Problems with Prosper?
| Yesterday I signed up for an account at Prosper.com in order to explore the possibility of being a lender. As I get further into this, I'm noticing a few problems that make me slightly uneasy with the controls they have in place. 1. Prosper assigns each person a credit grade, AA being the best, and I think it goes down to E, with the possibility of an NC for No Credit. Prosper gave me an A, which made me happy, but considering how hard I hit the credit cards for 0% BTs (close to $40,000 and adding more), I thought that an A was pretty darn generous. 2. Prosper calculates a debt/income ratio for each of their members. This is good info, except that I was allowed to enter any amount of income I wanted. Anyone could enter that they make $150,000 per year when in fact they make $15,000. This fact doesn't leave me warm and fuzzy, especially since many of the borrowers mention the fact that they have just landed good jobs. 3. Prosper uses a credit report to calculate how much debt a person has for the debt/income ratio. This is good, except for whatever reporting agency they used came back with a paltry $3,000 in debt for me. Like I said in #1, I have much, much more debt than that in credit cards and most of it has been out there long enough that I know it would show on a credit report. The three things above made me look like a very good candidate for borrowing money, which I like to think I would be, but I could just as easily have tens of thousands of dollars in REAL credit card debt (not sitting in a savings account), and the system would say I only have $3,000. |
posted by savvy at 2/17/2006 07:28:00 AM
Comments on "Problems with Prosper?"
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post a commentOne thing I thought prosper would be good for is a free credit score check. Seeing as how they allow anyone to check their score for free, I suppose that inaccuracy might be expected
Hmm. Good research, Savvy. I'll be more wary of the reported debt-to-income ratios.
Yes, I think lending to private parties is not my style.
Better buy Ibonds and lend to the government.
Money And Investing
Savvy:
I checked out your networth page, and you seem like a pretty good risk to me..... I highly doubt you would ever default on a loan and mess up your credit rating. Your A rating is based on your FICO score, which, I expect is pretty accurate. I agree, however that the debt ratio is a bit dodgy because of the self reported income.
I'd be happy to have you be a member of my group, the "students and university graduates" group and act as both a lender and borrower.
I like your idea about both borrowing and lending (but supposedly, the accounts are insured up to $100K). With your A rating, you could probably get a loan for below 7% and earn above 12% by lending to a group of C rating individuals.
I prefer to lend to the companies -may be except GM'S and tyco's.
Hey you could buy junk bonds too
I like the idea of disintermediation in the lending industry. Great idea. But a "social" lending web site?!?
The "social web" is hot right now. However, we must be in another bubble if someone thinks lending is an appropriate application. Lending is about cold, hard, information (such as credit reports, for example). I don't care if there's a picture of you with a great big smile and a puppy in your arms, right next to your convincing story. All the "social" aspect adds is entertainment. Anyone who takes it as anything more than that is just scammed more easily.
For example, one prosper.com borrower's story included his e-mail address. After a quick Google search based on that, I found some contemporaneous posts of his seeking buyers for some electronic equipment and the remark that he needs the cash to buy a motorcycle. That didn't exactly jibe with his prosper.com claim of needing money to finance his mother's urgent operation and his little brother's college education (among other heartbreaking hardships). Granted, there may be more to it than that, but I doubt it.
Here's my prediction:
1. word on prosper.com gets around
2. the scammers come
3. lots of defaults (even on A credit risk borrowers, which will turn out to have been victims of ID theft)
4. prosper.com either folds or tightens up borrower background checks a lot
Re-evaluate prosper.com in a year or two.
yeah what anom #2 says is dead on.. lots of sob stories can be found on prosper.
if prosper's method of computing credit worthiness is so lax, then this is whole thing is just a big mess waiting to happen.
I guess we'll find out.
Unfortunetly for me, if I want to get a loan I have to get a minimum of $10,001. According to the site this is a NH law. I created a loan listing, and I got $1000 of funding, but that is still $9001 short of the minimum. I think this will turn many NH people away from trying to use the site.
Hi Savvy Saver,
Thanks for this review of Prosper. I wanted to make a few clarifications on some of the statements you made:
1. Your credit grade is based on your credit score from Experian's ScoreX model. If you think your "A" grade was too generous, you can follow up with them. :)
2. Actually, we reserve the right to verify any individual's income, and have done so in several cases. It is also a felony to misrepresent your income on a credit application, so we don't advise doing this, and will immediately close your account if you're caught doing so.
3. On your debt profile, the debt-to-income (DTI) ratio is calculated by taking your monthly non-housing debt burden, and dividing by your gross monthly income. When you create a listing, we add the expected monthly payment for that loan to your current debt burden, so you can expect your DTI to go up between the time of your credit pull (where DTI is also shown) and your listing being posted.
Thanks again for your attention to the site, and feel free to contact us if you have any further questions or doubts.
Best regards,
Andrew
I hope Andrew (or another Prosper representative) will return to this blog and respond to Savvy's statement about the incorrect Debt.
Showing $3000 when Savvy has nearly $40,000 on 0% balance transfer offers to me confirms the notion that Prosper's debt-to-income ratio is meaningless!
Andrew above actually works for Prosper (based on my past emailing of the appropriate person at prosper.com, and his past comments on other blogs).
My own addon comments:
First off, always glad to see another PF blogger blog on Prosper.
Yesterday I signed up for an account at Prosper.com in order to explore the possibility of being a lender. As I get further into this, I'm noticing a few problems that make me slightly uneasy with the controls they have in place.
1. Prosper assigns each person a credit grade, AA being the best, and I think it goes down to E, with the possibility of an NC for No Credit. Prosper gave me an A, which made me happy, but considering how hard I hit the credit cards for 0% BTs (close to $40,000 and adding more), I thought that an A was pretty darn generous.
actually, they seem better calibrated than FICO from my sample size of one -- I hit the cards much more heavily than you do for BT's for life at sub-riskfree rates, and Prosper gave me a C (whereas FICO gave me a 740+ score on Experian and even higher on others, since I don't max out my 0 APRs and subriskfrees explicitly to balance current gain against future offers). I unwound a few of my low BT offers so that utilization %'s looked more Experian ScoreX normal, and I got an A. I obviously checked to make sure there wasn't reporting lag, etc, to Experian.
I'm curious whether you had the same experience w/your real FICO's vs Prosper numbers.
2. Prosper calculates a debt/income ratio for each of their members. This is good info, except that I was allowed to enter any amount of income I wanted. Anyone could enter that they make $150,000 per year when in fact they make $15,000. This fact doesn't leave me warm and fuzzy, especially since many of the borrowers mention the fact that they have just landed good jobs.
Also applies to any credit card app -- in my long experience, but again sample size of 1/viewing of credit forums, w/respect to credit, Prosper seems to now verify info far more frequently than CC companies do, but only after a loan funds. Further, there are easy algorithms for checking on how likely someone in zip code X, with credit grade Y, is to be making $Z annually. For smaller loans, where even if income were off by a factor of 3, the loan would still be under the magic 20% number (magic used sarcastically here), this may not even be an issue.
3. Prosper uses a credit report to calculate how much debt a person has for the debt/income ratio. This is good, except for whatever reporting agency they used came back with a paltry $3,000 in debt for me. Like I said in #1, I have much, much more debt than that in credit cards and most of it has been out there long enough that I know it would show on a credit report.
The three things above made me look like a very good candidate for borrowing money, which I like to think I would be, but I could just as easily have tens of thousands of dollars in REAL credit card debt (not sitting in a savings account), and the system would say I only have $3,000.
To reclarify what the actual prosper guy said above,
English and common sense would argue for the D in Debt To Income (DTI) being total $'s of debt.
However, in actuality, it is $'s of monthly minimum payments on debt -- google DTI and you'll find this to be uniformly true (w/certain exceptions for housing debt), though horribly annoyingly linguisticaugly. I'd assume that you wouldn't argue w/ $3000 in minimum payments being too low?
I'm learning about Prosper.com from the other side - I own and operate a small business and was notified today by one of the Prosper.com lenders that I had a loan request for upgrades to my facility and equipment. She called me because the details on my website didn't jive with the profile of the man requesting the money.
Turns out whoever this person is, he copied text about me directly from another blog site then added a line saying why he needs the money - and it looks like he probably used my credit too.
My biggest problem with this is the lack of response / brick walls I'm getting when I talk to the Prosper.com customer support folks. I've been assurred that an investigation will be done, and I have absolutely nothing to worry about because I'm not the one who requested the loan. Isn't that the whole point???
Anyway, I'm frustrated with the site, very, very leery of how it's run and what the security measures are and I have no idea how to prevent this in the future.
Our experience with Prosper has been extremely positive. After reading a number of the comments submitted; I noticed that a majority of them (as in all of them) only approach the loan evaluation aspects from the initial submission point. DTI, etc. In actuality Prosper has a very aggressive verification process that weeds out a number of the bad loan potential...I should know since we went through the loan process and found that the verification process was more extensive then we have found existed with our local Bank. As in most dealings, with the public, the old saying "Buyer Beware" holds here as well. Sub-prime borrows are sub-prime for a reason. Just do your homework, because Prosper seems to do theirs quite well.
As a lender on prosper.com, I've seen funded loans go on "forever" without being made into loans. This went on for quite a while with one, so I emailed the loan recipiant and asked him what he thought the tieup might be. He emailed me back saying the red tape was too extensive, so he'd gotten a loan elsewhere! Meanwhile, my $ is still tied up (receiving NO interest) in a prosper loan that will no go!
If you (electronically) send funds to your proper account, it takes a week to get posted......who's making the $? NOT THE LENDER!
I'm a Prosper lender. Loaned my first 50$ in January 2007. I have now close to 200 50$ loans and almost 10K invested. I am STILL NOT CONVINCED about Prosper.com.
I have 6 loans that are late (one is an AA rating, never made a payment) at the moment and if they all default, that will whipe out most of the profits I've made this year so far, which is currently 344$.
I have been rather conservative in my loans, sticking mostly to AA borrowers.
I'm under the impression I'll see more late payments and I will eventually loose money. I have no recourse on the tardy payers. Once in collections, I have no idea what's going on with those folks.
I will continue to lend on Prosper and count my beans after a full year. Than I'll decide...
I would feel a great deal better if Prosper rated every loan and then funded 50% of each one with their own money. They would make money and we could rest a little easier becuase you can bet every nickel you've invested that Prosper will get a great deal more information for us to use to underwrite our percentages.