The Mortgage Bankers Association (MBA) is formally calling for an end to the “tri-merge” credit report requirement for loans delivered to Fannie Mae and Freddie Mac.
Bob Broeksmit, the association’s president and CEO, said in a video posted to social media Wednesday that the MBA’s Residential Board of Governors passed a resolution advocating for that change.
“As I have said many times, the tri-merge is an outdated relic of a time when data was fragmented and inconsistent, leading to significant disparities between the reports that the different credit reporting agencies produce. That is no longer the case,” Broeksmit said.
He continued: “If anyone were designing a new system from scratch, they would never design a system with that sort of redundancy that increases costs, offers borrowers and lenders no choices, and provides scant tangible benefit.”
Tri-merge vs. bi-merge
Tri-merge means a credit report that pulls information from all three of the major credit bureaus: Equifax, Experian and TransUnion.
Prior to July 8, Classic FICO was the only tri-merge report accepted by Fannie and Freddie. That changed when Federal Housing Finance Agency (FHFA) Director Bill Pulte announced that the government-sponsored enterprises (GSEs) his agency oversees would begin accepting VantageScore 4.0 in addition to the FICO model.
Notably, Pulte’s social media post announcing the change indicated that the tri-merge requirement would remain for either FICO and VantageScore reports.
Pulte’s predecessor as FHFA chief, Sandra L. Thompson, had announced plans to shift to a “bi-merge” model that would require data pulls from just two credit bureaus. Those plans were placed on indefinite hold in January, shortly after it was reported that Thompson intended to resign.
In an interview with Scotsman Guide last week, Pulte said shifting to a bi-merge model is still a possibility, but the FHFA’s main focus at the moment is expanding competition in the credit scoring landscape.
“The situation right now calls for kind of an interim step, and so we are just pausing [bi-merge] for the interim, keeping tri-merge just to make things as easy as possible for everybody,” Pulte said.
No merge?
In June, prior to Pulte’s VantageScore announcement, Broeksmit penned a blog post titled “Could a Single Credit Report Model Work for the Mortgage Industry?”
He argued that in a truly competitive market, a single-report requirement would both lower costs and lead to higher-quality services.
“In recent months, we have begun studying the feasibility of a single credit report for GSE and government-guaranteed loans,” Broeksmit wrote. “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.”
The MBA head added that preliminary discussions with the association’s members suggested 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,” Broeksmit stated.
In this week’s video, he stressed the MBA is still in the data-collection phase of evaluating potential paths toward credit score modernization.
“MBA is collecting the data and meeting with all the important stakeholders to find a way forward that will increase competition and credit reporting without unduly increasing risk or disrupting the mortgage market,” Broeksmit said.
