Pulte plans 'full scale review" of credit bureaus

Bill Pulte, the head of an oversight agency for mortgage giants Fannie Mae and Freddie Mac, is planning "a full scale review" of the credit bureaus.

The director of the entity formerly known as the Federal Housing Finance Agency posted the statement on X Friday afternoon, and subsequently indicated on early Monday he also wants to change the wording around another factor in the secondary market that can affect mortgage rates lenders offer consumers.

"We are looking into changing the name of 'LLPA' to just 'pricing," said Pulte, who now calls FHFA U.S. Federal Housing, in a separate social media post. The acronym refers to loan-level price adjustments Fannie and Freddie make for mortgage characteristics that could be negative, such as a low credit score.

Pulte also reaffirmed past statements indicating he's "not happy with" with industry's main score provider, has heard the industry's concern about higher credit cost and plans to take near-term action, in another recent post.

Score provider FICO has downplayed its role in higher credit costs, saying the credit bureaus charge a larger amount. FICO and Vantagescore plans have been on track to implement legislatively-mandated advanced score models for Fannie and Freddie, which Pulte said could proceed if it proved efficient.

How multiple entities and reports impact mortgage credit costs

Efficiency has been a central concern in the mortgage industry's push to implement advanced credit scores and reporting, which could improve the use of alternative indicators to assess borrowers' ability to repay and expand access to safe financing.

There has been debate over whether the mortgage industry's traditional use of a tri-merge credit report, combining data from Equifax, Experian, and TransUnion, is truly necessary.  

A Standard & Poor's study found there wasn't a significant difference in using two credit reports rather than three in line with an FHFA proposed in a Biden era, but separate Transunion research indicated it could cost some borrowers thousands of dollars over the life of their loan.

Some legislators have backed the retention of the trimerge for the time being, saying the research into what ending it would mean to date hasn't been sufficient.

Mortgage Bankers Association President and CEO Bob Broeksmit said in a blog post that his organization is looking into the viability of using a single score. He noted that other industries do this.

One counterargument to using only one score is that mortgages are far larger than other consumer loans and require more careful vetting. 

"The tri-merge credit report reflects the most accurate picture of a consumer's creditworthiness and is an essential driver of safety and soundness in the mortgage ecosystem," Transunion said in a previous statement.

How credit and closing costs in home lending compare

FICO scores have been rising in recent years, markedly increasing from 60 cents to $2.75 in 2023, according to a past company blog by CEO Will Lansing. After it eliminated tiered pricing in 2024, the cost increased to $3.50, or around 15% of a $70 tri-merge report. This year it increased to $4.95.

Anecdotal evidence suggests hard-pull tri-merged reports used in origination (as opposed to a soft pull for qualification purposes) have cost from $50 to $110, according to the CFPB's call for closing-cost feedback last year

"Our profit margin for this product has remained materially unchanged for decades. The only substantial increase in our profit margin occurred in 2016," Transunion said in a response to the closing cost inquiry. Transunion said margin adjustments are made to account for inflation.

FICO does have some influence over the credit reporting agencies' pricing, according to the Community Home Lenders of America.

"While FICO does not set specific prices to the end-use (lender and their customers), their market power allows them to unilaterally raise boundaried wholesale prices to the national CRAs," the trade group noted in a 2024 white paper, adding that the increase gets passed on to resellers.

It's also important to note that credit reporting, scoring, and reselling costs are not the biggest drivers of ancillary mortgage expenses, according to the Consumer Data Industry Association and the CFPB.

"The largest disclosed closing costs are origination fees paid to the lender (including discount points). Title fees (including title insurance, title search, and settlement fees) are the next largest category of closing costs (and loan costs)," the CFPB noted in its request for feedback last year.