Mortgage Application Credit Report Fees Increase

Mortgage shoppers can expect an increase in charges for credit reports if changes that theoretically became effective on January 1st actually go into effect. The changes affect fees for “re-issuing” a credit report a second or a third time.  Here’s how this works:

When a borrower applies for a mortgage, the lender, whether bank, mortgage banker, or mortgage broker, pulls credit from the three credit bureaus Experian, Equifax, and TransUnion in what is known as a 3-bureau merged report.  That is not the end of the story, however. Remember that these days virtually all loans are sold to someone else, Fannie Mae and Freddie Mac, for example.

Those agencies and all the other purchasers of loans will only buy loans that have been approved by their proprietary automated underwriting systems. Fannie Mae’s system is called Desktop Underwriter and Freddie Mac’s system is Loan Prospector. At some point in the process, the lender has to obtain loan approval by submitting the loan and running it through one of these systems. 

During the submission process, the lender gives the file number of the original credit report and the report is re-issued to that agency’s underwriting system.  In the past, the credit bureaus considered that all users of a report were “joint-users” and that the re-issue of the original report was a legitimate and accepted practice.

In the past, the cost of these re-issues was nominal, like $2 or $3.  After all, the report exists in the agency’s computer; they are entitled to a modest fee for allowing access to the report by someone other than the initial ordering party.

However, the bureaus have now changed their interpretations and are calling a re-issue a “Secondary-Use.” In their interpretation, the re-issue by another party like Fannie Mae would require the agency reporting that re-issue back to the three bureaus and would result in an additional inquiry on the consumer’s credit file.

This would be a “soft” inquiry that would not affect the consumer’s FICO score. It would, however, allow the consumer who got his own credit report to see what other companies had pulled his report.

The bureaus also propose charging for this Secondary-Use re-issue as if it were an original inquiry. The effect of that would be to double the cost of a credit report assuming that it was drawn just once. In the case of sub-prime borrowers, it is the practice of many brokers and lenders to “shop” the loan at a number of lenders, each of whom would presumably want to re-issue the credit report.  Since these fees are passed on to the consumer, they can have a dramatic effect on the consumer’s credit costs.

There is a legitimate question here about whether this provides any benefit at all to consumers or if it’s just a way for the bureaus to dramatically increase their revenue without doing any additional work other than report the re-issues. Ultimately, it is likely that the Federal Trade Commission, which is responsible for administering the Fair Credit Reporting Act, will weigh in on this. For those who wish to see the full text of the FCRA, go to http://www.ftc.gov/os/statutes/031224fcra.pdf

It would also be interesting to have the FTC’s Anti-Trust people take a look at this.  It seems amazing to me that, all of a sudden, three theoretically independent companies WHICH HAVE NO COMPETITION all make a decision at the same time to take action that dramatically increases their revenue. To this untrained observer, it smells a lot like price-fixing.

Return to Top