Equifax Unveils Its New ARM Predictor

Dec 2nd, 2007 @ 4:50 PM by Alden Smith

Equifax, the credit reporting agency, has unveiled is new ARM predictor to help lending institutions determine if a person applying for a loan is to be placed into the sub prime category, and thus receive an ARM mortgage.  Consumer advocates fear that this will not only spook lending institutions, but hurt borrowers as well.

Previously, a lot of borrowers who qualified for a conventional mortgage were lured into an ARM, making it more profitable for the lender.  Now they are doubly hurt by this newest strategy.  Even if situations are such that Equifax or other credit reporting agencies have made errors – which is all too common – a well qualified candidate would just be out of luck.

TransUnion is now working on the same strategy.  Experian, according to the Huntington News, could not be reached for comment.

How It Works

The system is based on a 1-5 rating system. A score of 1 means you are okay, and a score of 5 means you have an 80% chance of being socked with a sub prime ARM mortgage.  David Rubinger, a spokesman for Equifax, said “This is a way for the consumer to be protected from having too much credit at a time they could be most vulnerable. For the lender, it’s a way to help minimize risk.”

What The Financial Experts Think

Financial experts aren’t too crazy about this plan.  Their concerns are that it echoes the universal default, so common in credit reporting agencies.  Under the default, a credit card company is allowed to raise a customer’s interest rate if he makes a late payment with another creditor. This system is quite suspect.

The ripple effect this will have on the economy is something we will have to wait and see about.  Personally, I do not see this as a good thing.  If the financial experts are comparing this to the universal default, the economy is probably in for a rude awakening.