By: Dan Smith, CDIA President and CEO

The Mortgage Bankers Association is at it again, calling for an end to the tri-merge credit report requirement for Fannie Mae and Freddie Mac mortgages. On the surface, they frame this as a win for consumers. In reality, it’s a proposal that protects lender profits while introducing serious risk into one of the most critical parts of our economy.

Let me be clear: the tri-merge credit report exists for a reason. It promotes data accuracy, market competition, and investor confidence. Eliminating it erodes the integrity of the credit reporting system and shifts risk to borrowers, investors, and taxpayers.

Accurate Data Protects Everyone

Reliable consumer data is the backbone of responsible homeownership. Lenders and investors need to distinguish between manageable risk and unsustainable lending. Accurate, timely, and comprehensive credit reports allow underwriters to price risk appropriately and deploy capital where it does the most good, without putting taxpayers, investors, or borrowers at risk.

Incomplete data leads to two bad outcomes: it either locks out creditworthy borrowers, including first-time buyers and those with thin credit files, or it hides elevated default risk and creates instability. We shouldn’t put taxpayers at risk just to save mortgage companies a few dollars on their bottom line.

Pick the wrong report and consumers will pay thousands of dollars more.

The Real Cost Driver? FICO

The MBA raises concerns about credit reporting costs, but they’re pointing fingers in the wrong direction. FICO has steadily increased its pricing year over year. In fact, FICO’s costs have risen more than 1,600% over the past five years. Their latest proposal doubles publicly disclosed prices from $5 to $10 per score while adding new operational costs and risks for resellers.

Credit reports and scores are delivered together in a bundle, so price increases at the credit reporting agencies and resellers have been driven primarily by FICO’s actions, not the tri-merge requirement itself.

The real solution? Fully adopting credit score competition and getting VantageScore into the marketplace as quickly as possible.

Lenders Already Have Flexibility

Here’s something the MBA doesn’t mention.  Lenders already have choices. During pre-qualification and application stages, they can use full reports from one, or two credit reporting agencies based on their own risk and cost policies, or use a “soft pull,” which is a summary snapshot of a consumer’s credit report. The credit reporting agencies and resellers offer unique, competitive products to help lenders during the underwriting process.

A tri-merge credit report isn’t required until the deal is nearing final pricing or closing. So, what’s the MBA really trying to solve? Not consumer costs or affordability. They’re trying to reduce lender fallout costs, the unrecovered expenses when borrowers abandon mortgage applications after lenders have already paid for credit reports and appraisals.  MBA admits that directly, Bob Broeksmit acknowledged in a podcast with Housing Wire.

Lenders are already permitted to charge consumers upfront for credit reports, just as they do for appraisals. Many simply choose not to do so.

It’s difficult for me to imagine lenders passing these purported savings directly onto consumers. There are many options at a lenders disposal that can save consumers money, such as a cap on origination fees, that do not require a change in federal policy.

The Real Cost to Consumers

A reactive shift to single-bureau reports introduces uncertainty into a complex system that feeds the secondary market. Variances across single credit reports can dramatically impact risk and pricing. The tri-merge adds stability to mortgage lending markets, which are currently sound and enjoying strong liquidity.  A 2023 study showed a 25 to 30-point difference between a borrowers high and low credit scores.  That variance can lead to two dramatically different LLPA price bins for many consumers at a cost of thousands of dollars.

Abandoning tri-merge is likely to drive investors to demand higher risk premiums on all loans. Our estimates show consumers could pay at least an additional 1/8 point or more in interest rates for the life of their loans. For the average loan, that’s nearly $11,000 in additional homeownership costs, far exceeding any purported savings from reduced credit report fees.

There is no scenario that consumers benefit from a single-pull credit report.

A Dangerous Echo of the Past

The MBA’s proposal repeats the type of irresponsible business practices that took place in the early 2000s and cost millions of consumers their homes. Abandoning tri-merge makes no sense, particularly when the Administration is considering significant changes to the secondary market by ending conservatorship and privatizing the GSEs.

This single-bureau model addresses lender business practices, not consumer welfare. It recklessly prioritizes short-term operational convenience over the data quality and market stability that help prevent another 2008-style housing collapse.

The proposal may also create inequities that give larger lenders a clear advantage over small and mid-sized competitors. And it opens the door to issues that could harm consumers, undercutting UDAAP and fair lending laws, the required ability-to-repay analysis, fiduciary responsibility, and safety and soundness obligations.

The Bottom Line

The tri-merge credit report is not broken. It’s a carefully balanced system that protects consumers, investors, and taxpayers. If we’re serious about affordability, let’s focus on the real cost drivers and embrace credit score competition.

We shouldn’t sacrifice data quality and market stability to address business choices and lender margins. Consumers deserve better.