Oh god, for a structured finance nerd, this website is like heaven.
I'm pretty tempted to create my own mini-CDO. Looks like they have pretty good historical data, so you could at least estimate what level of credit enhancement you'd need to get a good rating on each tranche. Given what the loss curves look like, you could probably do pretty well selling front sequential pieces. (Look on Wikipedia to learn more about sequentials, PACs, pass-throughs, NAS, and other CDO structures). To fund the structure, you would borrow again on Prosper.com, and tell borrowers that funds would be repaid according to the structure you set up. If you provided good enough documentation for your structure and your model, you could probably get a rate significantly lower than the rate on the loans you bought.
You could also sell credit default swaps on the individual loans... and then aggregate the CDS into a synthetic CDO...
I've had 9 loans, 1 of which has defaulted already (all originated summer of 06). I've got another loan that is constantly late and a couple others that are paid off already.
I was going to use this as a source of growth on funds that I had set aside for my son's college, but after a while all the listings were crap so I pulled my money out (that I could).
A friend of mine has about 300 loans now and has about a 10% default rate. He only buys A-B paper. He has a hard time manually finding "good" loans now and is starting to slow his investment.
I think that Prosper needs to look at their loan terms (is it still only 3 years?) and the high number of defaults in order to get better lending sources.
Makes sense when you consider what they're using the money for. Most Prosper borrowers seem to be trying to pay off credit card loans - anyone who's willing to pay 30% interest to pay off their 20% interest credit cards either isn't very bright or has no intention of paying off their Prosper loan anyway.
I'd like to see the numbers broken down into people who're using the money for business or education vs. people who're using it to pay off existing loans. It seems like someone who's hoping to invest in additional capital has both more ability and more incentive to pay back a loan.
I don't think people are taking 30% loans to pay of 20% credit cards.
First, browsed through a decent number of Prosper listings, but don't recall seeing people asking for rates of 30% of seeing too many listings close at that high of a rate.
Second, a lot of people will actually list their current credit cards that they are trying to consolodate along with their rates. So as a LENDER, if you'financing such a loan, you aren't particularly bright youself.
If you're smart about what loans you pick and aren't throwing money at E grades with high DTI's simply because you think you can get 20% interest, then I'm sure you're not going to see a 20% default rate in your personal portfolio and can still get a decent rate of return.
