With Mortgage Credit Reporting, is Two or Three the Better Option?
Written By: Joel Palmer, Op-Ed Writer
The transition from a three credit report requirement to two reports — known as bi-merge credit reporting — for single-family loans acquired by Fannie Mae and Freddie Mac has faced its share of obstacles.
Another potential roadblock to this change was introduced last week.
Rep. Scott Fitzgerald (R-WI) has introduced the Accurate Credit Reporting for Homebuyers Act. The bill seeks to codify the current requirement that Fannie and Freddie obtain a credit report and score from each of the three national credit bureaus for loans they purchase.
The Federal Housing Finance Agency (FHFA) initially announced the move from tri-merge to bi-merge credit reporting in October 2022. It has since been delayed until the fourth quarter of 2025.
“The FHFA’s proposal could be the obstacle that keeps borrowers from obtaining a mortgage if they have lower FICO scores but are otherwise credit-worthy,” said Rep. Fitzgerald. “My bill corrects this misguided proposal by codifying the long-standing requirement that enterprises obtain a credit report and credit score on a borrower from each of the three national credit bureaus.”
TransUnion, one of the three credit reporting agencies, released an analysis in October claiming the move to bi-merge would have “unintended consequences for consumers while doing little to achieve the organization’s stated goal of reducing mortgage borrower costs.”
The company’s analysis found:
2 million consumers would become ineligible for a GSE mortgage because using only two credit scores will provide an “inaccurate picture” of a potential borrower and could exclude their most favorable credit data.
600,000 new mortgage borrowers per year could end up paying more in interest under the bi-merge than they would have if all the tri-merge information were used. This could cost consumers $6,600 in additional interest over the life of the mortgages.
An estimated 200,000 consumers ineligible for an agency mortgage under the tri-merge will be able to borrow a GSE mortgage with bi-merge, bringing more credit risk.
Proponents of the transition point to the potential cost savings to borrowers if lenders only have to pull two reports instead of three.
Another potential benefit of the move is encouraging competition between the reporting agencies.
“Consumer advocates have frequently noted that the credit reporting industry is an oligopoly, given that there are only three companies that control the entire market. But in the mortgage market, it’s actually a functional monopoly. There is no competition due to the requirement to use credit reports from all three credit bureaus,” wrote Chi Chi Wu, a senior attorney at the National Consumer Law Center.
“Requiring reports from only two of the three credit bureaus will at least move the market from a functional monopoly. It might even provide an incentive for the credit bureaus, which are often intractable, to improve their practices.”
In his announcement for the Accurate Credit Reporting for Homebuyers Act, Fitzgerald disputed the claim that bi-merge reporting would lead to increased competition. “FHFA has never released any analysis or data to support this expectation,” the announcement stated.
The bill, HR 7857, has been referred to the House Committee on Financial Services. It was co-sponsored by Rep. Daniel Meuser (R-PA) and Rep. Alexander Mooney (R-WV).
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
