all these new fields, sometimes he will have made an error, and you have to sort that out, which is increased administrative burden.

In the end, I don't think it would be a win for P, and that's why they don't do it.

[Galli]

Prosper on the other hand could send disbursements directly to the creditors FBO the borrower.

They could.  However, I think there are several problems with this.  First, if the original debt is a credit card, the guy can just charge more stuff on the credit card, and take his balance right back up.  What would P have accomplished? 

Second, I think for a consumer loan of some sort, forcing the borrower to give up all the information about his other loan (or loanS), contact info for the company, loan number, balance, etc, would be a big hassle, and would deter borrowers.  P and LC have streamlined their web sites to make things as simple as possible for borrowers, so as many as possible will complete the process.  This is important because borrower acquisition costs are significant, and borrower completion rates limit the business.  You don't want to waste them once they come to the web site, so you keep things ultra-simple.  The more web clicks you demand, the smaller fraction of folks complete their loan applications. 

Also, even when the guy does complete all these new fields, sometimes he will have made an error, and you have to sort that out, which is increased administrative burden.

In the end, I don't think it would be a win for P, and that's why they don't do it.

Prosper could automate (with some $ investment) and import consumer loan/CC balances simply based off of the borrower's credit report. I agree this could be a 'hassel' for borrowers but I suspect adding such features would reduce chargeoff rates and reduce overall risk and interest rates for borrowers.

[hoggy1]

I (almost) always buy only debt_consol/CC_refi notes. Then I watch FICO trends carefully. The FICO trend should rise after the loan issues if the borrower used the funds as stated because they have just traded revolving credit for installment credit. If it doesn't rise I place it up for sale on Folio. After the bump one of two things happen - 1) it stays high and/or goes higher still (borrower really helped by loan consol) or 2) more typically they drift back down (running their cards up again). I sell notes where FICOs have fallen 50+ points from the HIGH POINT.

[Fred93]

I (almost) always buy only debt_consol/CC_refi notes. Then I watch FICO trends carefully. The FICO trend should rise after the loan issues if the borrower used the funds as stated because they have just traded revolving credit for installment credit. If it doesn't rise I place it up for sale on Folio. After the bump one of two things happen - 1) it stays high and/or goes higher still (borrower really helped by loan consol) or 2) more typically they drift back down (running their cards up again). I sell notes where FICOs have fallen 50+ points from the HIGH POINT.

Wow.  Quite a strategy.  So what fraction of borrowers do you suppose really use the funds to pay off revolving debt?  ie, what fraction of your borrowers experience the FICO bump after the loan issues?

[hoggy1]

I'll give you an anecdotal guess of 50%ish.1) I haven't kept track of it as I trade 2) looking back is hard and 3) of course a very high percentage of the loans I still hold have the bump. I don't panic sell any of these (ie I don't price them at a steep discount) unless there are other indicators of problems (drop below 650 or very steep drops that concern me, or late payments). I also don't buy anything under 16% so I am getting about 1.5%/month so I am not usually in a hurry. I pay closest attention to the most recent change. I'll keep some records over the next few months and see if I can give you a better answer.