CollectionsX.com, a Web site that stages auctions of distressed debt portfolios, has introduced a scoring model that assesses how collectable the debts in a portfolio really are, and says it can give bidders the most accurate portrait of how much they might be able to collect from a chunk of receivables that is up for sale.

While lenders commonly score delinquent and charged-off accounts to determine the likelihood of ever getting paid, CollectionsX said its model, devised by the Atlanta-based credit bureau Equifax, can tell bidders not only whether, but how much they can expect to collect in six months.

"Our scoring formula is designed to predict value - other models are concerned with the probability of collecting but not how much you're going to collect," said Alec Smythe, chief executive officer and co-founder of CollectionsX, also in Atlanta.

The formula, which the company calls Xvalue, factors in people's credit files plus other data, such as whether account holders own or rent their homes, and how long they have lived there. CollectionsX tested the formula in September by applying it to previously auctioned portfolios as they appeared at the time of sale. Since the company already knew the outcome of those portfolios - how much was collected - they could compare that information against scores they had blindly generated with the formula.

The company said Xvalue proved more accurate than other models that predict collectability. "We tested it against other scores, and it beat them," said Patrick Beharelle, president and co-founder of CollectionsX.

Daniel Dierker, vice president of analytics and consulting at Equifax, whose department developed the CollectionsX model, said that looking at some non-credit related "behavioral characteristics" was especially useful to determine the collectability of this population of consumers, whose accounts have proven so difficult to collect that the company that owns them has put them on the block.

"If you think of the credit world as a funnel, there are those who are fairly clean, those who are delinquent but not past due, and those with charged-off scores who didn't pay," Mr. Dierker said. "These accounts are charged off and being made available to another organization."

Since CollectionsX's formation in January, more than $900 million of debt has appeared on its Web site, and about $150 million has been sold. Companies that want to bid on portfolios there can join the site and bid free, but must pay to see an evaluation of the portfolios.

Mr. Dierker said scoring devices that measure collectability are especially useful in an auction setting, where bidders can learn the differences between portfolios that appear to be worth the same amount of money. "If you're looking at two loans, each with $1,000 balances, and you learn that $100 is collectable from one and $500 is collectable from the other, then obviously the second has more value," he said.

However, CollectionsX cautions members to consider the score "a benchmark in your due diligence, not as a bidding tool." The company also issues a disclaimer. "While we believe that portfolios with higher Xvalues will yield higher recovery dollars than those with lower Xvalues, collectability depends on factors beyond credit file information."


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