In the hunt for cheaper housing, politicians and analysts are digging everywhere they can to strike gold. One critical aspect is also increasingly getting its turn in the spotlight: credit pricing.
The traditional standard, the tri-merge, utilizes information from all three major credit bureaus. It gives lenders a fuller picture to make decisions, and it helps borrowers by making sure one bad report doesn’t tank their chances. If you’ve been paying your bills and managing your money responsibly, it gives you the best shot at getting credit.
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But not everyone wants to keep it this way. The Mortgage Bankers’ Association, in a recent letter to the Federal Housing Finance Agency, demanded that the latter dump the tri-merge and instead move to just utilizing one credit report for those who have a credit score over 700.
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This is strange, considering the MBA was sending the FHFA letters months prior, asking for the exact opposite, calling to uphold the current tri-merge system, and warning of possibly increased costs for lenders and consumers.
Under the MBA’s new position, one of its central claims is that relying on all three scores drives up prices for consumers. Many in the industry have already pointed out that it contributes only a few hundred dollars to the dozens of thousands in total average closing costs for homebuyers. However, one of the more glaring and under-discussed causes of those increases is FICO, which has introduced a slew of price-hiking measures, such as its recently announced Direct License Program. While these prices immediately affect lenders, those lenders then obviously pass them on to consumers.
FICO, though it has effectively doubled its public prices over the past year, has not been addressed by the MBA in its monopolistic role. This seems puzzling, but it’s not: Their executives sit on MBA’s board, and the organization has sponsored their conferences in the past.
MBA’s silence on FICO has become harder to ignore. Last week, Sen. Josh Hawley (R-MO) opened a formal Senate Judiciary investigation into FICO’s pricing practices and urged the FTC to do the same, citing their 16-fold per-score price increase over five years and 88% operating margin as hallmarks of their monopoly power.
Some MBA members and mortgage industry experts have even expressed concern with FICO’s tactics and the MBA’s silence on their role in credit reporting costs. Greg Sher, an MBA member and Managing Director of MFN Lending, highlighted that “while the bureaus are guilty… FICO drew first blood, over and over and over and over again,” later adding that they were “the main domino” in rising prices.
Rob Zimmer, a mortgage industry leader, pointed out that FICO “has raised the foundational price of credit pulls 1400% since Fall 2022,” and that the company “has not lost one iota of market share,” calling it ‘the very definition of a monopoly.”
Even those who have expressed an openness to dropping the tri-merge model have been more honest than the MBA about the issues it could cause. Stan Middleman, founder and CEO of MBA member Freedom Mortgage, said that while he thinks “dropping tri-merge is probably ok…[the] problem is that it could encourage credit shopping.”
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What is clear is that the tri-merge system has been used since the 1980s because it saves consumers money over the life of their loan. A new study revealed that around 60% of consumers would see their credit scores affected by the shift, with 25% seeing a change of at least 20 points. For those who are right on the edge, 20 points can be the difference of thousands, even tens of thousands of dollars, over decades of paying off a mortgage. One estimate found that it could add $11,000 to some consumers’ costs.
At a time when Washington is looking to make housing finance more affordable for Americans, we should not be reaching for levers that will do the opposite. The tri-merge score is working for lenders and consumers alike. Let’s not abandon it now.
Aiden Buzzetti is president of the Bull Moose Project.
