FICO is scrapping the
Mortgage lenders in FICO's third tier, the largest group, which already saw the price of credit scores balloon by 400% this year, will see an additional increase of about 25% to 40% in 2024, documents shared with National Mortgage News show.
The 46 large lenders in FICO's first tier, including Rocket Mortgage, were minimally impacted by prior pricing adjustments, but in 2024, the price for a mortgage credit score for them will increase by a whopping 400%, plus the additional 25% to 40% hitting third-tier lenders.
The upsurge in price will push credit score costs up by an additional $2.50 to $3, one industry stakeholder who agreed to speak anonymously said. This hike will ultimately impact consumers.
Organizations like the Community Home Lenders Association voiced concerns about the tiered pricing structure when it was first announced by FICO late last year, calling it "a disparate pricing structure [that] violates basic principles of transparency." FICO, at the time, did not disclose which lenders were grouped in its tier system, and pointed to inflation as the reason for the price increase.
"After careful consideration of the feedback from lenders and other stakeholders in the mortgage market, FICO is moving away from a tier-based pricing structure to one where FICO collects the same per score wholesale price for all lenders in mortgage originations," FICO's spokesperson said in a statement Wednesday. "The revised wholesale pricing aligns with an approach generally desired by the market, and more closely reflects the considerable value FICO scores bring to the mortgage origination process."
"The wholesale price of the FICO score remains a low percentage of the overall cost of a tri-merge report and score bundle, the substantial value of which is derived from the FICO score itself," the spokesperson added.
Meanwhile, the cost for a single borrower tri-merge credit report issued by the three bureaus will be close to $50. A two-person tri-merge will increase to about $100. This will have the same impact on soft credit reports – currently in the $10 range – pushing costs for a single tri-merge soft-pull to about $50 next year.
"Just a handful of years ago we were [in the] $15 to $30 [range] for tri-merges now we're headed to $60/$120 in some cases," Dave Stevens, former FHA commissioner wrote in an email. "It's ironic... mortgage bankers are all losing money. Yet the vendors who feed off of their loans are all making money and raising prices."
Mortgage industry participants reacted with dismay to the FICO changes, with some calling the increases "price gouging."
"At this point, I just have to ask: How is it that so many vendors that support the mortgage lending industry aren't feeling the same economic pain being felt by the very folks they partner with for their business?" Paul Hindman, industry veteran, said in a post.
Greg Sher, managing director at NFM Lending, pointed out in a LinkedIn post Wednesday that the new scheme removes some advantages to soft pulls.
"If a consumer did not qualify based on the initial pull, you could adverse the file and move on. That benefit will soon be gone," Sher wrote. He also noted that soft pulls were helpful in allowing lenders to begin the origination process without causing consumer data to be sold for trigger leads. "Without a cost benefit, this loophole now becomes prohibitively expensive as you can't close a loan with a soft pull — you have to pull a full report behind it."
Taylor Stork, president of the CHLA and COO of Developer's Mortgage Company also came out in opposition to the changes. "CHLA continues to call on federal regulators to explore options to bring this quasi-monopolistic pricing power under some form of control or market discipline and avoid unfair price increases," he wrote.
National Mortgage News also reached out to the credit bureaus for comment.
"Beginning in January 2024, Equifax will have a price adjustment to reflect cost increases from third-party providers of credit reports and credit scores," an Equifax spokesperson wrote in a statement Wednesday. "Equifax is sensitive to the impact these third-party cost increases may have on customers, especially given current market conditions. With this in mind, Equifax is not increasing the costs related to the Equifax credit file component of the tri-merge credit report for 2024."
TransUnion and Experian did not respond to a request for comment.
Higher costs of credit scores, which can be generated multiple times during the mortgage application and even pre-application process, will likely be passed on to the consumer, many sources said. That's especially likely given that nonbank mortgage originators are manufacturing loans at a financial loss.
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