TransUnion study pushes back on single-score concept

A credit reporting agency on Monday morning responded to an industry proposal to look into ending the tri-merge with a study finding it even more harmful to borrowers than a two-score pull.

Although an earlier Standard & Poor's study found a bi-merge alternative to the status quo in the mortgage industry could be viable, TransUnion research shows eligibility and mortgage rates could be adversely affected for millions in both that instance and with one score.

The credit reporting agency indicated 4.4 million consumers could be adversely impacted with a single score, compared to a 2023 study in which TransUnion found nearly 2 million would no longer qualify in the case of a bi-merge.

"A 'single-pull environment creates significant risk that strong borrowers will lose access to credit while additional at-risk borrowers find themselves in a mortgage they can't afford," Satyan Merchant, senior vice president, mortgage and automotive, at TransUnion said in a press release.

"In the long run, that creates fresh risks for investors and threatens the safety and soundness of a mortgage market with tremendous taxpayer exposure," he added.

The study also finds that a group of borrowers would collectively pay an additional $6.5 billion with single pull as opposed to $4 billion for a bi-merge. There also have been questions about whether using less data to assess borrowers adequately measures their risk.

The release of the study follows a call from the Mortgage Bankers Association earlier this year to look into the feasibility of ending the tri-merge long embedded in the home lending system as the costs of credit reporting and scoring have risen.

The MBA is in the midst of its annual conference and plans to discuss related matters at a session later today.

A secondary market-driven push for more competition

US Federal Housing Director Bill Pulte, who oversees two influential government-related mortgage buyers, has responded to calls for more competition in the credit metrics by moving forward with plans to add VantageScore 4.0 and encourage competition between CRAs.

(USFH is Pulte's rebranding of the Federal Housing Finance Agency. FHFA oversees two government-sponsored enterprises currently held in conservatorship, Fannie Mae and Freddie Mac. The two currently buy many U.S. loans and potentially could launch a new stock offering. )

All three major credit reporting agencies have taken steps to respond, with TransUnion offering a discount for use of VantageScore 4.0. The move underscores past reports of VantageScore's growth in its low mortgage market share, with the company noting it grew 74% in the past year. 

Competitor FICO also has reported gains as the credit score providers and the government-related loan buyers' plans for adopting advanced metrics have moved forward.

While the GSEs are still in the process of adopting advanced scores, mortgage companies can opt to use them for loans made in the private market, such as those made outside the typical qualified mortgage definition.

VantageScore involves a collaboration between the major credit-reporting agencies.. It has some protocols for walling itself off from their influence.

As FICO has released a new pricing program that lets mortgage resellers bypass the three major credit bureaus , Equifax and Experian also have launched incentives for use of VantageScore 4.0.