To the Point With Bob: Could a Single Credit Report Model Work for the Mortgage Industry?
(To the Point with Bob is a periodic blog by MBA President & CEO Bob Broeksmit, CMB.
You can view this and past blogs here)
Federal Housing Finance Agency (FHFA) Director Bill Pulte – both onstage last month at MBA Secondary and in several media interviews – has stressed that he is focused on lowering consumer costs and improving efficiency across the mortgage ecosystem.
MBA supports these efforts – especially with respect to finding a solution to the anticompetitive market and associated costs for tri-merge credit reports and other credit reporting products.
We have consistently advocated for competition in the credit reporting and score space and have urged policymakers to examine the drivers of recent steep price increases for these services to ensure transparency and to protect consumers from unnecessarily paying higher mortgage closing costs.
Currently, lenders are required to pull three credit reports to originate GSE or government loans, but could a single credit report model be a safe and better option?
In a truly competitive market, a single-report requirement would lead to both higher-quality services and lower costs. Unfortunately, government mandates for a tri-merge report have insulated providers from competitive pressures, allowing them to raise prices with little regard for quality, performance, or innovation.
Despite the number of mortgage originations falling to levels not seen since the mid-1990s, the three national credit bureaus have posted significant earnings gains in their mortgage market segments, driven by their ability to raise prices in a down market.
There has to be a better way.
In recent months, we have begun studying the feasibility of a single credit report for GSE and government-guaranteed loans. A single file/single score approach would mirror that of most other consumer finance markets, including home equity loans and auto loans – which have seen success with this structure.
This success has been brought about by many factors, including the evolution and modernization of credit data reporting. Gaps in coverage or quality that may have existed decades ago appear to have closed.
Early indications from discussions with our members strongly suggest that a single report for mortgages would be feasible without posing undue risk to the GSEs. While a tri-merge is required for GSE loans, the GSEs do not use credit scores to make credit underwriting decisions, and there appears to be limited additive value in the data contained in multiple reports.
We intend to continue our investigation further.
The tri-merge is an anachronism from the days when there were significant disparities in coverage by the credit bureaus. This duplicative approach would not be considered if starting from scratch. That is why we are engaging with the Trump administration, and specifically FHFA, to conduct the assessments needed to reform this process and align with the rest of the consumer finance market.
In a recent letter, MBA asked FHFA to share their expertise on the issue and join in the conversation to consider ways to lower credit reporting costs. We look forward to continuing this work and hope this can be a step forward for consumers.
MBA believes strongly that creating real competition in the market for credit reports — done in a safe and sound manner with an appropriate implementation plan — will reduce costs for homeowners and streamline origination processes.
What are your thoughts on moving toward a single credit report structure? Don’t hesitate to reach out to me (bob@mba.org) or a member of our Residential Policy team with your thoughts, relevant data, or other ideas.
