As the mortgage industry debates a growing price war between FICO and VantageScore, some mortgage professionals assert the real cost issue in mortgage underwriting lies elsewhere: the credit reports themselves.
Recent announcements by major credit bureaus to cut the price of VantageScore 4.0 mortgage credit scores to roughly $1 per pull have drawn industry attention. This move could significantly reduce the cost of credit scores used in mortgage underwriting and is widely viewed as an effort to accelerate adoption of the model, as regulators push for more competition in mortgage credit scoring.
However, for many loan officers and lenders, the score is only part of the equation.
The larger expense often comes from the tri-merge credit reports required for most mortgage loans. These reports combine data from Equifax, Experian, and TransUnion into a single report used by automated underwriting systems.
Tri-Merge Reports Drive Up Costs
Those reports can cost lenders $40 to $70, depending on the vendor and bundled services, according to industry estimates. By the time lenders pass the cost on to borrowers — often including verification services and multiple score pulls — credit report fees can average about $80 per borrower, according to an Urban Institute analysis of mortgage closing costs.
Another factor shaping credit report pricing is the structure of the tri-merge reporting market itself. Mortgage lenders typically obtain these reports through a small group of specialized credit report resellers. These resellers aggregate data from the three major credit bureaus and package it for use in loan origination and underwriting systems. Because the mortgage industry relies heavily on this tri-merge format, lenders often have limited alternatives when selecting vendors.
This structure means that even dramatic cuts in credit score pricing may only modestly affect the total cost of pulling borrower credit during the mortgage process.
The tri-merge system has long been a fixture of mortgage underwriting because loans sold to Fannie Mae and Freddie Mac historically required lenders to obtain credit data from all three major bureaus. The structure also created a specialized market of credit report resellers and verification vendors that package borrower data for lenders’ loan origination systems and underwriting platforms.
While the system provides a comprehensive view of borrower credit histories, lenders say the layered process can add meaningful cost to loan production.
Regulators Eye Broader Changes
The issue has begun drawing attention from regulators. In recent years, policymakers have pushed for greater competition in mortgage credit scoring, including the Federal Housing Finance Agency’s decision to allow newer credit models such as VantageScore 4.0 and FICO 10T for loans delivered to the government-sponsored enterprises.
However, some industry observers say broader changes to mortgage credit reporting — including the potential use of bi-merge reports instead of tri-merge reports — could ultimately have a bigger impact on lender costs. Any such change would require updates to underwriting systems, investor guidelines, and regulatory frameworks, which could mean it takes years for the structure of mortgage credit reporting to evolve.
Still, the current debate around credit score pricing may be only the beginning. For an industry intensely focused on loan manufacturing costs, credit report pricing may be the next frontier.
