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Credit Scoring and Models: Decision Trees

Lending Club Secondary Market: Loan Vintage and Loan Status at Listing

Prosper Loans Historical Listings: Default Rate, Originations, Rating and Days Past Due

Posted by Anil Gupta | Monday January 19, 2015, 1:39 pm | Categories: Prosper

On this blog, I have extensively analyzed historical loan data from Lending Club and shared my findings. Time to time I received request from readers for doing similar analysis on historical loan data from Prosper Loans. Even though PeerCube provides the past performance of Prosper Loans with different loan and borrower attributes, I have never written blog posts on my findings from Prosper dataset.

As Prosper loan volume has been increasing nicely and also provides very rich historical loan dataset compared to Lending Club, I plan to share my analysis of Prosper Loans data and publish my findings from the analysis.

Data

Using Prosper API, PeerCube downloads and updates the Prosper Loans historical listings and loan payment data daily. The historical listings contains all listings that have been posted on Prosper platform. It includes both the loans that were issued and the loans that were listed but not issued. The loans contains the payment and status information of all listings that were either issued or cancelled. In this analysis, I use the merged dataset for historical listings and loan information that was dumped from PeerCube database on January 9th, 2015.

The Prosper dataset contains information on 349,336 loan listings. The loans listed between 2005 and 2008 and in first 9 days of 2015 were excluded from this analysis. The remaining 263,090 loan listings, consist of 195,874 issued loans and 67,216 listings not issued between 2009 and 2014, were used for this analysis. Prosper dataset contains over 500 attributes. A dictionary for all attributes is available at Prosper API site.

Loan Status, Default Rate and Loss Rate

Prosper categorizes the originated loan status in five status: Current, Charge Off, Defaulted, Completed, and Final Payment in Progress. You may notice that unlike Lending Club loan status (See Lending Club Data and Default Rate), Prosper doesn’t list delayed status of loans in Loan Status attribute. Instead, Prosper provides another field Days Past Due that lists the number of days the payment on a loan has been delayed.

The table below shows the loan volume, outstanding principal, and funded amount with loan status for all originated loan listings. The listings that were not issued are excluded from this table. The default rate and loss rate can be calculated using loan volume and outstanding principal/funded amount respectively. The default rate and loss rate is 4.86% and 3.16% respectively for Prosper loans originated between 2009 and 2014.


Prosper Loans - Volume and Outstanding Principal with Loan Status
Loan Status Loan Volume % by Loan Volume Outstanding Principal % by Outstanding Principal Funded Amount % by Funded Amount
Current 150,767 77.48% $1,625,588,985 96.84% $1,875,685,073 84.86%
Final Payment in Progress 280 0.14% ($2,920) 0.00% $2,734,702 0.12%
Completed 34,083 17.52% $11,595 0.00% $264,268,258 11.96%
Defaulted 2,046 1.05% $9,704,493 0.58% $13,832,884 0.63%
Charge Off 7,407 3.81% $43,312,030 2.58% $53,719,187 2.43%
Total 194,583 100.00% $1,678,614,182 100.00% $2,210,240,104 100.00%
Default/ Loss Rate 4.86% 3.16% 3.06%

Loan Origination Date

The chart below shows the loan count and average loan funded amount with loan origination date. Prosper Loans had a fantastic growth in loan origination in 2014 specially in second half of the year. 63.02% of all loans originated since 2009 were issued in 2014; almost 2/3rd of the loans originating in last six months of 2014. Also, there has been consistent growth in the average loan size over the years resulting in higher loan origination amount.


Chart 1: Prosper Loans: Loan Volume and Funded Amount with Loan Origination Quarter
Chart 1: Prosper Loans: Loan Volume and Funded Amount with Loan Origination Quarter

Prosper Rating

Prosper categorizes loans in seven different groups: AA, A, B, C, D, E, and HR. The AA loans are issued to good borrowers at lowest available borrower rate on the platform and considered least risky while HR loans are issued at highest available borrower rate and considered most risky.

Over the years, Prosper has focused more and more on issuing lower risk loans. For example, in 2009, about 45% of loans issued carried rating of AA, A and B. In 2014, about 57% of loans issued carried rating of AA, A and B. Similarly, the faction of highest risk HR loans have declined from about 10% in 2009 to 1% in 2014.

In my opinion, the focus on high quality loans have been good for Prosper as nothing kills the reputation of a platform as fast as high default and loss rates on the issued loans. Current management has done a good job refocusing the Prosper platform on quality loans.


Chart 2: Prosper Loans: Loan Volume by Prosper Rating with Loan Origination Quarter
Chart 2: Prosper Loans: Loan Volume by Prosper Rating with Loan Origination Quarter

Days Past Due

Prosper provides a Days Past Due field that lists the number of days by which the payment on a loan was delayed. Days Past Due field lists the days past due irrespective of loan status. Based on the days past due, loans were categorized into following five groups labeled as Late Status.

  • Not Late: 0 days past due.
  • In Grace Period: 1 to 15 days past due.
  • Late (16–30 days): 16 to 30 days past due.
  • Late (31–120 days): 31 to 120 days past due.
  • Late(120+ days): more than 120 days past due.

The chart below shows the loan count with Late Status for different loan status. For loans with Completed and Final Payment In Progress, all loans are in Not Late group except for one which has Late (120+ days) Late Status. Even though this one loan was paid in full, for some reason Days Past Due field shows 892. All loans with Charge Off loan status are grouped in Late (120+ days) Late Status.

Loans with Defaulted loan status are distributed over different late status groups. Majority of these loans defaulted because of bankruptcy. Some of these loans with defaulted loan status are listed as paid in full or settled in full. Majority of loans with Current Loan Status are not late.


Chart 3: Prosper Loans: Loan Status with Days Past Due
Chart 3: Prosper Loans: Loan Status with Days Past Due

Key Takeaways

  • With the recent growth in loan listings and origination, Prosper platform is becoming another viable option for consumer loans.
  • The misstep of focusing on issuing high risk loans during early years (before 2009) may give the impression of higher defaults on loans issued at Prosper platform. However with the change in management and focus on high quality loans, this impression may no longer be true.
  • The rich dataset for Prosper listings will be a great asset to understand borrower behavior, even though there may be some starting challenges in interpreting different attributes and how some of them are calculated and estimated (example: Days Past Due).

Comments: (6)

Simon Cunningham | Tuesday January 20, 2015, 12:15 pm

Great work Anil. Enjoyed reading that.

Anil Gupta | Tuesday January 20, 2015, 6:05 pm

Thanks Simon for enjoying the post and tweeting about it.

Stuart Musgrave | Wednesday January 21, 2015, 3:15 pm

Interesting analysis. The significant volume of loans with short performance history understates the default rate. Comparing charged off to completed loans likely overstates it. The reality is somewhere in between. It would be interesting to see the default rate at 12 & 24 months and the overall loss rate at term taking account of recoveries.

Steve Brecher | Saturday January 24, 2015, 12:57 pm

What happened 2012/Q4 - 2013/Q1 to interrupt the upward trend of orginations?

Anil Gupta | Saturday January 24, 2015, 7:12 pm

@Stuart, I agree that recent surge in loan volume (almost a million loans issued in 2014 versus 271K in 2013) will understate the default rate. PeerCube shows the past performance of Prosper Loans with vintage at Prosper Historical Loan Performance also. The loss rate stands at 5.14% for 2013 vintage.

Anil Gupta | Saturday January 24, 2015, 7:20 pm

@Steve, my guess is the interruption in origination might have been due to changes in the executive management or led to changes in executive management. According  to press release Prosper Appoints Stephan Vermut CEO; Partners with Sequoia Capital in 2013/Q1, the current executive management team came onboard in 2012/Q4-2013/Q1 time frame.

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