Price increases for credit scores have a trade group for mortgage lenders floating the idea of letting lenders pull one score instead of three.
Mortgage Bankers Association President and CEO Bob Broeksmit said the group has asked Fannie Mae and Freddie Mac’s federal regulator, the Federal Housing Finance Agency (FHFA), to conduct the assessments that would be required to allow the change.
The 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,” Broeksmit wrote in a June 13 blog post.
Under the Biden administration, the FHFA had been moving in the opposite direction, approving a plan in 2022 to move from a tri-merge to a bi-merge credit scoring system.
Instead of pulling one score from each of the three major credit reporting agencies, Fannie Mae and Freddie Mac were going to require lenders to pull two scores — FICO 10T and VantageScore 4.0 — from two credit reporting agencies, for a total of four scores.
With a Q4 2025 implementation deadline for moving to bi-merge having fallen by the wayside — and FHFA Director Bill Pulte complaining he’s “not happy” about price increases levied by the owner of the FICO score algorithm, Fair Isaac — the MBA thinks the time is right to ditch the bi-merge plan altogether.
Moving to 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,” Broeksmit said.
The proposal isn’t likely to sit well with the big three nationwide consumer reporting agencies — Equifax, Experian, and TransUnion — which gather the information about borrowers’ credit history that’s plugged into the Classic FICO scoring algorithm that mortgage lenders have been using for nearly three decades.
TransUnion has opposed plans to move from tri-merge to bi-merge scoring, saying that borrowers might get stuck paying higher mortgage rates.
“Using only two credit scores will often result in an incomplete and inaccurate picture being painted of a potential borrower — particularly if a consumer’s most favorable set of credit data is the one that gets excluded,” TransUnion said in a 2023 analysis.
Broeksmit sees that kind of thinking as outdated, calling the tri-merge system “an anachronism from the days when there were significant disparities in coverage by the credit bureaus.”
It’s a duplicative approach, he said, that “would not be considered if starting from scratch,” as the MBA proposes.
Another industry trade group, Community Home Lenders of America, claims Fair Isaac has raised fees for FICO scores by a total of 700 percent over the last 30 months.
One solution would be to allow mortgage lenders to use competing credit score algorithms like VantageScore, a joint venture of the big three credit reporting agencies.
VantageScore claims that implementation of VantageScore 4.0 by mortgage lenders would boost the eligible pool of mortgage applicants by over 2.5 million borrowers, representing $1 trillion in potential new mortgages.
In a May 27 letter to Pulte, the Community Home Lenders of America proposed letting Fannie and Freddie establish their own credit scoring subsidiaries.
Once proven to be reliable, the companies could be sold off to ensure they continued to serve “as independent umpires that also provide more competition,” the group said.
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