The debate about credit reports in mortgage lending has taken a turn lately. Faced with rising mortgage origination costs and ongoing affordability challenges for homebuyers, policymakers and industry leaders are understandably looking for ways to reduce friction and reduce costs in the mortgage process. Another proposal advanced is the adoption of a single credit reporting agency for loans submitted to Fannie Mae and Freddie Mac.
At first glance, this idea may seem appealing; Fewer offices and less data can mean lower upfront costs. Lower costs, in theory, could mean greater access to home ownership. These are ideal principles, and anyone who works with first-time home buyers, minority borrowers, and veterans share them. Of course I do.
But before we can turn theory into policy, we must pause and ask the hard questions.
This debate did not start yesterday. The cost of credit reports has not suddenly increased in the past six months. The inflection point dates back to late 2022, when the Federal Housing Finance Agency (FHFA) proposes for the first time the adoption of a “dual compounding” credit report with new scoring models.
Immediately after that announcement, the prices of the loans increased by 400%, but only in a small part of the large institutions that were given special rates. This is what happens when there is no real competition.
And that’s where our focus should be – on the cause of our problems (lack of competition) – not on mitigating the damage to the slice of the mortgage market that’s mostly targeted at refis and higher FICO borrowers than first-time homebuyers.
The first question we should ask is simple: what data are we willing to ignore? Each of the three national credit bureaus receives different information from different suppliers. This is not a mistake; it is a structural fact of the credit ecosystem. In any borrower’s file, certain trade lines appear in two bureaus but not in the third. Student loans, installment loans, checking accounts, and even late payments aren’t always reported the same way.
Under a single bureau regime, which bureau controls the credit decision? More importantly, who chooses? If borrowers or lenders can’t choose the bureau that produces the best summary, we no longer measure creditworthiness—we choose you. That introduces subjectivity, risk, and uncertainty into a system that should be designed to mitigate those factors.
Ask yourself the question: if using a single credit report is such a good idea, why are so few portfolio lenders – whose money is at stake – using this approach?
We’ve seen this movie before. In the years leading up to the Great Financial Crisis, the industry relied heavily on narrow indicators while ignoring the overall financial profile of the borrower, such as ability to repay.
The resulting mortgage meltdown taught us that we should not be indifferent to the GSEs simply because taxpayers – not lenders – are at risk of loan losses. Lenders should not be lulled into a false sense of security just because Fannie and Freddie buy the loans, as repurchases can result when one bureau fails to flag damaging information on a borrower.
The second question we need to ask is about measuring risk. How do we measure the increased risk presented when known data is deliberately excluded from underwriting?
We have one indicator of the first objective of impact. Recently, a Housing Policy Council (HPC) FOIA release. he pointed out the analysis done by the FHFA that “the single-file report showed a decrease in reliability in predicting borrower performance.”
But the honest answer is that we cannot easily quantify the increased risk caused by the uncertainty of the information limit on a borrower’s credit record. And that alone carries a premium. Investors will want it. MBS sellers will pay it. And MSR ratings will reflect that. And the rating sheets will feel.
Therefore, even if a borrower saves a small amount of money by accepting an imperfect credit report, those savings may be offset by higher mortgage rates quoted by consolidators, or higher fees charged by mortgage insurers (MIs), or higher LLPAs charged by Fannie and Freddie, or by reduced liquidity in the secondary mortgage market.
That brings us to the third question, which is often overlooked: who benefits most from this proposal for a single office model? The answer is simple: well-heeled borrowers looking to repay their loans.
Underserved home buyers, who make the most of FHA, VA, and USDA loans, would not benefit if those programs did not follow suit. These borrowers can even be harmed if their lenders are encouraged not to check on these loans, because that would increase the cost of borrowing.
Finally, there are broader, strategic considerations that require serious attention.
The Trump Administration wants to get Fannie Mae and Freddie Mac out of conservatorship, whether through a recapitalization, IPO, or other capital markets solution. Any such approach depends on investor confidence in the GSE’s risk management, data integrity, and underwriting discipline.
Introducing a structural change that embeds disproportionate credit risk into the core of the GSE business model doesn’t strengthen that confidence—it undermines it.
This does not mean that we should do nothing. The cost of a credit report is very high. Market focus is real. Price blurring is a problem. These issues require action.
But there are better measures to pull — like restoring competition to credit scoring, re-examining pricing practices, cutting LLPAs that burden first-time buyers, and other changes that lower costs without sacrificing data quality and safe lending.
Affordability is important. But safety and health are very important. We shouldn’t – and shouldn’t – choose between them. But we have to ask the right questions.
When it comes to the proposal of one credit bureau, we should look before we leap.
Taylor Stork, CMB is President of Community Home Lenders of America (CHLA), and Chief Operating Officer of Developer’s Mortgage Company.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners. To contact the editor responsible for this piece: [email protected].
