By researching publicly available information from the two largest P2P loan marketplaces, Prosper and Lending Club, investors can lower their risk, increase profitability, and forecast future performance of their loan portfolio. Both sites offer raw market data to investors for analysis. By doing so, they gain investor trust and provide and incredible asset to those interested in coming up with a targeted investment methodology. By statistically analyzing this data, investors can predict how profitable a borrower’s loan will be, based on whether they pay rent or mortgage, which state they live in, their income, and many other key factors.
In order to perform analysis on this raw data, investors need a medium to display the data in a way suitable for statistical analysis. Lendstats.com is a popular, free site that provides all of this information in a powerful dashboard format, and is updated daily. The site can be a bit daunting for the first time visitor. In this guide I will break down each major section of the site to help make it clear how you can use the information for investment research.
The Lendstats home page is a dashboard with various charts showing aggregate loan statistics from Lending Club and Prosper. The first graph shows Originations Per Month for both marketplaces. One challenge in creating a well diversified P2P portfolio is the amount of time it takes to find notes that fit your investment strategy. The more originations that exist, the greater chance you have of finding a suitable note. Further, the origination rate can give insight into the health of each marketplace, showing whether the market is increasing or decreasing in available investments. At this time it appears that LC is greatly outpacing Prosper in loan originations.
The next chart is a Performance Summary, where LC and Prosper aggregate note performance is compared by year and loan credit rating. The average ROI for each P2P lending site can be affected by how well the site screens potential borrowers and the diligence of their collections efforts when a loan becomes late. Further, the ROI gives you some indication of what type of return an investor in that market may receive.
Each site has their own grading system for rating the credit-worthiness of borrowers. This section is most useful when comparing grades within a site instead of across sites. Also notice that with Prosper you see metrics for Repeat Borrowers and “Blenders”, or borrowers who are also lenders. These are typically highly sought after due to their good performance. LC does not publish these two metrics – in fact if you want to borrow and lend on Lending Club, you have to create two separate accounts with two different email accounts. Prosper’s site was created with more of a social network feel, where investors and borrowers are assigned anonymous nicknames and have their own public profile information available to all. The remaining charts on the home page provide various “Top Ten” lender metrics from Prosper using this profile information. These let you view the portfolios of the best and worst performers on the site, allowing you to look into some of the strategies these investors employ.
Now let’s move over to the Prosper Stats page. On the top of the page the first thing you’ll see is a set of begin / end date parameters. As you probably noticed on the first page, P2P investing was a lot more like the wild west before 2010, so its generally a good idea to set the begin date filter for something in 2010 or later to get results relative to today’s market conditions. Once you’ve set that, you have a number of other criteria that let you slice and dice the entire portfolio of all loans within the date range specified.
Just to the right of the data parameters you’ll see a checkbox to “view complete performance breakdown by” and a dropdown box to the right. This powers a detailed table that you can see if you scroll to the right of the browser window after submitting your filter criteria. The default view breaks the information down by loan and credit criteria, but you can also view by state/city, occupation, and date. Using the state/city filter, you can see how borrowers from specific locations in the US have performed for investors. Of course, this is very relevant today since the recession and home loan crisis have affected regions across the country with different levels of severity. Just be careful to check the Total Lent column when using the Complete Performance Breakdown table – you want to be sure enough loans appear within your results to be statistically significant.
Just below the filter criteria and beside the Enter button there is a radio button selection where you can tell the tool to show you active loans that fit your filter criteria. This is a great way of being able to take direct action upon loans that fit your specific investment criteria. These results appear below the Performance Summary section after you submit your filter conditions.
One very powerful tool on this page comes from the section labeled Loss Factors. Once a loan becomes late, it decreases in value due to the increased risk of default. Not only are you less likely as an investor to recover 100% of your expected proceeds, but if you were going to sell your note to another investor, the market would dictate you would have to sell it at a discount. Lendstats looks at how late a loan is and automatically devalues it using these loss factors. So, for a given portfolio shown by your filter criteria, you can see the overall Rate of Loss in the Loan Performance Summary.
The last, and perhaps most interesting, feature is Lendstats ability to analyze a specific investor’s portfolio. For Prosper, you can do this by searching for your lender name. Just to the right of the data parameter filters, there is the word Find and a drop down which defaults to all_loans. Switch that drop down to lender, put your lender name in the text box and press the enter button. Now you can analyze your portfolio performance and see the impact late loans are having on your investments using the loss factors and other criteria.
The Lending Club Stats page works pretty much the same as the Prosper page, with some differences in the filter criteria. Also, in order for Lending Club users to analyze their current portfolio, they need to look for the section labeled Data Options and click the Analyze your Portfolio option.
Then, login to your LC account, click Notes in the top navigation, then look in the lower right of the page for a link labeled Download All. This exports your portfolio (with no personally identifiable information) into a .csv file which you upload to Lendstats.
I encourage you to spend time digging further into the loan information on Lendstats and create a strategic plan for your peer to peer loan investment portfolio. Like any other type of investments, you shouldn’t just rely on your gut, but employ statistical analysis to help maximize your profit potential.