The Federal Housing Finance Agency's
The move from using one merged report containing information from all three bureaus that serve as repositories for consumer payment histories to the option to use two changes a process that a large number of credit operations in the U.S. mortgage industry have been built around.
"All of our systems are geared toward three," said Lisa Binkley, chief operations officer at NCS (National Credit-Reporting System Inc.), a vendor that provides lender support services in this area.
If the original timeline set by the FHFA holds, lenders selling to Fannie Mae and Freddie Mac could be doing underwriting based on two reports rather than three by the first quarter of next year.
That could provide more incentive for the credit bureaus to vie for the mortgage industry's business and potentially cut costs in a broader transition that later will make another credit measure the top three backed, called VantageScore, competitive with a different vendor the GSEs have traditionally used: Classic FICO. FICO will offer an advanced version of its model, which is now exclusively used, called 10T, and a VantageScore 4.0 offering will also be available after the transition.
Ideally, this overhaul will result in helping lenders and the government-sponsored enterprises they sell to identify a broader range of people with the ability to repay than traditional measures or
However, there are mixed opinions on how and when this can be accomplished, in addition to what the outcome will be.
While the credit report change is simpler than the score shift and could help with cost containment in the transition, it still requires some upheaval mortgage companies and other stakeholders may seek to avoid.
One concern about the move raised by Rep. John Rose, R.-Tenn., revolves around whether the competition involved in a switch to just two out of three credit reports is worth removing some information that would otherwise be considered in scoring models.
"The core underwriting data used by lenders — debt-to-income ratio, loan-to-value ratio, and credit scores — could be compromised under a bi-merge due to incomplete data," Rose said in a letter sent to FHFA Director Sandra Thompson in June.
Using two vs. three credit reports wouldn't result in substantially different results according to
The FHFA said in an email response to this publication at deadline that it and the GSEs "value feedback during the implementation period" but didn't immediately have specific responses to it.
Experian and Equifax representatives had not offered an immediate response to inquiries from this publication at deadline. A TransUnion spokesperson said it has been working on related research but it was not available at the time of this writing.
Some mortgage brokers who specialize in helping borrowers get deeper levels of understanding about their loan options have said even small differences in the three credit reports may be worth reviewing.
While it's unclear yet how it will work when the advanced credit models are in place, loan pricing by the GSEs is currently very responsive to specific score bands, noted Helga James, a National Association of Mortgage Brokers board member.
"I would, as a conscientious broker, pull all three bureaus at this point," she said.
Regardless of whether a switch to dual-merged reports would have a significant impact on assessments of mortgage credit risk and loan prices or not, adopting them in the current timeline could add to the work lenders have to do.
Under its proposed timeline published in March and updated in May, Fannie Mae and Freddie Mac's oversight agency plans to publish Classic FICO historical data to support change in credit score calculation from a tri- to bi-merge by the fourth quarter of this year. The FHFA would then follow that with the implementation of the updated credit report requirements. The updated credit scores wouldn't be introduced until after that.
It might be better to introduce the bi-merge as an option later in the game, according to the Housing Policy Council.
"We don't think it makes a ton of sense to potentially spend millions of dollars implementing a system on a model, classic FICO, which we're about to kill," said Matt Douglas, HPC's vice president of mortgage policy.
Some also have questioned whether the bi-merge as an option will ultimately get much use and if the mortgage industry will simply continue to use the three report approach, even if it's more expensive than using just two, if they can afford it.
"When I speak with lenders, I hear a lot of them just kind of loving the tri-merge," said Joanne Gaskin, vice president of scores and data analytics at FICO. "They liked the amount of information there. They liked the process of picking the middle of the three scores, and so I think many might stay there."
Bigger mortgage lenders might consider a bi-merge approach, said James.
"Because big machine shops are pulling hundreds of thousands of dollars worth of credit reports all the time, they're probably going to negotiate prices … and work with the top two," she said.
