A brewing battle between the mortgage lending industry and credit reporting agencies boiled over this week, with the Mortgage Bankers Association (MBA) and the Consumer Data Industry Association (CDIA) exchanging sharp public critiques over a proposal to end the longstanding “tri-merge” credit report requirement for a bucket of borrowers.
At the center of the dispute is an MBA proposal submitted to the Federal Housing Finance Agency (FHFA) in December. The trade group asked for — and continues to insist on — allowing Fannie Mae and Freddie Mac to accept a single credit report for borrowers with credit scores of 700 or higher. Currently, the government-sponsored mortgage giants mandate a tri-merge report, which requires data from all three national credit reporting agencies: Equifax, Experian and TransUnion.
In a blog post released Thursday, MBA President and CEO Bob Broeksmit argued that the current system operates as a government-sanctioned “oligopoly” — reiterating a criticism he made in earlier posts — that stifles competition and increases costs for consumers. He noted that while mortgage origination volumes have plummeted to 30-year lows, the cost of credit reports has spiked by 400% in recent years.
In recent weeks, the MBA has fired back at the CDIA and other industry participants in defense of its support for ending the tri-merge requirement.
The MBA reasons that moving to a single-file option would introduce much-needed market discipline. The association contends that if lenders can choose which bureau to use for high-quality borrowers, the bureaus would be forced to compete on price and service quality.
Broeksmit emphasized that the MBA is proposing an optional avenue for lenders, not a mandate, and that lenders could still pull additional reports if necessary.
The CDIA, which represents the credit bureaus, had responded to Broeksmit’s Jan. 22 blog post critiquing the status quo. The trade group warned that abandoning the tri-merge standard invites the kind of systemic risk that led to the 2008 financial crisis.
Dan Smith, CDIA’s president and CEO, argued in a blog post that a single-bureau framework could miss critical data and result in inaccurate scoring.
According to data cited in Smith’s post, there could be at least a 25-point difference between a consumer’s highest and lowest credit scores, depending on the source. This, the CDIA posits, could lead to incorrect risk pricing, which would eventually cost consumers more by subjecting them to increased loan-level pricing adjustments from Fannie and Freddie.
The CDIA also disputed Broeksmit’s pricing allegations, asserting that the price hikes have been driven by Fair Isaac Corp. (FICO), rather than the bureaus themselves. FICO’s credit scoring model has long been the mortgage industry standard, though the FHFA has taken steps to add VantageScore 4.0 to the mix, a model created by an independent company jointly owned by Equifax, Experian and TransUnion.
To support this claim, the CDIA noted FICO has raised its royalty fees by 1,600% over the past five years. Moreover, the CDIA maintains that the MBA’s proposal would raise prices, perhaps by as much as $11,000 for some borrowers.
In Broeksmit’s Jan. 29 rejoinder to the CDIA’s critique of his previous Jan. 22 blog post, he dismissed the risk pricing concerns as “trying to instill fear into the debate.”
