Analysis of Prosper’s Top 50 Lenders

I have spent several hours in the past week looking at the top investors on Prosper. One of the truly great things about Prosper from an investor perspective is that you can see the returns of your fellow investors. Now, most likely you won’t know who is behind these investments but you can learn plenty of details about how they invest.

This is all thanks to third party sites like Lendstats and Ericscc that take advantage of the way Prosper records the information on their database. For my analysis I looked at the top 50 lenders on Prosper who have invested in at least 200 loans and who have an average loan age of at least 9 months. I am also only looking at loans on Prosper 2.0 (those loans that originated after the SEC imposed quiet period that ended in July 2009). Here a link to this query on Lendstats. Ericscc also has a tool to analyze top Prosper lenders but I used the Lendstats tool for my analysis here.

High Yielding Returns Here

The ROI for the top 50 lenders according to Lendstats range from 22.4% down to 13.7% on the low end. Every investor here is earning above average returns and some are doing extremely well. One useful feature in Lendstats is it shows the criteria (on average) these investors are using when selecting which loans to invest in. This is what I have found most interesting.

Here are the typical criteria for the average top investor on Prosper:

[table id=7 /]

So what can we learn from these numbers? Well for starters, delinquencies appear to be less important than I first thought. I have been selecting loans based on a zero tolerance for delinquencies but by doing so, I could well be missing out on some good borrowers. Without exception, every one of these top 50 lenders allowed some borrowers with delinquencies (both current and 7 year) within their portfolio. Other factors I also found interesting were the high public records percentage, the relatively high borrower income and high number for credit history length.

If you don’t understand some of the terms in the above table you should do some research on interpreting credit reports. Here is a good place to start.

The Focus is on High Risk Loans

It is stating the obvious, but these investors are focused on the high risk loans, Prosper Ratings of C and below. These are the loans that offer the highest returns, but also the highest risks of defaults and every investor here has experienced several defaults. While these defaults have certainly impacted their ROI, because they have kept defaults to a minimum, (7% on the high end down to 1.3%), their returns have remained high despite these defaults.

Now, these loans, at an average age of 10.9 months, are still young. But they are old enough that the unscrupulous borrowers who deliberately default on a loan have been weeded out for the most part. While the ROI of these investors will likely continue to decline on these loans, I think it is fair to say as a group these investor returns will stay well above the average.

After looking at all these loans I would like to point out one lender who I am keeping an eye on. This is sweety075 (hat tip to Ken at Lendstats). She (I am assuming this lender is a she) doesn’t have the best return but she does have the best default rate among the top 50 investors. With 306 loans invested in Prosper 2.0 loans, she has a default rate of 1.3% with just four defaults. She is investing in loans with an average interest rate of 23.1% but with just four defaults she is enjoying an ROI of 20.61%.

I am tweaking my investment criteria going forward based on my research here. So, what do other investors think? Happy to hear reactions, positive or negative.

  • Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series. Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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