Adjusted Rate Mortgage Alert

Consumers with an ARM display increased risk regardless of credit score or portfolio type.

Consumers with an adjustable rate mortgage (ARM) pose an increased risk and ARM resets will continue to challenge our customers into future years. Now you can identify through an alert on the credit report whether a consumer has an ARM loan.

Key facts about ARMs:

• Consumers with an ARM pose an increased risk of default
• Four times more likely to default on a credit tradeline than consumers without an ARM
• Risk of default further increases once the ARM resets
• Not only a subprime issue but impacts consumers across score bands
• ARM consumers carry higher average balances  
• Carry average balances ~50% higher on credit cards
• Carry average balances ~30% higher on Helocs
• Average auto loan for a consumer with an ARM is ~20% higher
• ARM resets are not a concern of the past
• Majority of initial ARM resets have not yet taken place
• Many future resets will impact the prime and super-prime population, a group that traditionally has been considered lower-risk
• Wave of Option ARM resets has just started

Identifying consumers with an ARM offers a unique perspective into a consumer s current and future financial health. It offers direct access into a riskier consumer population. ARM data points allow for a more thorough understanding of an ARM consumer s financial position and how that will change at the time of reset. Some examples:

• Understand a consumer s current mortgage payment and debt load
• Determine how a consumer s mortgage payment will change at reset
• Calculate forward looking debt-to-income and assess the impact to their capacity-to-pay
• An ongoing process that looks not just at the initial reset but all the subsequent resets as well

Visibility allows lenders to incorporate an ARM consumer s current and projected future financial situation within their front-end decisions

In addition to the credit report, the ARM Alert is also available as an add-on to Acquire products

Portfolio Sizing Analysis*

• TransUnion analysis shows that approximately 15% of customers in the average credit card portfolio have adjustable rate mortgages
• The combination of higher charge-offs and severities have significant implications for your institution
• Sample analysis shows that 10% of these consumers will default on this credit card or another credit card
• For a portfolio of 1,000,000 customers, this impacts approximately 15,000 customers
• Overall, consumers with an ARM carry credit card balances 80% higher than consumers without an ARM
• For a portfolio with an average balance of $5,400** for ARM-holders, the implied total potential loss is $81,000,000

* Note, portfolio estimates can vary significantly depending on portfolio type (prime, subprime), geography (FL, CA, etc.), product type (mortgage, bankcard etc.). ** Assumes average non-ARM card-holder balance of $3000