Tuesday, May 16, 2006

Prosper.com update 3 auctions won, 2 in limbo and 5 winning ($150.08 invested)

It's taken a bit of time to actually loan out money on prosper.
The loan auction process usually takes a few days and can take over a week.

Not all auctions end up funding loans. The Savage Number has a nice table here. Notice that only 22-24% of the higher credit grade loans are funded. Loans fail to fund for several reasons:
  1. Not enought bidders - the target amount is not reached
  2. Withdrawels - the borrower withdraws. I've seen this in a few circumstances where borrowers relisted either at a lower interest rate if they are attracting lots of attention or at a higher interest rate if they lack investor intererest.

In general, I use The Savage Number's open loans matrix to quickly identify higher interest loans for higher credit ratings. This has worked well for me, pushing my average loan 2-4% higher for the better credit grades, but keep in mind, there's often a reason the borrower is offering a higher interest rate. You need to underwrite these loans just as carefully, regardless of credit score.

Last week I won my first loan auction and had $50 lent out. This weekend and today I've won 4 more auctions, however, 2 loans are currently "pending verification" so I only have $150 in loans outstanding with an active interest rate of 15.3%. My 4 loans still out to bid have an active interest rate of 12.06%, which is probably a more realistic expectation.

I continue to aim for higher interest A and AA grade borrowers and carefully supplement with some B and very few C grade borrowers.

Ultimately, I need to accumulate a diversified portfolio. If I keep my loan amount at $50, I'd like to have about 100 loans outstanding for a total investment of $5,000. I'll probably invest about $500 per month.

Once I reach the $5,000 point I'll assess the viability of the process, time it requires and default rate of my investments. I'll also look at my current cash flow. If I choose to continue, I'll increase my average loan to $100 and double my portfolio to $10,000.

I'd like to recommend you check out My Personal Finance Blog for an excellent discussion of prosper.com. Here's a recent post. It was through his posts that I learned about the excellent open loan matrix available at the Savage Number.



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