Latest / Market Pulse / The Real Cost of Credit Reports: Data, Competition & Policy Implications

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The Real Cost of Credit Reports: Data, Competition & Policy Implications · Market Pulse

0:02
Welcome to a special edition of Market Pulse from Equifax,
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where we break down what's shaping the mortgage industry today and what happens
0:09
next.
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Welcome to the special edition of the Equifax Market Pulse podcast recorded
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here at the Equifax booth at MBA Annual25 in Las Vegas,
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where industry leaders from across the mortgage ecosystem have gathered and we
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are exploring one big question: what happens next? I'm Emmaline Aliff,
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leader of the Equifax Advisors,
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and today we're discussing one of the most talked about topics in mortgage
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policy, the true cost, competition,
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and future of credit reporting in mortgage lending with the industry
0:47
discussing potential changes to the trimerge requirement and entry of Vantage
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Score. There's been a lot of speculation about pricing, competition,
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and fairness, but what does the actual data show to help unpack?
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I'm joined by Dr. Amy Crews Cutts, chief economist of AC Cuts and Associates,
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who recently released a new study around loan closing data that will paint a
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clear picture of the cost competitive dynamics of mortgage credit reports.
1:13
Welcome, Amy. Thank you. So the first thing we'd like to, you know,
1:17
discuss and understand specifically is around the real costs of pulling credit
1:21
and mortgage. So, as we think about that, let's start with the headline.
1:26
Everyone's curious about, which is the real cost of pulling credit and mortgage.
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So, what's the true picture of credit report costs in a typical poem purchase,
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and how does the data from the last 18 months challenge some of the common
1:41
perceptions we've seen floating around the industry?
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That's a great question.
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I just came back from a great session at the MBA that talked about this,
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and one of the panelists said that the average industry cost for the cost of
1:54
his firm is about $155. In my research, I found that it's more in,
1:59
you know, that it's a wide range from 40 to about 240,
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and what goes into that is how many borrowers,
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if there's a single borrower on there, then the cost would be at the lower end.
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If there's multiple borrowers, then the cost would be a little bit higher.
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But there's a lot of dynamics.
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Credit reports are one of the only charges that can be explicitly charged
2:21
and passed. It must be passed on directly to the mortgage borrower.
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The other one is appraisals. And when every time I've applied for appraisal,
2:30
they've asked me for a check upfront to pay for the appraisal. A lot of
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mortgage brokers or mortgage lenders don't ask for that upfront for the credit
2:40
report. They simply pull your credit.
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And so this is one of the unrecouped costs. If a loan doesn't close,
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they don't get that money back. The appraiser got paid, they passed that on,
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but they don't charge for credit reports upfront. I don't really know why,
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but I hear time and again, that mortgage reports are too expensive.
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And it really comes down to this,
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this part where people don't close the loan eventually,
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but let's talk about some other things. They pull a credit report,
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it's good for 120 days. That is
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usually enough time to close a loan. But in the meantime,
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and I've done this myself, I'm guilty of it.
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Sometimes borrowers aren't thinking about the fact they're in the middle of the
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mortgage process and they go out and they buy a new car,
3:23
sign up for that great new credit offer,
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and now suddenly it shows up on their credit report and they may not close if it
3:30
affects the debt to income ratio or otherwise impacts that credit. So,
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lenders will often pull a second report clo closer to closing. Again,
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adds costs into that process.
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But the industry has been evolving as the cost of providing a credit report
3:45
has gone up. The GSEs,
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which is Freddie Mac and Fannie Mae require trended data.
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And trended data is a great innovation. It's been around a long time,
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but it's only recently shown up. Now as part of our our mortgage process,
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it's very expensive. You're looking at six months or more of data now,
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all compiled. So that's raised the cost of credit reports
4:09
in any event. So they pull that closer to, to closing.
4:12
You can also buy something called undisclosed debt monitoring,
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where you pull your initial credit reports and then you say, Hey,
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credit bureaus, if there's any change in this person's credit file.
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So they applied for an auto loan, they got an auto loan,
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any of those sorts of things,
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or put $20,000 on their credit card ordering those new drapes.
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But you'll tell me before I get to the closing table,
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maybe in time to fix it and solve that problem.
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The cost of a UDM report is, I don't know, $20 to $40,
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$30 something. We're in that range.
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A lot less expensive than the cost of a credit report.
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And it covers that time not only to the delivery of the loan
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to the closing table, but Freddie Mac and Fannie Mae rules say, Hey,
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if it's not on our desk in our possession,
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you could still be liable for an undisclosed debt even after closing.
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So UDM is a great product because it covers all that period.
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And so there's just, you know, a lot of ways in which costs could be cut.
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And we're talk, we're arguing about $155. The guy said today in, in the panel,
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we're really arguing about that amount of money.
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It's crazy to me that that's what we're talking.
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About. Yeah. Especially with you know,
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the overall cost associated with purchasing a home.
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It's really is a small fraction. Yeah. Yeah. So let's,
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let's pivot and talk about competition in trimerge.
5:32
So another area you explored you know, is, you know,
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the competition among trimerge credit report providers. And, you know,
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with you know,
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numerous approved sellers of trimerge reports listed on the Fannie Mae site.
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How robust is the competition in this market and do you see
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significant differences between Fannie and Freddie approved sellers?
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So I confess I wasn't able to find the Fannie,
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the Freddie Mac sellers on their website. You know,
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some websites are better than others,
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and I didn't feel like going through the guide,
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which is thousands of pages to find it.
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Fannie Mae made it easy with a Google search. So I looked that up.
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47 approved resellers. Mm-Hmm . Under Fannie Mac.
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I can't imagine that Freddie Mac much different. So we're talking 46 to 48 ish,
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okay? Mm-Hmm . Every reseller I kind dollar 50. Yeah. Yeah.
6:24
Every reseller has their own advantages and disadvantages in the products
6:29
that they offer as ancillary services that go with that.
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You can negotiate a bulk discount if you do big enough business. Obviously,
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if you're a smaller lender, you're not going to have as many cost advantages,
6:41
but nonetheless, I think, you know,
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a couple things I'd recommend is see what price you're paying and call up a
6:47
couple and see what they might offer. If you're here at MBA,
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there's several of them around.
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So it's possible to find that with 47,
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if anybody gets way outta whack, people talk mm-hmm . Right?
6:59
They go to their, it cracks itself. Yeah.
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They go to their local conferences and whatnot, they're going to talk.
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And so you're going to find out that somebody's creating a problem for you.
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And so, you know, I think that there's a pretty low
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cost differential, broadly speaking even so, you know,
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it, it pays to ask that question periodically. Same would be true of your,
7:21
of your originating software provider and on all the other services that you
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might have. To put in perspective,
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let's say that a single borrower credit report is $60,
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and I'm talking about today, not what might happen in the future.
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There are potentially five entities that get compensated out of that $60.
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You've got your score provider Vantage score, FICO,
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you've got your three NA nationwide
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credit reporting agencies, and you've got your reseller.
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So out of that, roughly, FICO gets make, you know,
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roundabout the credit score reseller gets about $15. And then,
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so that leaves out of that 60,
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we're talking about $45 to divvy up between up to four
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providers.
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And so whatever markup might be happening on any part of that or margin for each
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of the three credit reporting agencies,
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you've gotta cover your compliance costs, your trimerge delivery costs,
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your technology costs, right? There's a lot that goes into that.
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Every time you import a new reporter,
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there's new compliance costs.
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It's not cheap to grow your business on in terms of the quality of the data.
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But what are we doing? We're combing every possible, you know, new
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Buy now, pay later is a potential contributor.
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A lot of discussion about how we would do that.
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They're not on a typical schedule. How are we going to do that?
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How are we going to make sure it's reported in a way that the GSEs and everybody
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else can absorb it? These aren't trivial questions, although everybody's like,
8:55
may wave your one and it happens instantly.
8:59
All these new fintechs out there and how they might respond into that
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you've got a lot of other things that are provided, verification,
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services of identity.
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So there's a lot that goes into that that has to be accurate.
9:13
It has to be timely, all those sorts of things.
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And so they act like it's just trivial, but it, it's really,
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those costs have gone up along with everything else. Labor costs,
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technology costs. You think those data centers are.
9:24
Free? It's raw inflation.
9:25
Yeah. I mean, just, there's a lot that goes into that.
9:27
Yeah. Maybe you can elaborate a little bit more than, you know, specifically,
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you know, if we think about a mortgage broker or lender, you know,
9:34
successfully secure credit service at, at a significant discount,
9:38
what does this imply about the, you know,
9:40
current bargaining power and negotiation leverage in the market?
9:44
So there's different kinds of credit bureaus.
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We tend to think of them as all the same, but in technical regulatory language,
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there's the three nationwide credit reporting agencies. So Equifax, Experian,
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and TransUnion. And then every reseller is also a,
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what's called a credit a consumer reporting agency.
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We think of them as credit bureaus, but that's what they're technology.
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And there's more than just the ones we listed because as an example,
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if you are a reseller of cashflow data,
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you're now a CRA. That means a bank could be a CRA, right? So there's a broad,
10:21
broad terminology on on that in terms of lowering those
10:26
costs.
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If I'm a lender and I cut a deal with a
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CRA, a trier reseller to cut my costs, I can't mark that up.
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I have to pass that on to the consumer directly. So in every closing document,
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according to the Real Estate Settlements Procedures Act,
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you have a disclosure form that comes up before you close.
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And on that is enumerated how much your credit report costs. So if you Equifax,
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save me money on my credit report costs, that goes directly to the borrower,
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not to my bottom line.
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Okay.
10:59
On a closed loan mm-hmm . On a not closed loan,
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then all bets are off. But again, they can't really upsell.
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Okay. I want to unpack this a little bit more. Okay.
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what are the implications of off the rack pricing being significantly lower
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than what some regional banks are paying?
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What does that tell us about the claims that reports are too expensive?
11:19
Yeah. So again,
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this kind of comes back to who's responsible mm-hmm .
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And I'll admit it,
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how many of us out there have subscriptions to services we've forgotten about?
11:29
Like, I probably have insurance on my phone, the,
11:32
like AppleCare and at T Care and all these sorts of things, right?
11:36
Mm-Hmm .
11:36
And so I think that happens too when we negotiate our business contracts that
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maybe you've been dealing with the same reseller for a long time and you weren't
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even paying attention to your automatic price escalation clauses in your
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contracts. Because you, it's just, you're the rut you're in, right?
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But pick up the phone and call.
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Maybe you'll find that you're paying a great price.
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Maybe you'll find that you can cut your costs rather dramatically.
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And, and this is just the cost of doing business.
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We gotta get in there and negotiate those, those fees.
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This is across the board every, every supplier you have, right?
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Whether it's Gmail or other things, right? I mean,
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we can all cut our costs that way. But it's paying attention to that.
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And to the extent that,
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that people are not actively looking at renegotiating those contracts,
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then that's kind of a them problem and not,
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not what the, the credit bureaus are charging for those credit reports.
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I'm, we're talking again, we're talking $15. Okay. So you can get it down to 14.
12:34
Good for you.
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Yeah. How much of a difference will that actually make? Yeah.
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Yeah. And that's on, that's on the, the bureau reports, not the timer. Mm-Hmm.
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The timer reports mm-hmm. Are much more expensive. But again,
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if you're paying $80 and you can get it down to 60 on a single borrower report,
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that's a savings of $20. Mm-Hmm . So call them up, talk to them,
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right. And find out. Mm-Hmm .
12:53
Thank you.
12:55
So let's pivot a little bit and talk about the workings of the mortgage market
12:58
and credit scores. So first you know, we look at that the,
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this other side of the equation while I,
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I guess a mono report might save a consumer you know,
13:08
less than 1% of overall origination costs.
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What are the potential risks to lenders? You know, if,
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if a borrower has those undisclosed liabilities that you talked about or if the
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wrong report is chosen leading to a credit score a lower credit score and higher
13:24
costs?
13:25
Yeah, so that's a great question. I was just in this great panel here at,
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at MBA that talked through a lot of these issues.
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And so here's what,
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what Stan middleman of Freedom Mortgage said he saw The risk was,
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back in the day before, we had, you know,
13:43
sort of integrated trier reporting.
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They would shop scores and go with the, the best or, or best report.
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It wasn't really credit, the sort of credit scores. And Trimerge came about,
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about the same time in mortgage that we would shop the best report.
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And in the end,
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what's happened is that with the rise of Freddie and Fannie being so dominant in
14:03
the market, they've brought international capital into Des Moines,
14:07
Iowa for us to buy houses, right? I mean,
14:09
they brought it down to our main streets to buy houses.
14:12
That trust is predicated on having the very best,
14:16
most efficient system available.
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So maybe I cut my cost down from let's say,
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$60 to $20 to pull your credit report for your mortgage.
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But I'm a really diligent mortgage lender, so I'm not going to pull one report.
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I'm going to pull three reports. So 20, 20, 20 we're back up to 60.
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I pulled three reports. I do it on the sly on the soft reports.
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So it's not evident anywhere that I've done that.
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Now I picked the best report because it's got the 750 credit score,
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not the 650 credit score.
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You start gaming. Yeah.
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Mm-Hmm . Right?
14:47
And I'm going to game that system mm-hmm . Overnight.
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The capital markets are going to notice. So the capital markets, who are they?
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Not only would it be Freddie and Fanny,
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but it would be the Freddie and Fanny buyers of those mortgage backed securities
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are going to notice that overnight when those single credit scores went in place
15:06
of the tri merge,
15:08
that the credit scores jumped 20, 30,
15:12
40 points. And how do I know this?
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Because S&P Global did an awesome report on this in 2023 that
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looked at differentials across the three credit reports. People say to me,
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point light to my face. Well,
15:23
there's no difference in the credit reports of the three big guys because
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you're all nationwide reporters.
15:31
But it turns out that the regional differences from when we were tiny back in
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the day, persist today. And that some of us are better with,
15:40
with fintechs and some of us are better with auto lenders and so on.
15:44
And so that difference persists,
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and the credit score differential at the high end is about 20 points.
15:50
As the credit scores go lower, that differential grows to about 40 points.
15:54
So they're going to notice that those scores have jumped by a massive amount
15:59
overnight. Now, the differential in the cost of a mortgage today,
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this is from a Wall Street Journal article that I read, said that if you,
16:08
if you, and this is recent, this was August of this year.
16:11
If you go down in credit score by about 20 points, the cost of that loan,
16:15
the average interest rate on that loan originated at the same time is about an
16:19
eighth of a point. So,
16:21
credit scores jump 20 basis points overnight,
16:24
or 40 basis points overnight and, or not basis points, credit score points,
16:29
actual scores, credit score points overnight.
16:31
And then those guys are going to go, Hey, what are you not telling me?
16:35
Because there's no differential in the loan quality,
16:40
right? We all know that this is now a gaming of the system.
16:43
So I'm going to raise, I'm going to buy that mortgage backed security,
16:46
but I'm going to charge a higher rate for it.
16:48
I'm not going to buy it at the price I was going to pay. Now you know,
16:52
the investor in Dubai or Germany is going to say, I want more.
16:56
And that more is going to raise your interest,
16:58
costs an eighth or possibly two eighths of a point, a full quarter point,
17:02
because I don't know what the risk is. That's not going to go free.
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So I saved the borrower maybe 20 points because
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they're going to do the formal credit report plus the three soft pulls.
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I've saved them maybe
17:17
$20 on the cost of their mortgage origination.
17:20
I've saved more on the loans that don't close,
17:23
but I've just jacked up the cost to borrowers by a quarter point. I don't know,
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some amount on the interest rate, two months of payments,
17:30
three months of payments.
17:31
They've covered that plus more for the entire life of that loan that they carry.
17:36
That's a huge burden to place on consumers.
17:38
This is not a consumer saving argument.
17:41
It's a lender cost savings argument. Mm-Hmm.
17:44
Yeah. And,
17:45
what I find particularly interesting about that is on our Market Pulse webinar,
17:49
just last week we asked the question about innovation and the majority of
17:54
you know,
17:55
lenders out there that are leveraging credit scores want to leverage something
17:58
that is more predictive in nature and more innovative. And so it's just the,
18:02
the natural byproduct of that is incorporating additional information,
18:06
more data. It's like there's no diminishing marginal return.
18:09
Yeah. I mean, the cost of a defaulted loan of any kind mm-hmm .
18:13
Auto loan, you know, mortgage loan, whatever is huge mm-hmm .
18:17
To whoever's holding that risk.
18:19
So a score that's just a little bit more predictive times,
18:21
however many loans you do, huge savings.
18:25
Yeah. So when we think about that,
18:26
then how how must lenders adjust their risk models you know,
18:31
to ensure that prioritizing those initial savings does not
18:35
inadvertently lead to outcomes that could, you know, invoke, you know,
18:39
fair lending enforcements and results in substantial financial penalties.
18:43
Yeah. So I, I think that's a very real question. Mm-Hmm .
18:46
And some might argue that, you know,
18:48
under the current administration with less of a focus on CFPB fairness
18:52
regulation mm-hmm .
18:53
Happening that we don't need to worry about that. However,
18:56
the laws are still on the books. They've got a long look back period.
18:59
So I think the fair lending risk is very high,
19:02
especially if you're a lender who under a single bureau reporting system
19:07
might only contract with one bureau.
19:12
Right.
19:12
That what are you not seeing and could you have saved the borrower money or
19:16
gotten them more approvals by using a different bureau than you did, or,
19:20
you know, searching all three. So I think that that cost,
19:23
that compliance costs will cause them to think about that. Yeah.
19:27
And I just don't think the cost savings are worth it,
19:29
because I don't see why Freddie or Fanny, especially if they're set free,
19:33
which is another priority of the administration as private entities would want
19:37
to reduce that risk to themselves under that the mortgage insurers are under
19:42
no such illusion. They're on the hook for that. They want the Trimerge report.
19:47
We already talked about Wall Street wanting that Wall Street and Global Street
19:50
wanting that, that information to be in there. So I think that broadly based,
19:55
there's nobody holding that credit risk or prepayment risk who wants to see less
19:59
information as an outcome. Mm-Hmm.
20:03
Yeah. And I,
20:03
and I find it particularly interesting with respect to the timing differences.
20:07
You know, as we, as we are even moving our own system, you know, up into,
20:10
you know, the cloud, we found that just timing things were you were, you know,
20:14
showing demonstrated differences. So I think the,
20:17
there's an absolute difference in data as with respect to, you know,
20:20
even if it's all the same, it matters how soon it's loaded to the file as well.
20:26
Depending on the Yeah. There's so many parts, moving parts to the system,
20:29
and I don't know how many reporters you have at Equifax,
20:33
but you know, it's every bank,
20:36
it's every servicer in addition to the original lenders, right?
20:40
It's thousands gotta be easy.
20:42
Mm-Hmm . Yeah. So let's,
20:44
let's not pivot to the market complications and fallout rates. You know,
20:48
I've seen you write about the fallout where loan applications start,
20:52
but never close.
20:54
Lenders often cite fallout as a major cost driver.
20:59
Let's start with the system level view.
21:02
How do new system costs and compliance requirements tied to
21:07
unnecessary complications outweigh the short term savings that lenders might
21:11
expect?
21:12
So there's two parts to what you said. Mm-Hmm. One was the fallout risk.
21:15
So let's just address what the fallout risk is. Perfect. And what does it mean?
21:18
So fallout is a lender, has a borrower come to them and say,
21:22
I'm thinking about buying a house. Mm-Hmm .
21:25
And I don't know if they found the house and contracted on it,
21:27
or even a refinance. I think rates might have fallen enough.
21:30
And the lender says, great, give me your information.
21:33
Let's pull a credit report and see, you know, what we're talking about here.
21:36
Mm-Hmm . Okay. That's a cost.
21:39
And I don't care if you're doing a single bureau soft pull or just jump
21:44
into full tri merge hard pull. Right? The costs are,
21:48
it's a cost that they've, they've incurred.
21:51
If that loan doesn't cost and they didn't charge you for it upfront,
21:55
that goes against their balance, their, their income state. Right.
21:58
And that's a huge cost.
21:59
So how big of a cost is it in 2023 and 2024? So the last two years,
22:04
we have the most complete data for every lender on a mortgage is required to
22:09
report to the Home Mortgage Disclosure Act under the Home Mortgage Disclosure
22:13
Act two. The federal financial, I forget what it's called, FFIEC
22:20
is the collector of that information.
22:21
And of course the CFPB looks at it very closely.
22:24
So there were about 5 million loans applied for in those two years
22:29
each year. And about 1.9 million didn't close. Hmm.
22:34
1.9 million times, I don't know, 60,
22:37
$60 or $120. We're talking about a hundred million. I,
22:41
I have the exact numbers in the paper, but, you know,
22:43
between a hundred million and $250 million in credit report
22:48
fees that they don't get paid back for if they didn't charge for upfront. Okay.
22:53
So that's what they're really talking about. Alright.
22:56
But then you ask a separate question, which is, okay, great.
23:00
Wave the magic wand. Suddenly it's a single bureau report worked.
23:05
When do they start to realize the cost savings? Every loan origination system,
23:10
every credit reporting CRA,
23:15
which would now include opening them up to competition to all three
23:20
CRAs, not just the CRAs that currently report Trimerge but you gotta open it up.
23:25
Oh, and by the way, there's still two borrowers in a lot of cases.
23:28
The GSEs don't want to a single report.
23:30
They're going to want to merge report where you de-duplicate those credit cards
23:33
where they're both on it and so forth.
23:36
So there's still a need for cleaning up the data, standardizing the data,
23:39
and all of that. You don't get away from those costs. It didn't become just, oh,
23:44
we'll cut the cost by a third or two thirds.
23:47
So those savings aren't there. You're still going to have to have a supplier.
23:51
But like I say, right, I, I don't, I say in the report,
23:54
I didn't mention that only one of the three nationwide bureaus is also a
23:57
supplier of trier. We start going modern bureau report.
24:00
We may now have more entrants into that in that form, and they may,
24:04
because the resellers are buying it from them,
24:07
they may actually cut competition. I'm not saying that will happen,
24:11
but I'm not saying it's obvious that suddenly we get 50 more credit reporting
24:14
agencies out there,
24:15
which is kind of what they're alleging will happen in those that are
24:20
advocating for it. Right. Right. Right.
24:21
Yeah. Mm-Hmm . So some of this sounds like there's, you know,
24:25
some communication gaps. So when we think about from a process perspective,
24:29
how does inadequate upfront communication with borrowers contribute to that
24:34
fallout? And then the second part of that question that I'd like to ask you is,
24:37
could a soft pull soft pull credit check and a more frank discussion,
24:42
help lenders set expectations and reduce those drop offs?
24:46
Yeah. So there's a lot of great resources out there that you know,
24:51
sometimes you start a mortgage application on your own or a credit application,
24:54
and they ask you to provide your information online.
24:56
And you're sort of like half the way to the whole process before you're like,
25:01
I just wanted to know what mortgage rates were today. Right.
25:03
So I think that because of the fact, and,
25:07
and there are some really good ones here, I just want to look at my report here.
25:10
So give a couple of things. There's Guild Mortgage, there's Mosha Law,
25:15
there's Bank of America, there's Fannie Mae there's,
25:19
there's a company called Miller that had a LinkedIn post.
25:22
There's a lot of great mortgage cost calculators. And I,
25:24
there's some really terrible ones out there that say a credit report costs zero.
25:28
They're all supplied by the same back engine. I don't know how that happened.
25:32
There's some really bad ones. But, you know, as a consumer,
25:34
I would go to the Fannie Mae credit closing cost calculator to figure it out.
25:39
That will outline for you how much you're going to have to pay at closing your
25:42
escrows for taxes and insurance. Because they do it for by county.
25:46
So it's really good on that one.
25:49
But as a lender sitting down with people with that closing cost calculator to
25:53
just walk them through what the costs are really going to be so that people
25:58
don't go, oh, I thought it was just going to cost me, you know,
26:01
like a couple hundred bucks to get the loan. No,
26:03
it's going to cost you thousands of dollars to get the loan between the closing
26:06
costs, prepaids, escrows, and all of that sort of thing.
26:09
And I think a lot of people,
26:11
especially now with the cost of print of property and casualty insurance rates
26:15
have gone sky high. I'm not calling out insurance companies as bad guys.
26:20
Their costs have gone up tremendously with weather related costs and,
26:23
and lumber costs and so on for that. Cars cost so much more.
26:27
And then you know, taxes are going up because home values continue to go up.
26:32
And I look at my mortgage, which I took out in 2011,
26:36
my taxes and insurance are now two thirds of my mortgage payment.
26:40
Mm-Hmm . They're no longer, you know, sort of a afterthought.
26:43
There are really big burdens and substantial on that.
26:45
And so I think that there's a, you know,
26:47
to get rid of some of that fallout requires talking to your borrowers.
26:52
You may not get around the fact that,
26:53
that you find out later that something is not,
26:56
is not appropriate for them or that circumstances change,
26:59
but it could cut your fallout costs rather dramatically.
27:02
And a lot of the denials are not even tied to credit. It's tied to other things.
27:07
So you know, a lot of them are, are people simply didn't follow through,
27:11
didn't supply the rest of the information.
27:13
Maybe you could have figured out they were,
27:14
they were just window shopping before you spent the money.
27:16
Yeah. So, you know, thinking about that, and you know,
27:19
I know we've talked about, you know, doing, you know,
27:21
calculations of fallout rates specifically as it compares from, you know,
27:24
refi to to new home purchase. When we think about that, you know, exploring,
27:29
you know, what type of insights could, could that data reveal,
27:31
especially as we consider the differences in how, you know,
27:35
refi fallout rates may compare to purchase fallout rates,
27:37
especially if we move into a more favorable interest rate environment.
27:41
Yeah. So we are coming potentially to that mm-hmm . You know,
27:44
there's a lot of moving parts in our economy there right now,
27:46
and I know we've talked about that in market pulse webinars every month about
27:50
which parts are moving this month to affect that. But yeah.
27:54
So the fallout rates are significantly lower in refinance simply because you're
27:59
talking to an experienced.
28:01
Mortgage borrower. Yeah. They've been there, right?
28:02
Mm-Hmm . A lot of home purchase loans are,
28:03
are first time home buyers. Not all, obviously not all,
28:06
but many times it's a first time buyer going through that process.
28:09
So you see higher fallouts refinance borrowers a lower fallout rate,
28:13
they know what they're in for.
28:14
It's really just what the rate is and whether they can save enough money. So,
28:19
you know, looking at, at it from that standpoint I think that, you know,
28:23
it's a great time to be reaching out to your current portfolios and
28:28
saying, again, whether you're a,
28:30
a broker who sells the loan or a lender who portfolios the loan,
28:33
or somebody who sells it in the capital markets, being able to say, Hey,
28:37
you know, hey, I saw you got a mortgage with us a couple years ago.
28:41
Just wanted to say, now might be a good time for you to think about refinancing.
28:45
And I wouldn't talk to all the borrowers that way,
28:47
but there's some of us who have loans that we bought, got in the LA not bought,
28:50
but took out in the last couple of years.
28:51
I think use analytics to get to that.
28:53
Yeah, exactly. And, and, and that analytics is known.
28:55
There's a lot of great companies here that provide those analytics on the
29:00
portfolios. So I think that's a great way to reach out to borrowers and say,
29:03
Hey, now's the time to do this. And, you know, some people didn't know,
29:07
I didn't even know this until I started digging for this report.
29:11
Little known secret that annual credit report can be weekly. Mm-Hmm.
29:16
You don't have to wait a whole year to find out what your credit report's doing.
29:21
And then of course,
29:21
there's Credit Karma and other places where you can get those scores and credit
29:24
cards now provide you with scores.
29:26
You pretty much have a good idea what you're doing. Mm-Hmm. Yeah.
29:28
It's very accessible. Mm-Hmm. And very pro-consumer. Mm-Hmm .
29:31
Yeah. So, one final question on this topic in particular.
29:35
So when we think about how lenders can technically charge for credit reports at
29:39
any point in time during this process Yep.
29:42
But many choose to only collect the fees at closing.
29:46
Do you see the cost of eating fallout loans as a systemic issue or more of a
29:51
strategic choice lenders make to stay competitive?
29:54
Yeah, I see it as more of a, of a strategic choice that,
29:58
that so my own broker that I used probably
30:03
for 10 loans over the years mm-hmm .
30:06
And a great source of information whenever I want to know the nitty gritty on
30:09
what's really happening on the ground. You know,
30:13
he never charged me for a credit report upfront. Mm-Hmm .
30:16
He knows his customers,
30:17
he knows the referrals he's getting and that sort of thing.
30:20
But you're a lender who looks for people walking in the door.
30:23
You don't know anything about them. You don't want them to go down the street.
30:26
I can see that as a strategic choice, that if I say, Hey,
30:29
before I even talk to you, I want 50 bucks. Mm-Hmm .
30:33
That could be kind of offput. I can see that.
30:36
But having pulled that report, I could say, you know,
30:41
now that we know what we're talking about,
30:42
if you want to continue with this application,
30:45
now I need my appraisal fee and I need my credit report fee.
30:48
There's no reason why they couldn't at least go for that one.
30:50
It might not stop the window shopping,
30:52
but it could certainly cover a lot of their costs of the, Hey,
30:55
you're actually incurring costs.
30:56
For me. Yeah. So's skin in the game for it.
30:57
Yeah, exactly. Yeah. And you have underwriting costs too.
31:00
It's not just that mm-hmm .
31:02
Right. So, so we've, we've focused,
31:03
and one of the reasons I really enjoy talking to you is how you can go from
31:06
micro to macro. So I want to pull it up a little bit and get into a broader,
31:10
you know, some broader implication and future outlook.
31:13
So as we zoom out you know, beyond the immediate costs,
31:17
what are the broader economic impacts of credit report accuracy and
31:21
competition on the housing market and consumer access to credit?
31:25
I've been in this industry truthfully since about 1994 when I did my first
31:30
report for hud. Okay. I've been doing this a long, long time.
31:33
So I've seen a lot of changes and I see all of the great
31:38
innovations that are happening in the marketplace as we think about things like
31:43
cashflow data, right. Bank account data being brought in mm-hmm .
31:46
Rental payments potentially being brought in and, and, and the challenges,
31:51
the benefits of that.
31:53
Instant verification of employment and income where it used to take weeks to do
31:57
that. Mm-Hmm . And the fraud that goes along with, you know,
32:01
print my credit report.com or print, not print my credit,
32:05
print my employment report, my pay stub.com com mm-hmm . Right.
32:08
And how back in the day,
32:10
we used to manually underwrite loans with three bureau reports,
32:15
no credit scores,
32:16
and how we would cherry pick or miss things there that could potentially be a
32:20
problem. When I talk about bringing in global capital markets to our,
32:25
our credit, there's only another one other country, Denmark,
32:28
that has a long-term fixed rate Prepayable mortgage.
32:32
Nobody else has adopted that. You go to Canada, it's a five year mortgage.
32:36
Canada's pretty advanced. They're not as advanced in this as we are.
32:39
So how much are you paying? You're paying about 300 basis points.
32:42
So about 3% more than the federal government pays to borrow on a 10 year
32:46
treasury.
32:47
And that's bringing people who will never meet you never know your name,
32:50
never know where you live, and they're saying, Hey, sure,
32:53
I'll give her some money so she can buy a house. Right.
32:56
This is magic in my world.
32:59
So between all the innovation that's happening,
33:02
the better modeling analytics and all that behind it,
33:06
the quality of the credit reports that,
33:08
that we now have that continues to get better every day.
33:11
You're making investments every day on how you can bring in more reporters
33:16
the quality control analytics of, Hey,
33:19
how many of my consumers are reporting into us that the data's inaccurate. Hey,
33:23
servicer, get your act together. Right.
33:25
The enforcement that has to go along with that,
33:27
there's just so much good that's happened and it's so efficient and so cheap.
33:31
I know it sounds expensive to get a mortgage rate at 6% or 7%. Well,
33:35
it's not 6% yet 7% in today's marketplace.
33:39
But to think about how much more expensive would be or how much more that risk
33:44
you, the consumer would bear on interest rate and so on. This is just to me,
33:48
marvelous.
33:49
It is. Yeah. So I, I, I agree with you on that, but I'm,
33:54
I'm interested now in the regulatory perspective in particular.
33:58
And so when we think about you know,
34:00
regulatory trends or potential policy changes, you know,
34:04
because things they go in ebbs and flows, right? And when we think about the,
34:07
the influencing dynamics of, you know,
34:09
credit reporting and mortgage pricing in the next few years, where do you,
34:14
where do you see things, you know, going,
34:15
or how do you think those things will influence?
34:18
I mean, just address the elephant in the room mm-hmm .
34:19
Which is will Freddie Mac and Fannie Mae be privatized and sort of set free?
34:22
Again, they've been in conservatorship since 2000 and eight's a long time.
34:27
Right. 17 years. So if they are put back in the private sector,
34:32
I think that we will see, again, more drive for competition.
34:35
But that competition will be
34:40
not less information, but more information. Mm-Hmm . Right.
34:43
And similarly I see that the regulatory burdens will ebb and flow
34:48
each administration, this is not a comment on the current administration,
34:52
but every administration changes their focus. Yeah. Mm-Hmm . Right.
34:55
But the laws that Congress has put in place still remain,
34:59
and that ultimately less enforcement, more enforcement,
35:02
when more enforcement happens, it's very expensive. So keeping an eye to that,
35:07
I think is still really critically important.
35:10
Compliance costs are another way to actually look at being more competitive.
35:14
And I, and I'll do this as a way of saying, you know,
35:17
when companies engage in a fair lending analysis of their a US system
35:22
or their other origination system, or how they,
35:27
they market loans and so forth, they often find that in trying to be more fair,
35:31
they actually open the door wider because they're like, oh,
35:34
I didn't know that was a barrier of what I was looking at. Right.
35:38
And somebody made a comment earlier today that, hey,
35:42
the GSEs are not even using credit scores in underwriting. Mm-Hmm .
35:45
What are they using?
35:46
They're directly using that TRIMERS report mm-hmm .
35:49
And finding what matters and what doesn't matter directly in what they're
35:53
underwriting. Mm-Hmm. Right. Trying to open that door wider.
35:57
Credit scores are used in pricing. Well, to get more accurate pricing,
36:00
you need more accurate scores. Right.
36:03
And we're seeing that competition really opening up now with Vantage score and
36:07
the FICO score, 10 t that's going to open a door to more competition. And,
36:12
you know, it's something we haven't had before,
36:14
both scores being used as an option. So more competition is,
36:18
is part of that regulatory change that I see.
36:21
And who knows where it'll be 20 years from now,
36:24
or five years from now could change very dramatically.
36:26
Yeah. You talked about the accessibility of reports and scores in general.
36:33
And so when we think about the general consumer education,
36:35
there's a lot that we've talked about today that many are even learning that are
36:39
part of the industry and have been in the industry for a long time.
36:41
So if we think about the broader education of the general person,
36:45
the general consumer individuals,
36:47
how can empowering borrowers at that broader scale, you know,
36:52
to understand their reports and options and scores help them to reduce costs and
36:56
to make better decisions.
36:58
So I know that you've got college kids not at home anymore, but three of them,
37:02
you've got college kids. Right. And what I find really heartening is that
37:08
you know, starting with with Mind Gen, I'm a Gen Xer,
37:12
I think you probably are too, that, you know, credits,
37:15
credit reports sort of became something we became aware of when we got a
37:20
mortgage. Maybe not even be then. I'm not really sure. Right. That took a while.
37:24
But today college kids are talking to each other about how they can build their
37:28
credit report and how they can get access to credit and which credit card gets
37:31
the best value. And,
37:34
that's something that I didn't even think about getting a credit card in
37:37
college. That wasn't even a possibility.
37:38
We didn't even have interstate branch banking back then. Right?
37:41
So those innovations matter.
37:42
And then companies that have come about that counsel you on your credit
37:47
scores for free. And I,
37:51
I mentioned Credit Karma earlier,
37:52
but there are others the fact that your credits card companies now say, Hey,
37:57
we pulled your credit report. Do you want to not your report your score?
38:00
Do you want to know your score? And then there was pushback. Oh,
38:03
that's the vantage score. Nobody's using that for real. Oh yes, they are. Right.
38:08
That's a big, now a big part of auto lending,
38:10
card lending and soon to be mortgage lending. So those are legit scores, right?
38:15
They've been around for a long time, and.
38:16
They've been around a long time,
38:17
and they've proven themselves to be very accurate.
38:19
So I see now that younger younger adults,
38:23
and I don't want to label them because I think these labels sometimes get,
38:27
get crazy. But, you know, talking to 20, 25 year olds,
38:30
they know their credit score, they know their bank balance, right?
38:33
The ability to, to test your balance every day.
38:36
We used to wait for the mail to come with that balance, or worse, the notice of,
38:40
of overdraft, right? Mm-Hmm . Now, you know,
38:42
down just every day you can pull it up and see what,
38:44
what's coming through your account.
38:46
So I see younger people as being more and more empowered about that.
38:50
It's really reaching out and making sure that everybody is aware of that same
38:54
information. Social media is a great way that's happening.
38:57
And I see some of the Equifax stuff happening on, on social media.
39:01
Mm-Hmm . I think it's great content and very helpful.
39:03
So, well, thank you. And, and so I guess you mentioned several,
39:06
like emerging technologies or technologies that have just evolved over time,
39:10
like the accessibility through, you know,
39:12
applications on your phone or you know, just the, you know,
39:16
sharing of information in a more broad sense. What other, you know,
39:19
types of innovations or technologies do you see improving efficiency that could,
39:24
you really could help with cost effectiveness and credit reporting?
39:27
So ultimately, efficiency comes down to cost. And cost is not a single item.
39:33
It's gotta be the full picture. Mm-Hmm . Right? Speed is a big one.
39:36
If I can cut closing costs down because the appraisals are better faster
39:41
that the loan origination systems are pulling the information in directly rather
39:45
than manual data entry, right? Back in the day. Mm-Hmm .
39:48
Kinds of things. And again, I talk about instant verification of credit identity
39:54
the, the employment reports, right? That's a big key. Now,
39:58
getting that instant employment.
40:00
And if it's not instant because it's not on the work number that it becomes then
40:04
that you'll do, you'll that,
40:05
that you'll provide that service column up and get it done very, very quickly.
40:10
So, other innovations, you know, I hate the term ai,
40:14
but writ large is that our computer systems are getting bigger, better, faster.
40:18
I talked about trended data.
40:20
The reason trended data wasn't used in originations for so long was that the
40:24
pipes needed to transfer that over the internet weren't big enough for
40:29
these gigantic files in a timely way, right? Mm-Hmm .
40:34
I don't want it overnight, I want it now. I'm pulling the credit report now.
40:36
I want it now.
40:37
So the fact that cloud report and when did cloud stuff innovate?
40:42
Steve Jobs was talking about it, right?
40:44
We were going to move to the cloud and everybody said it's the cloud. Like,
40:47
come on, Steve, what are you talking about? It's now everything's on the cloud.
40:50
Yeah. So what does that give me? It gives me timeliness,
40:52
it gives me backup systems. So if this one's down,
40:55
I've got that one that can work as if you build the system, right?
40:58
You've got backups, right? That turns out South Korea didn't do that.
41:01
And there's government data,
41:02
statistics are down like gone because there was a fire.
41:06
So backups gotta have backups, okay?
41:08
But that efficiency is not just about cost directly,
41:13
it's about timeliness and it's about speed, right?
41:17
And so these innovations are happening faster than you and I are even talking
41:20
about it. Mm-Hmm . So.
41:22
That's where I see those. Yeah. It's really, and especially like,
41:24
one of the things that was particularly interesting to me today was the
41:27
migration. We talk about ai, artificial intelligence,
41:30
and then the movement to quantum computing. Yes.
41:32
Which is really just the probabilistic thinking, like the human brain,
41:35
how we can think through scenarios.
41:37
That's what qu that's all quantum competing is. So I'm,
41:39
I'm particularly interested in looking forward to some of those innovations,
41:43
especially as we look to, you know, expand things that are happening here.
41:46
So I do have one final question for you. Sure.
41:48
And this is coming from a more global perspective. You know, we talked,
41:52
we've talked about you, you hit on some of the global things you know,
41:54
already with how other, you know,
41:56
countries may be doing things similar or different than us, but, you know,
41:59
when we think about global practices and how they compare, are there lessons,
42:03
you know,
42:04
in addition to the ones you've already shared from other countries and their
42:07
lending systems that the US could learn from,
42:09
which we oftentimes think we know a lot,
42:11
but there's a lot of stuff that we can learn from elsewhere that from a cross
42:15
pollination perspective to continue to improve as well?
42:18
Yeah. I mean, for better or for worse, GDPR, which was the,
42:23
it's a consumer data portability. Mm-Hmm . And privacy, right?
42:28
So I think of those as being innovations that we're very pro-consumer, that we,
42:32
in the US we're very reluctant to do, again,
42:35
with getting out of that rut has now created opportunity.
42:40
So every time we have these changes, we tend to think, Ugh,
42:43
they're just making me change the way I'm doing for no good.
42:47
And now I see it as companies that went through those changes are now like, oh,
42:51
wow, here was an opportunity I didn't think about.
42:53
And so I think of these things as there's still a lot of opportunity to change
42:58
our thinking and about the, the way that we do things.
43:02
I'm pretty sure when the work numbers started, people are like,
43:04
why do we need that?
43:06
And now that I look at it again from a consumer perspective, I'm like,
43:10
that was the biggest benefit to me, right. To have.
43:14
It's like the other question now, payroll.
43:15
Data.
43:15
Like why didn't, why aren't, why did we do that sooner? Right.
43:17
Exactly. Mm-Hmm .
43:18
And so I'd love to see that more of those innovations happened.
43:22
The data collection is out there, it's starting to be better.
43:26
Rent rent's another good example. So mm-hmm .
43:28
Where will we be the big thinking Other countries didn't have as much
43:33
reliance on credit, so they had to use rental payments. How did they get that?
43:37
They got that through bank statements.
43:38
They got that through reporting companies and so on.
43:40
So I look at other countries as the way they,
43:43
they push these different consumer protections,
43:46
banking protections as opportunities that we could look at for how can we save
43:51
money, say yes to more borrowers in a way that they're successful.
43:55
I don't want to see somebody get a mortgage loan and fail.
43:58
So I really think of that as, as being, you know, both beneficial.
44:01
Yeah. Well, I, I encourage everyone out there,
44:04
this was one of the most robust papers I've read in a long time that takes it
44:09
from the shop to the top.
44:10
I think it has something relevant for anyone in the industry.
44:13
I certainly thoroughly enjoyed it as much as I enjoyed the conversation,
44:16
which was based on your paper that you wrote. So first,
44:19
I want to thank you for sharing your insights and walking us through this
44:23
important research your study.
44:25
I feel like it grounds the debate and data context, practical implications.
44:30
How can our listeners get in touch with you if they have questions?
44:33
Sure. Love, love to hear that. Well, two ways. One is directly through
44:40
amy@accutts.com. Mm-Hmm . That's the easy way.
44:42
And then the alternative way is through your Equifax team,
44:46
because I'm a regular you know, contributor to your.
44:50
Webinars webinar series to whole Market Pulse series. Series,
44:53
our podcast series. Yep. Yep.
44:54
So it's another great way to, to reach me.
44:57
You know, really appreciate your time and your expertise. As always,
45:00
I always enjoy having a conversation with you,
45:02
and we'll be watching closely as this continues to evolve.
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And thank you to everyone.
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Tuning in to the special edition of the Market Pulse podcast recorded
45:12
live at MBA annual 25 Stay connected for more insights on
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what's next in credit housing and financial inclusion.
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The information and opinions provided in this podcast are intended as general
45:26
guidance only, and are subject to change without notice.
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The views presented during the podcast are those of the presenter as of the
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date.
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This podcast was recorded and do not necessarily reflect official positions of
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Equifax.
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Investor analysts should direct inquiries using the contact us box on the
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investor relations section@equifax.com.