Testifying before the House Subcommittee on Housing and Insurance on Wednesday concerning homeownership and the role of the secondary market, Bob Broeksmit beat a familiar drum.
“The GSEs should eliminate the requirement for a tri-merge on every loan and adopt an alternative credit reporting framework that gives lenders the flexibility to order only one report,” the president and CEO of the Mortgage Bankers Association (MBA) said in written testimony provided to the subcommittee, referring to government-sponsored enterprises Fannie Mae and Freddie Mac.
“A single-file framework promotes beneficial competition in the credit reporting space, encourages innovation, streamlines origination processes, and reduces borrower and lender costs that have seen dramatic increases in recent years,” Broeksmit added.
The MBA’s plan calls for phasing out tri-merge credit score requirements in mortgage underwriting — referring to a report that pulls data from all three of the major credit bureaus — in favor of a single-bureau framework for borrowers with an initial credit score pull above 700.
The proposal has been met with growing pushback among mortgage industry participants in recent weeks, some of whom shared their concerns with Scotsman Guide following Broeksmit’s testimony.
The single-bureau plan was also met with pointed criticism by the Community Home Lenders of America last month. That association representing small and midsized independent mortgage banks (IMBs) argued that the plan could ultimately raise borrowing costs through increased risk premiums in loan pricing.
The MBA believes a single-file framework would help offset skyrocketing fees paid to the three main credit bureaus — Experian, Equifax and TransUnion — while introducing long-overdue competition into how consumer data is collected, scored, stored and distributed. Saving credit costs saves loan production costs, the thinking goes, which would get passed on to borrowers as lower fees on home loans.
During the Wednesday hearing, Rep. Troy Downing, R-Mont., asked what Congress should consider as it works on housing affordability legislation “to ensure we are responsibly increasing homeownership.”
“I think there are some immediate steps that can be taken right now, in terms of lowering the loan-level price adjustments at Fannie Mae and Freddie Mac that would give lower rates to borrowers tomorrow,” said Broeksmit.
“I think the mortgage insurance premium at [the Federal Housing Administration] would also do the same thing and lower costs tomorrow,” he added, “and modernizing the credit report requirements would save hundreds of dollars per loan.”
While stakeholders across the mortgage industry broadly agree that credit score reporting needs dramatic modernization — in addition to adjustments to loan-level pricing by Fannie and Freddie — a broad consensus does not agree that the savings of a single-file framework would justify the potential risk that such a move could introduce into mortgage markets.
Recently disclosed internal documents from the Federal Housing Finance Administration (FHFA), which regulates government-sponsored enterprises Fannie Mae and Freddie Mac, indicate that as far back as 2022, the GSEs found that “a single in-file report showed a decrease in accuracy” when it came to mortgage borrower credit assessment.
In annual tax filings, the MBA describes itself as “the national association representing the real estate finance industry,” which the group estimates employs approximately 275,000 people “in virtually every community in the country.” Its membership comprises more than 2,000 companies across residential and commercial mortgage lending, including IMBs, mortgage brokers, commercial banks, thrifts, REITs, Wall Street conduits, life insurance companies, credit unions and others in the mortgage lending field.
Industry sources who were granted anonymity by Scotsman Guide to speak candidly on sensitive issues, some as MBA members themselves, expressed concerns that the association is not representing the views of many of its constituents on the single-file framework proposal.
“That’s why we’re kind of getting perturbed with some of the things that we’re seeing,” one long-time MBA member and continued advocate of the organization told Scotsman Guide. “Are we really getting our money’s worth out of the MBA right now?”
Other industry observers relayed to Scotsman Guide that neither Fannie and Freddie, nor mortgage insurers and secondary investors, are aligned with the processing, pricing and education adjustments that a single-bureau framework may require.
The MBA’s Residential/Single Family Board of Governors (RESBOG) passed a resolution last August to formally call for ending the tri-merge requirement. That board consists of 46 member companies spanning the mortgage lending ecosystem, including lenders of different sizes, servicers, insurers and mortgage service providers.
The resolution did not include a vote on pursuing a single-bureau credit report framework, a spokesperson for the MBA confirmed to Scotsman Guide. Rather, it reflected a “very close to unanimous” decision among members, who “approved a policy calling for an end to the anti-competitive tri-merge requirement.”
The eventual RESBOG consensus on the single-bureau proposal was reached following a review of data and “ongoing discussions since the August vote to come up with a solution to address rising costs and the lack of competition.”
“We have simply asked the GSEs and FHFA to review, release their most recent data, and engage with us and the industry on this proposal and/or a better solution,” the MBA spokesperson stated, adding that RESBOG members “are confident that, with appropriate guardrails and business rules, we can have safe and sustainable mortgage lending based on a single credit report.”
