As if rising mortgage rates and falling home affordability weren’t enough, the mortgage lending industry faces a new challenge to selling homes — a “massive” price increase for credit reports.
The National Consumer Reporting Association (NCRA) sent a letter to its member last week stating that the “vast majority” of mortgage lenders will incur price increases ranging from 10% to 400%.
According to the letter, dated Nov. 22 and signed by NCRA Executive Director Terry Clemans, Fair Isaac Corp. (FICO) will increase the price for mortgage credit reports over three tiers, “with a wholesale price increase of less than 10% for the top tier of approximately 46 lenders, about 200% for approximately six lenders in the middle tier, and more than 400% for all other mortgage lenders in the nation.”
“This is a paradigm shift in the pricing structure for credit scores,” Clemans wrote, “and is being dictated to the mortgage credit reporting industry from all three national credit bureaus and/or FICO.”
Clemans declined to comment further on the letter. FICO has not yet responded to a request for comment.
In his letter, Clemans said the NCRA “is not aware of the full origin of this change as it has not been disclosed to us by either FICO or the national credit bureaus.” He said it will be up to each mortgage credit reporting company “to determine how to implement this change with its customers based on its individual business plans.”
Clemans added, “The industry as a whole is looking for more details, which are complicated by the contractual limitations that prevent NCRA members from disclosing the reason for this price increase. Unfortunately, we can only confirm the limited information above and urge the source/sources of this dramatic pricing change to be more transparent with the reasons requiring this statement.”
Jeff Lazerson, president of MortgageGrader.com and a columnist for the Orange County (Calif.) Register, said in a column published Nov. 23 that he received a price increase notification letter from Equifax Mortgage Services, his “firm’s former mortgage credit reporting vendor.”
According to Lazerson, he said the notice indicated that, starting Jan. 1, “a FICO-scored joint (spouses) credit report is rising to $74.53 from $39.01. That’s a 91% increase or nearly double the price.”
Lazerson says mortgage lenders and brokers have “largely paid upfront for the mortgage applicants’ credit reports as a cost of doing business.” He said lenders and brokers then bill borrowers at closing. “Federal law allows mortgage lenders/brokers to charge applicants upfront for the credit report.”
He noted that lenders typically would absorb the cost of the credit report on loans that are canceled or denied.
In his column, he said that FICO, Experian, and TransUnion declined to comment. He did note that Equifax responded, confirming that FICO will have tiered pricing and that the size of the increases are “unprecedented.”
The large increase in credit reports comes as home affordability has hit a 10-year low, according to the National Association of Home Builders (NAHB) .
The NAHB/Wells Fargo Housing Opportunity Index (HOI), earlier this month, showed families earning the U.S. median income of $90,000 could afford just 42.2% of the new and existing homes sold between the beginning of July and end of September. It was the second consecutive quarterly record low for housing affordability since the Great Recession, trailing the 42.8% mark set in the second quarter, NAHB said. The trade group has consistently tracked housing affordability since 2012.
The organization cited rising mortgage rates, ongoing building material supply chain disruptions, high inflation, and elevated home prices for pushing the housing market into a recession. With mortgage rates moving even higher in the fall, it added, affordability conditions are expected to worsen through the end of 2022.
The credit report increase also comes as the cost of mortgages continued to rise in October, thanks to higher mortgage rates and home prices still high despite declines.
The Mortgage Bankers Association (MBA) last week released its monthly Purchase Applications Payment Index (PAPI), which measures how new monthly mortgage payments vary across time — relative to income — using data from MBA’s Weekly Applications Survey (WAS).
According to the MBA, the national median payment applied for by applicants increased to $2,012, up 3.7% from $1,941 in September.
The national PAPI increased to 167.9 in October, up 2.7% from 163.6 in September. The index eclipsed the previous high of 164.2 in May 2022.
The index has jumped 36% in the first 10 months of 2022 and is up 38.1% compared to October 2021 (121.6). For borrowers applying for lower-payment mortgages (the 25th percentile), the national mortgage payment increased to $1,323 in October from $1,271 in September. Mortgage payments are up by $629 in the first 10 months of the year, a 45.5% increase.
