Research Warns Against Changing Mortgage Underwriting Standards
New research from Andrew Davidson & Co., Inc. demonstrates potential negative consequences of moving away from the tri-merge credit report standard in mortgage underwriting. The study suggests that using a bi-merge or single-report standard could lead to less accurate mortgage pricing and qualification. The firm argues this added uncertainty may ultimately increase costs for both consumers and investors.
- The push to move away from the tri-merge standard, which combines credit reports from Equifax, Experian, and TransUnion, is largely driven by groups like the Mortgage Bankers Association, who argue it would streamline the mortgage process and reduce costs. - Research from TransUnion, a major credit bureau, warns that a "single-pull" model could make over four million prospective homebuyers ineligible for a mortgage and might lead to an aggregate of $6.5 billion in additional interest payments for others. - The study by Andrew Davidson & Co., Inc. found that for a $350,000 government-sponsored enterprise (GSE) loan with a 90% loan-to-value ratio, using a single credit report could change the cost of borrowing and mortgage insurance by $3,000 to $5,000 over the loan's life. - In October 2022, the Federal Housing Finance Agency (FHFA) announced a move toward a bi-merge requirement, allowing lenders to use reports from two of the three major credit bureaus. However, by July 2025, the FHFA clarified that the tri-merge requirement would continue to be followed as they move to allow lenders a choice between Classic FICO and VantageScore 4.0 credit score models. - The debate over underwriting standards occurs as the cost of tri-merge reports has been rising. Industry experts reported price increases of 25% to over 400% in early 2024, following other sharp increases the previous year. For a single borrower, the cost of a tri-merge report can now be around $50, and $100 for a joint report. - Historically, each of the three major credit bureaus had regional strengths, making a tri-merge report essential for a complete national picture of a borrower's credit. While data collection has become more national, proponents of the tri-merge standard argue that not all creditors report to all three bureaus, making the combined report the most accurate.
