I have been investing with Prosper for a year and a half now, but I have not been able to pick up any good D and E loans that meet my criteria lately.  The really good ones are gone literally in the first few seconds of listing, whereas there was a sufficient supply (if not an abundance) of these a year ago. 

I know the competition for loans has been heating up.  But I am not reinvesting my payments into Prosper for several reasons:

1.  As I wrote before, if I can't get at least 11%, there is no point in doing this actively.  I have mutual funds that have been churning out 12% on average for the past 10 years without myself doing anything.  And given the drought of good D and E loans, I don't believe I can maintain 11% returns.  In fact, good C loans get filled very quickly as well.  And the drop in interest rates doesn't help either. 

2.  Prosper is not interested in leveling the playing field for small investors.  How can the small fish have a fighting chance if they just let the big boys pick up half of the loan or the full loan in the first few seconds?  We have been talking about imposing percentage and time moratorium on this, but it has fallen on deaf ears.

3.  I definitely understand that not everyone has the time to manually pick the loans, and there is a reason for auto-invest and APIs.  But as I pointed out many times before, this would lead to cut-throat type of frontrunning just like what they have with high-frequency trading in the stock market.  And eventually, only the ones with the best APIs and fastest servers will grab the best loans.  And who is most likely to win in this game?  Again the institutional players with deep pockets.  Prosper allows this to happen more than LC. 

You guys will have one less competitor. 

I also don't see any reason why they have to drag out the listing period, except  because they don't want bots and people alike all scrambling to get a piece of the pie within the first 10 minutes, only to end up jamming their servers.  Actually, there is a simple solution.  If they banned anyone from grabbing 50% of a loan during the first hour or even the first 1/2 hour, at least for those of us investing manually, we wouldn't have to rush through. 

from: SeattleSun on September 14, 2013, 12:01:46 AM

They spent $2.3 million more on marketing and advertising in Q2 than in Q1, but their total revenue had increased only by $1.7 million. Obviously, their advertising campaign has not been very effective or not effective enough. 

Marketing and Advertising: from $1.57 million in Q1 to $3.88 million in Q2;
Total Revenue: from $1.7m Q1 to $3.4m in Q2.

http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=9282976-24576-162870&type=sect&TabIndex=2&companyid=760693&ppu=%252fdefault.aspx%253fcik%253d1416265

That is probably the reason why their CFO has resigned. 

I am wondering whether the big guys themselves have complained about this to LC.  Presumably, they are also trying to frontrun each other to get at the best loans at the quickest possible time.  They can't possibly not notice what we have been noticing--that some folks with deep pockets are gaming the system. 

 

I did some amortization calculations--on the presupposition that most defaults occur during the first 10 months.  I am using the example of a borrower who is borrowing a $20,000 loan rated at grade C1: https://www.lendingclub.com/public/rates-and-fees.action  (In the interest of simplicity, I did not take into account the fees charged by LC.)

(A) For a $20,000 C1 36-month loan at 17.32%, the monthly payment would be $716.24. And 10 months' cumulative payment would be $7162.4, which would be 35.81% of the principal invested.  If the borrower defaults on the 11th month, the investor would lose 64.19% of the capital.

If the borrower does not default and makes every single payment, the investor would receive $5784.64 worth of interest over the life of the loan. This means that the investor would have a total cumulative return of 28.92% ($5784.64/$20,000) over a period of 3 years. 

(B) For the $20,000 C1 60-month loan at 16%, the monthly payment would be $486.36.  And 10 months' cumulative payment would be $4863.6, which would be 24.32% of the principal invested.  If the borrower defaults on the 11th month, the investor would lose 75.68% of the capital.

If the borrower does not default and makes every single payment, the investor would receive $9181.60 worth of interest over the life of the loan.  This means that the investor would have a total cumulative return of 45.91% ($9181.6/$20,000) over a period of 5 years. 

The question then is whether for 60-month loans, the higher returns for the longer loan term outweigh the risk of greater loss of capital (as compared to 36-month loans) should the borrower default during the first 10 months. 

I hope this helps.  (IMHO, one should have a good balance of 36- and 60-month loans.)

Any statistical profiles of borrowers who are likely to pay off early?  My LC account is relatively young, so I hesitate to make statistical generalizations, but for my Prosper account, I have more than 14% of notes paid off early.  And these are mostly borrowers with high income.  My return at LC could take quite a hit if I had a similar percentage of borrowers paying off early.