MBA urges GSEs to end costly tri-merge credit reports

The Mortgage Bankers Association announced Wednesday that its Residential Board of Governors has passed a resolution calling for two influential government-sponsored enterprises to end their requirements for tri-merged credit reports.

The move follows FHFA's decision to allow score competition without changing tri-merge rules, and MBA's earlier plan to explore the viability of using a single credit report.

The latest MBA announcement in an online video by President and CEO Bob Broeksmit reaffirms that the group, which has been working to address industry concerns about the rising costs of credit borrower credit checks, won't be content with score reform alone.

"As we are doing with credit scores, MBA is collecting the data and meeting with all the important stakeholders to find a way forward that will increase competition in credit reporting without unduly increasing the risk, or disrupting, the mortgage market," Broeksmit said.

Credit report costs are intertwined with those of scoring models, and what the two combined add mortgage expenses are small on a unit basis compared to some other line items, but as a standard lending requirement in the large GSE market, they add up.

What makes dismantling the tri-merge so complex

Broeksmit's mention of the need for a consensus-building process acknowledges that there have been different views and concerns that have come up in response to past efforts to dismantle the tri-merge.

When the previous leader of the Federal Housing Finance Agency, Sandra Thompson, looked into the possibility of allowing lenders to opt for two rather than three scores, a study done by Standard & Poor's found there wouldn't be much difference.

But other research from one of the credit report providers, Transunion, found some borrowers could be adversely affected and pay up to $6,600 in interest over the lives of their loans.

A FAQ about current FHFA Director Bill Pulte's score initiative indicated that it's not pursuing a change to the tri-merge credit report currently in order to keep things simple.

"By keeping these requirements as they exist today to the greatest extent possible, FHFA is seeking to minimize the cost and complexity," the agency said in its FAQ.

The explanation is in line with industry concerns about the operational change involved in changing ending the tri-merge.

Broeksmit said he anticipates Pulte — who indicated in one of his social media posts that he plans a "full scale review" of the credit bureaus — will be on board with eventually allowing the industry to pull fewer than three reports as is done in some other consumer finance sectors.

FHFA, which Pulte has rebranded U.S. Federal Housing, had not immediately responded to an inquiry about his current position on the tri-merge at deadline.

A group of eight Republican legislators has urged Pulte to take a different tack than his predecessor if he does consider moving the GSEs toward an alternative to the tri-merge, including a formal rulemaking process. 

One of those legislators, Rep. Scott Fitzgerald, R-Wis., last year floated a bill aimed at codifying the tri-merge into law.

But Broeksmit said a need for the tri-merge no longer exists.

"The tri-merge is an outdated relic of a time when data was fragmented and inconsistent, leading to significant disparities between the reports that the different credit reporting agencies had produced," he said. "That is no longer the case."