Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
- FHFA Director Bill Pulte confirmed the agency is conducting an exhaustive analysis of the three national credit reporting agencies.
- Shares of the large data collection agencies, including TransUnion and Equifax, declined in the aftermarket.
- Pulte’s statement followed his earlier disapproval of FICO's credit pull fees and pricing practices.
The chief of the Federal Housing Finance Agency, Bill Pulte, surprised the credit world on Friday after posting on the social platform X that FHFA is in the midst of “doing a full-scale review of all credit bureaus.”
The post followed days of public tweets where Pulte has criticized the fees and dominance of credit score firms, specifically FICO.
Although the message in the tweet was brief, the markets were quick to react.
Shares of Equifax and TransUnion declined by more than 1%; TransUnion had dropped by as much as 2.5% but partially recovered. Shares of FICO also declined, continuing the drop that had begun after the initial May panning by Pulte.
The tweet was in response to an X user who posted that the credit bureaus all must be abolished, claiming they have too much power. Pulte’s statements never went to such extremes, but he did foretell change is in the future.
Pulte Reinstates Pressure Campaign Against FICO
Pulte’s earlier statements show he has FICO in his crosshairs.
In May, he posted he was “still not happy with FICO” and vowed options would materialize in the coming weeks. That post was in reply to news of some mortgage credit pulls costing more than $100. That’s a far cry from the days when the cost was set in stone at $14.50.
Sector Responds to Exorbitant Fees
The industry and mortgage brokers have long complained of higher fees for credit reporting.
Organizations like the National Association of Mortgage Brokers (NAMB) claim the fees drain the pockets of already burdened home loan borrowers. NAMB President Jim Nabors called the fees “almost predatory.“
Bi-Merge and After: A System in Transition
One of the prospective reforms under consideration is to move away from a tri-merge credit report, a comprehensive credit report that combines information from all three major credit bureaus in the U.S.: Experian, Equifax and TransUnion, to a bi-merge system.
That would allow Fannie and Freddie to use two credit reports instead of three in the loan-evaluation process.
The FHFA made plans to roll out the transition in 2022 but then shelved the rollout. The proposal is still under consideration.
The debate in Washington over FICO substitutes is also growing. Products such as Plaid’s cash-flow-based product and VantageScore 4.0 are gaining supporters. These would allow lenders to assess risk in the form of rent payments and bank statements, expanding access to credit for consumers without typical credit histories.
Some legislators support expanding the types of information that can be used in credit decisions, such as utilities and phone company payments. Others have called for greater oversight of pricing activity.
Pulte’s most recent X entry may not change policy overnight, but his voice is extremely influential. As the agency chief in charge of the companies responsible for Fannie Mae and Freddie Mac, he is responsible for guiding how creditworthiness is taken into consideration for the overwhelming majority of U.S. mortgages.
The mere mention of reform shook markets and jolted an established credit-scoring methodology.
For now, market players are taking notice. Policy changes by FHFA could restructure the credit landscape for lenders, consumers, and the bureaus.
