Prosper IRR is a tricky calculation. The concept is very simple. The problem lies in how to treat delinquent and late loans prior to the debt sale. Before loans are late and after the debt sale treating one’s account balance is whole. While a loan is late the loan’s value must be subtracted from the account value in some way. The two edge cases are to not subtract anything and to subtract the entire value of the loan. The problem is the right answer is somewhere in between. After one month late if it loan payments are subject to some collections fee. When the debt is sold it yield something even if it is pennies on the dollar. Over time the current loans in limbo matter less as the roll rate, collection rate, and default sale percentage will “come out in the wash.”
As pensioner said this game
The ultimate goal being knowledge, entertainment, and ROI. I developed a spreadsheet to determine IRR. Pensioner and I have refined the spreadsheet. Now the IRR calculated by the spreadsheet returns the best case and worst case numbers for the loans more than month late. The “Game”’s tracking page is at Prosper.com IRR Lender “Game” Tracking Page
So far, I have my numbers and I have pensioner’s numbers and permission to post. I have invited several other lenders to join my “game” and am awaiting responses. The “game” is to track the IRR at monthly intervals and see the results. Hopefully we will gain a better understanding of the marketplace and our own portfolios.
I will post the responses as I get the posts ready. If you want to participate send an email with results with explicit permission to post with a short writeup about yourself to kevin [at] rateladder (dot) com. The writeup doesn’t need to be extensive, but it must be compelling. For example, pensioner’s writeup would be compelling for the sole reason that he is the largest lender on Prosper. The fact that he was on the large lender panel at Prosper Days only helps.
Here is the a sample Prosper IRR Spreadsheet.
The reporting and analysis will developed over the course of the “game” as a starting point I will post a the current spreadsheet and bio for each lender as the posts are ready. Expect at least RateLadder_com and pensioner by the end of the weekend.
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