TransUnion Research: Consumers and Taxpayers Lose Billions Under “Single Bureau” Reporting Model

Newly-released research from TransUnion adds fresh evidence that the current tri-merge mortgage requirement is the responsible path to keep costs low for borrowers, create opportunities for new homebuyers, and preserve safety and soundness in the system.

“The data consistently shows that more information means more opportunity for homebuyers,” said Satyan Merchant, Senior Vice President, Mortgage and Automotive at TransUnion. “A ‘single-pull’ environment creates significant risk that strong borrowers will lose access to credit while additional at-risk borrowers will find themselves in a mortgage they can’t afford. In the long run, that creates fresh risks for investors and threatens the safety and soundness of a mortgage market with tremendous taxpayer exposure.” 

TransUnion released the study in response to mortgage industry proposals to abandon the tri-merge for alternatives that reduce the number of credit reports used in underwriting.

Among the findings, a ‘single pull’ proposal would have significant negative impact for consumers, including:

• Credit downgrades: 31% of consumers experienced a shift of more than 10 points — in either direction — in a single-pull environment, according to TransUnion’s research. This is particularly significant for consumers who sit around the critical 620 mark, which determines eligibility for most mortgages backed by Fannie Mae and Freddie Mac.
• Higher interest payments: When borrowers have fewer opportunities to show their full financial history, some will appear riskier than they might in a tri-bureau environment, potentially moving them into a higher-priced mortgage. For borrowers who shift into a lower risk tier but still qualify for credit, those individuals could pay as much as $6.5 billion in additional interest payments, in aggregate.
• Less credit access: Over four million prospective homebuyers eligible for mortgage credit under a tri-merge would become ineligible under a single-pull model, due to credit report variance. At the same time, 300,000 consumers currently ineligible for credit financing would become eligible for a mortgage, which could lead to higher defaults if consumers can’t afford their homes.
• Gaming the system: A single-bureau mortgage environment offers ample incentive for lenders and consumers to shop for the credit report most likely to close a deal. That helps lenders in the short term, but burdens Fannie Mae and Freddie Mac – and US taxpayers by extension -- with loans underwritten by credit reports cherry-picked to ensure success.

Tri-bureau mortgage reporting addresses these risks by leveraging insights from all three Nationwide Credit Reporting Agencies (NCRAs). It helps ensure equal access for all consumers, while also enabling the government-sponsored enterprises (GSEs) and other investors to accurately account for risk. The tri-bureau model is particularly important for borrowers with limited credit histories, or those who utilize financial institutions that furnish data to only one bureau.

Earlier this year, the FHFA – which oversees Fannie Mae and Freddie Mac – reaffirmed its commitment to the tri-merge credit reporting model for GSE mortgages.

“Instead of limiting the information available to assess a borrower, the mortgage industry should continue to seek out new and innovative ways to leverage the data insights that help identify more creditworthy borrowers,” said Merchant. “That’s consistent with regulatory guidance and a desire to help more Americans safely achieve the goal of homeownership.”