When judging a loan within Prosper.com, I’d always assumed that homeownership was always a good thing when it came to the potential for default. Well, interestingly, it turns out that the only credit grade in which default rates increase is HR (High Risk).
I looked at Prosper's performance data for all loans, all income ranges, and credit histories to see if there was any conclusive evidence of whether homeownership really mattered. My criteria for analyzing performance data was exactly the same, except that one set was for homeowners and the other was for non-homeowners. Statistically, default rates were virtually identical except for HR credit grades where there is almost a 7% difference in the default rates. Interesting information, and news to me.
Even at the D and E credit grades, there was no statistical difference between the default rates of homeowners and non-homeowners.
So, when considering an HR loan, homeownership is definitely something to look for, at other credit grades it does not really seem to matter.
- At January 11, 2008 at 3:23 PM pninen said...
Don't know where you're getting your numbers, but they are wrong.
Using the prosper performance page, selecting all loans, only separating by home ownership, and reading the "net defaults" line, here are the numbers for C grade:
Homeowners 17.80%/year default
Excl Hmwnrs 11.09%/year default
Those numbers are very different than the numbers in your chart. Therefore I have to question what numbers you are charting.
- At January 11, 2008 at 3:32 PM ProsperBlogger said...
I think you have your date criteria set differently. I went all the way back from the beginning and used ACTUAL defaults.
- At January 12, 2008 at 6:00 AM Anonymous said...
One way to explain this is that lenders are more willing to take risks on a homeonwer, therefore the risk seems to be getting priced into the loan. The default rates being about equal is curious.