Corporate Counsel Daily, CFPB examines potential rulemaking to increase competition, affordability in credit reporting for mortgage lending, (May 21, 2024)

By Lauren Bikoff, MLS

During his speech, CFPB Director Chopra asked for feedback to help the agency combat the rise in mortgage closing costs.

During his May 20 remarks made at an event held by the Mortgage Bankers Association, Consumer Financial Protection Bureau Director Rohit Chopra discussed how credit reports and credit scores are increasing costs for both mortgage lenders and homeowners. The three largest credit reporting companies in the nation—Equifax, Experian, and TransUnion—rely on a single scoring model from the Fair Isaac Corporation (the FICO score), which has led to a situation where most lenders have been forced to pay fees increasing at a rate that “far outpaces inflation.” In fact, mortgage lenders report that costs for credit reports and scores have increased by as much as 400 percent since 2022, Chopra noted.

“Mortgage lenders in the U.S. increasingly face a lack of competition when it comes to accessing data and reports needed for loan origination,” Chopra said. “In many cases, a handful of firms have cornered the market, allowing those companies to levy a tax on every mortgage application or transaction in the country. The result is that mortgage lenders can evaluate fewer applicants, and homeowners end up eating higher costs, typically at closing.”

Chopra noted changes to a flat fee announced structure by last November, which more than quadrupled costs for what were lenders originally in FICO’s “third tier.” He said, “Lenders who attempt to pass on to borrowers the cost of screening applicants risk violating legal limitations on charging borrowers legitimate fees. This means that as the costs of screening applicants rise, and in particular, the costs increase for the initial screening credit reports, some mortgage lenders will choose to evaluate fewer borrowers overall.”

He concluded by stating that the Bureau is analyzing the rise in mortgage closing costs, including credit reporting costs. He asked attendees for input for a potential rulemaking and guidance that will help “improve competition, choice, and affordability.”

Companies: Equifax; Experian; Fair Isaac Corporation; Mortgage Bankers Association; TransUnion

RegulatoryActivity: ConsumerCredit CFPB FairCreditReporting GCNNews Loans Mortgages