Rising credit report costs cast shadow on FHFA's credit score overhaul

The transition meets resistance over elevated credit report expenses

Rising credit report costs cast shadow on FHFA's credit score overhaul

The Federal Housing Finance Agency (FHFA) is moving forward with its plan to update credit score models and credit report requirements for loans acquired by Fannie Mae and Freddie Mac. However, the rising costs of credit reporting products have raised concerns within the mortgage industry.

For the past nine months, the FHFA has been gathering public comment around implementing new credit score requirements.

In a statement, FHFA director Sandra Thompson noted the importance of public input in ensuring a seamless transition. “We want to hear from market participants and impacted stakeholders to ensure a smooth transition that minimizes costs and complexity,” she said.

In October 2022, the agency approved the FICO 10T and VantageScore 4.0 credit score models for use by Fannie Mae and Freddie Mac. The FHFA expects the adoption of these models to improve the accuracy and reliability of mortgage credit scoring. Following a detailed implementation process, both Fannie Mae and Freddie Mac will require these new credit scores for all single-family loans they acquire.

Additionally, the FHFA plans to update its credit report requirements from a tri-merge to a bi-merge approach. This change, which will require reports from two instead of all three nationwide consumer reporting agencies, aims to stimulate competition while maintaining necessary risk management information. The implementation of this bi-merge requirement is anticipated to occur later than the initially proposed first quarter of 2024.

However, the Mortgage Bankers Association (MBA) has expressed alarm over how credit reports are becoming more expensive, emphasizing its impact on mortgage lenders and borrowers.

“MBA is deeply concerned about the sharply rising costs of the tri-merge credit reports and other credit reporting products, some of which are required in order to originate a loan for sale to the GSEs and for government-insured loans,” said MBA president and CEO Bob Broeksmit. “We have seen the media reports about price increases for the required ‘tri-merge’ credit report that will range from 25% to more than 400% beginning in 2024. This follows a sharp increase that was just put in place earlier this year.”

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Broeksmit also stressed the importance of transparency regarding these escalating costs.

“Today, in light of these media reports about another round of unexplained sharp price increases, we reiterate our concerns about the lack of transparency into the factors that are driving these pricing changes,” Broeksmit added. “Given the unique market structure and limited options for obtaining credit reports and credit scores, MBA urges policymakers to examine the drivers of these cost increases to ensure transparency and to protect consumers from paying higher costs in connection with their home mortgages.”

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