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