Group Ratings

What are group ratings?

A group's rating is a measurement of that group's performance in paying back its Prosper loans. Specifically, the group rating is an expression of a group's performance against expected (historical) default rates.

Group ratings diagram

"Expected default rates" are based on Experian historical default rates.

	Not yet rated Groups are not rated until they have at least 15 total payments billed or at least one late payment
	1 star Underperforms expected defaults by 60% or more
	2 stars Underperforms expected defaults by 20% - 60%
	3 stars Performs within 20% of expected default rates
	4 stars Outperforms expected defaults by 20% - 60%
	5 stars Outperforms expected defaults by 60% or more

Why group ratings?

Group ratings give Prosper members a quantitative way of measuring a group's payment performance in comparison to the historical default rates of its borrowers.

Group ratings help:

Lenders determine whether specific groups are outperforming or underperforming the expected default rates of its borrowers.
Borrowers choose a group to join which has a strong payment history, and therefore attracts more favorable rates from lenders.
Group leaders measure their effectiveness in maintaining strong payment performance in comparison to historical default rates.

What are total payments billed?

The small number next to the group rating is the number of total payments billed for that group. Because group ratings are assigned to groups with as few as 15 total payments billed, this number is an indicator of the group's maturity in loan payments billed.

Statistically, a higher number of total payments billed should indicate a more stable group rating. However, any of a group's borrowers may become delinquent or current at any given time. Therefore, a group with a high number of total payments billed is not guaranteed to have a stable group rating.

How are group ratings calculated?

Group ratings are assigned based on the group's relative performance compared to Experian historical default rates.

A group's performance vs. expected defaults is calculated using the following equation:

Performance = (Actual losses + Projected losses) / Allowed losses

Each of the components of this equation are discussed below.

Actual losses

Equation:

Actual losses = (Defaulted loan 1 principal - Defaulted loan 1 sale price) + ... + (Defaulted loan n principal - Defaulted loan n sale price)

If a group has had loans go to default (that is, loans are sold to a debt buyer), the principal balance of those loans excluding the purchase price from the debt buyer (if applicable) is added together to arrive at the actual losses for the group.

Projected losses

Equation:

Projected losses = (Late loan 1 principal * Probability of loss) + ... + (Late loan n principal * Probability of loss)

Projected losses are the sum of anticipated losses to lenders based on the age and credit grade of the group's current delinquencies. Each delinquent loan is given a probability of loss based on age of delinquency and borrower credit grade:

Lateness	Probability of loss
Lateness	AA - E grades	HR grade
1 month	58%	77%
2 months	72%	90%
3+ months	85%	95%

For example, a B-grade borrower with an outstanding balance of $4,200 who is 2 months late would add a projected loss of $4,200 * 72%, or $3,024, to his group's projected losses.

Allowed losses

Each group loan which has been billed at least once (has reached at least one month in age) contributes to the group's loss allowance.

Equation:

Single loan allowance = (Billed day 1 principal balance * Daily default rate) + ... + (Billed day n principal balance * Daily default rate)

For each group loan, a loan allowance is calculated:

Allowance is not given for days which have not yet been billed. For example, a loan which is 3m 15d old will only have 3m of allowance counted.
Daily default rate is calculated by taking the loan borrower's Experian historical default rate by credit grade, and dividing by a 365-day year. For example, a B-grade borrower (Experian historical default rate of 1.80%) would get a daily default rate of 1.80% / 365, or 0.00493%.
- Borrowers with a debt to income ratio above 20% are assigned the same historical default rate as those at or below 20%

With each loan's allowance calculated, all of the group's loans are added together to come up with the group's overall loss allowance.

Equation:

Group loss allowance = Loan 1 allowance + Loan 2 allowance + ... + Loan n allowance

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