The
conversation
around
credit
reports
in
mortgage
lending
has
taken
a
recent
turn.
Faced
with
spiraling
mortgage
origination
costs
and
continued
affordability
challenges
for

homebuyers,
policymakers
and
industry
leaders
understandably
are
searching
for
ways
to
reduce
friction
and
cut
costs
in
the
mortgage
process. 
One
proposal
being
advanced
is
the
adoption
of
a
single-bureau
credit
report
for
loans
delivered
to

Fannie
Mae
and
Freddie
Mac.

At
first
glance,
the
idea
may
seem
appealing;
fewer
bureaus
and
less
data
could
mean
lower
upfront
costs.
Lower
costs,
in
theory,
could
mean
greater
access
to
homeownership.
These
are
worthy
goals,
and
anyone
who
works
closely
with
first-time
homebuyers,
minority
borrowers,
and
veterans
shares
them.
I
certainly
do.

But
before
we
turn
theory
into
policy,
we
should
pause
and
ask
the
hard
questions.   

This
debate
did
not
begin
yesterday.
The
cost
of
credit
reports
did
not
suddenly
spike
in
the
last
six
months.
The
inflection
point
traces
back
to
late
2022,
when
the
Federal
Housing
Finance
Agency
(FHFA)
first
proposed
the
adoption
of
a
two-bureau
“bi-merge”
credit
report
alongside
new
scoring
models. 

Shortly
after
that
announcement,
credit
score
prices
increased
by
400%,
but
for
a
small
subset
of
large
institutions
that
were
granted
preferential
pricing.
This
is
what
happens
when
there
is
no
real
competition. 

And
this
is
where
our
focus
should
be
–
on
the
cause
of
our
problems
(lack
of
competition)
–
not
on
mitigating
the
damage
for
a
slice
of
the
mortgage
market
that
is
geared
more
towards
refis
and
high
FICO
borrowers
than
on
first-time
homebuyers. 

The
first
question
we
should
ask
is
simple:
what
data
are
we
willing
to
ignore?
Each
of
the
three
national
credit
bureaus
receives
different
information
from
different
furnishers.
This
is
not
a
flaw;
it
is
a
structural
reality
of
the
credit
ecosystem.
In
any
given
borrower’s
file,
certain
trade
lines
appear
on
two
bureaus
but
not
the
third.
Student
loans,
installment
debt,
revolving
accounts,
and
even
late
payments
are
not
always
uniformly
reported.

Under
a
single-bureau
regime,
which
bureau
controls
the
credit
decision?
More
importantly,
who
chooses
it?
If
borrowers
or

lenders
can
select
the
bureau
that
produces
the
most
favorable
snapshot,
we
are
no
longer
measuring
creditworthiness—we
are
curating
it.
That
introduces
subjectivity,
risk,
and
uncertainty
into
a
system
that
should
be
designed
to
reduce
those
factors. 

Ask
yourself
a
question:
if
using
only
one
credit
report
is
such
a
great
idea,
why
are
so
few
portfolio
lenders
–
who
have
their
own
money
at
risk
–
using
this
approach? 

We
have
seen
this
movie
before.
In
the
years
leading
up
to
the
Great
Financial
Crisis,
the
industry
relied
too
heavily
on
narrow
indicators
while
ignoring
the
totality
of
a
borrower’s
financial
profile,
such
as
ability
to
repay.  

The
resulting
mortgage
meltdown
taught
us
we
must
not
care
less
about
the
GSEs
just
because
taxpayers
–
and
not
lenders
–
are
on
the
hook
for
loan
losses. 
Lenders
should
not
be
lulled
into
a
false
sense
of
security
just
because
Fannie
and
Freddie
are
buying
the
loans,
since
repurchases
could
result
when
a
single
bureau
fails
to
flag
detrimental
information
on
a
borrower.

The
second
question
we
should
ask
concerns
risk
measurement.
How
do
we
quantify
the
incremental
risk
introduced
when
known
data
are
intentionally
excluded
from
underwriting? 

We
do
have
one
early
objective
indication
of
the
impact. 
Just
recently,
a


Housing
Policy
Council
(HPC)
FOIA
release
revealed
an
analysis
by
the
FHFA
that

“a
single
file
report
showed
a
decrease
in
reliability
in
predicting
borrower
performance.”

But
the
honest
answer
is
that
we
cannot
easily
quantify
the
increased
risk
resulting
from
the
uncertainty
of
limiting
information
on
a
borrower’s
credit
record. 
And
that
alone
carries
a
premium.
Investors
will
demand
it.
MBS
traders
will
price
it.
And
MSR
valuations
will
reflect
it.
And
rate
sheets
will
feel
it. 

So,
even
if
a
borrower
saves
a
small
amount
of
money
by
accepting
a
less
comprehensive
credit
report,
that
savings
will
likely
be
overwhelmed
by
higher

mortgage
rates
quoted
by
aggregators,
or
by
higher
fees
charged
by
mortgage
insurers
(MIs),
or
by
higher
LLPAs
charged
by
Fannie
and
Freddie,
or
by
reduced
liquidity
in
the
secondary
market.

That
brings
us
to
a
third,
often-overlooked
question:
who
benefits
the
most
from
this
single-bureau
model
proposal? 
The
answer
is
simple:
well-heeled
borrowers
seeking
to
refinance
their
loans.  

Underserved
homebuyers,
who
predominately
use
FHA,
VA,
and
USDA
loans,
will
receive
no
benefit
if
as
likely,
those
programs
do
not
follow
suit. 
These
borrowers
would
even
be
harmed
if
their
lenders
are
incentivized
not
to
explore
such
loans,
because
that
would
increase
credit
pull
costs.

Finally,
there
is
a
broader,
strategic
consideration
that
deserves
serious
attention. 

The
Trump
Administration
wants
to
take
Fannie
Mae
and
Freddie
Mac
out
of
conservatorship,
whether
through
reprivatization,
an
IPO,
or
some
other
capital-markets
solution.
Any
such
path
depends
on
investor
confidence
in
the
GSEs’
risk
management,
data
integrity,
and
underwriting
discipline.

Introducing
a
structural
change
that
embeds
unquantifiable
credit
risk
into
the
core
of
the
GSE
business
model
does
not
strengthen
that
confidence—it
undermines
it. 

This
does
not
mean
we
should
do
nothing.
Credit
report
costs
are
too
high.
Market
concentration
is
real.
Pricing
opacity
is
a
problem.
These
issues
demand
action. 

But
there
are
better
levers
to
pull
–
like
restoring
competition
in
credit
scoring,
reexamining
pricing
practices,
cutting
LLPAs
that
disproportionately
burden
first-time
buyers,
and
other
reforms
that
reduce
cost
without
sacrificing
data
quality
and
safe
lending.

Affordability
matters.
But
safety
and
soundness
matter
just
as
much.
We
should
not
–
and
do
not
have
to
–
choose
between
them. 
But
we
do
have
to
ask
the
right
questions. 

When
it
comes
to
a
single
credit
bureau
pull
proposal,
we
must
look
before
we
leap.

Taylor
Stork,
CMB
is
President
of
the
Community
Home
Lenders
of
America
(CHLA),
and
is
Chief
Operating
Officer
of
Developer’s
Mortgage
Company

This
column
does
not
necessarily
reflect
the
opinion
of
HousingWire’s
editorial
department
and
its
owners.
To
contact
the
editor
responsible
for
this
piece: [email protected].