Homebuyers in the United States are facing yet another headwind in an already challenging market: rising fees for mortgage credit checks. The cost for lenders to pull credit reports from the three major credit bureaus – Equifax, Experian, and TransUnion – has surged, with increases ranging from 40% to 50% in , marking the fourth consecutive year of price hikes.
While these fees represent a relatively small portion of overall closing costs, they add to the financial burden for prospective homeowners already grappling with high mortgage rates and elevated home prices. According to a letter from the Mortgage Bankers Association (MBA) to Federal Housing Finance Authority (FHFA) Director Bill Pulte, dated , the average increase could be between 40% and 50% this year.
The core of the issue lies in the “tri-merge” report requirement, which mandates lenders obtain reports from all three credit bureaus. The MBA argues this requirement stifles competition and drives up costs, ultimately passed on to borrowers. Industry groups have criticized the lack of options, suggesting that for borrowers with strong credit – a score of 700 or higher – a single credit report should suffice.
The rising costs are also linked to changes in credit scoring systems, such as the introduction of VantageScore 4.0, and adjustments to pricing models by the credit bureaus. FICO, a major player in credit scoring, recently announced a direct-to-lender score option, bypassing the credit bureaus, but this has also been met with scrutiny. According to the Mortgage Industry Calls Foul on Latest Fee Hikes From FICO, FICO is doubling its price from $4.95 to $10 per score.
Despite the increased costs, the FHFA is studying “a variety of options to fix the housing market,” according to a spokesperson, but has not yet indicated whether it will consider allowing lenders to rely on a single credit report for borrowers with high credit scores. The agency oversees Fannie Mae and Freddie Mac, the government-sponsored enterprises that purchase the vast majority of mortgages on the secondary market.
Currently, lenders selling mortgages to Fannie and Freddie are generally required to use a tri-merge report. However, Fannie Mae announced in that applications processed through its automated underwriting system would no longer require a minimum credit score, though most homebuyers still maintain scores well above the minimum.
The average credit score for first-time homebuyers was 734 in , according to data from the Federal Reserve Bank of New York, while repeat buyers averaged 775. This suggests that a significant portion of the homebuying population would likely benefit from a change to the tri-merge requirement.
The cost of these credit checks, while a small percentage of total closing costs, is nonetheless drawing attention. Closing costs typically range from 3% to 6% of the loan amount, encompassing loan origination fees, underwriting fees, agent commissions, appraisals, and inspections. For a $350,000 mortgage, this translates to between $10,500 and $21,000.
One loan officer, Al Bingham of Momentum Loans in Sandy, Utah, shared an example of a 40.4% year-over-year increase in the cost of a basic tri-merge report, rising to $47.05 in from $33.50 the previous year. He noted that this is on the lower end of the price increases being observed.
Lenders typically pull a borrower’s credit report twice during the home-buying process – once at application and again shortly before closing – meaning the cost can quickly add up, particularly for couples. The cost for a couple could be quadruple the individual applicant rate.
While the MBA and some lenders are pushing for reform, the Consumer Data Industry Association (CDIA), representing the credit reporting firms, argues that the tri-merge report promotes data accuracy, market competition, and investor confidence. The CDIA also points to FICO’s pricing increases as a key driver of the rising costs, while FICO maintains it has no control over how its score is priced by others.
Further complicating the landscape is the potential adoption of VantageScore 4.0, which considers alternative data like rent and utility payments. The FHFA approved its use, but lenders are awaiting further guidance before implementation. FICO 10T, another score incorporating alternative data, has also been approved but similarly awaits further direction from the FHFA.
The debate over mortgage credit check fees highlights the complex interplay between credit bureaus, scoring models, lenders, and regulators, and the ongoing challenge of balancing risk management with affordability in the housing market.
