Morsa Images | Digital Vision | Getty Images
There are certain items in a homebuyer’s closing costs that are causing conflict in the mortgage industry. It’s a fee for lenders to check a borrower’s creditworthiness.
Fees typically in the tens or hundreds of dollars are only a fraction of what buyers pay when a home purchase is completed, but their costs have risen sharply in recent years. Costs could rise by an average of 40% to 50% in 2026, according to a Dec. 12 letter from the Mortgage Bankers Association to Federal Housing Finance Agency Director Bill Pulte.
The industry group called on FHFA to give mortgage lenders the option of relying on a single credit report (known as a “tri-merge” report) rather than three credit reports for borrowers with credit scores of 700 or higher.
Lenders typically require a minimum credit score of 620 (usually between 300 and 850), but Fannie Mae, a government-backed company and buyer of mortgage loans, announced in November that a minimum score would no longer be required for applications processed through its automated underwriting system.
Nevertheless, most homebuyers have higher credit scores and stand to benefit from such changes. According to the Federal Reserve Bank of New York, the average credit score for first-time home buyers in 2024 was 734. The average score for repeat buyers was 775.
The FHFA oversees Fannie Mae and Freddie Mac, the largest buyers of mortgage loans on the secondary market. Now, lenders who want to sell mortgages to Fannie and Freddie, which most do because the transaction gives them money to make further loans, must use a trimerge report that reflects their credit score and reports from the three largest credit reporting companies. equifax, Experian and trans union.
“The cost of requiring a tri-merge report has increased exponentially,” said Al Bingham, loan officer at mortgage company Momentum Loans in Sandy, Utah. “That’s strange.”
Closing costs range from 3% to 6% of the loan amount
Of course, credit report fees are just one of many costs that have skyrocketed in recent years, both in housing and in the economy as a whole. And for homebuyers, the increased fees they pay for credit reports and scores can be negligible compared to the much larger numbers when closing a loan.
Buyers face other closing costs, such as loan origination and underwriting fees, agent fees, and expenses such as home appraisals and inspections. In total, these costs typically range from 3% to 6% of the loan amount and are added to your down payment. Example: A $350,000 mortgage would be between $7,000 and $21,000.
Mr. Bingham provided a pricing example showing that the identified cost of a basic tri-merge report will increase by 40.4% year over year, from $33.50 last year to $47.05 per individual applicant in 2026. That amount is on the low side, he said.
Lenders typically obtain a borrower’s credit report twice during the home buying process. Once at the time of application and again just before the loan closes to ensure there are no material changes. Therefore, if both lenders file a tri-merge report, the above amount would be doubled to $94.10 for an individual, Bingham said. For couples, it’s four times as much, or $188.20. However, prices vary depending on the financial institution.
In other words, these prices get a lot of attention even though they’re a fraction of the closing costs that buyers pay, let alone the home itself, said John Alzheimer, a credit expert and president of Alzheimer Group in Atlanta.
“I understand that they want to save money (on that expense), but to me it’s a negligible cost when you consider the cost of making the wrong decision on a mortgage,” Alzheimer said, adding that three reports provide more information than one.
“Most risk managers would probably say they wouldn’t ignore more information to make a decision,” he said.
Part of the problem for lenders is that if a potential homebuyer doesn’t finalize the deal, the cost of the credit report won’t be passed on to the buyer — meaning the lender will absorb the cost, Bingham said.
FHFA is considering “various options”
A December letter from MBA to FHFA outlines the proposal. The group reiterated this point in written testimony to a Congressional subcommittee during last week’s hearing on homeownership and the role of the secondary mortgage market.
It is unclear whether FHFA is considering the proposed use of a single report. “We are considering a variety of options to improve the housing market,” a spokesperson told CNBC in an email.
Of course, there are opposing opinions to this proposal. The Consumer Data Industry Association, which represents credit reporting companies such as Equifax, Experian and TransUnion, issued a statement supporting the continuation of the three-way merger report, saying it will promote data accuracy, market competition and investor confidence.
There has been a lot of criticism in the industry as to why credit report prices have skyrocketed. CDIA said in a statement that FICO “has steadily increased prices year after year.” FICO offers the “classic” FICO credit score. Until recently, this was the only score that lenders could use for mortgages sold to Fannie and Freddie. The Mortgage Bankers Association said in a blog post that both the credit reporting companies and FICO are to blame.
A FICO spokesperson said in an email to CNBC that the company has no control over how other companies price scores or credit reports.
In late 2024, FICO announced that its 2025 royalty on mortgage originations would be $4.95 per score, not accounting for the inflation boost of the past several years, which would be FICO’s fourth royalty increase in the mortgage industry since the scores were released in 1989.
This year, the company also introduced a direct lender score that bypasses credit bureaus.
VantageScore 4.0 approved but not yet used
Other changes related to mortgages and credit scores are also taking hold. FHFA announced last year that lenders could begin using certain VantageScore scores, rather than just traditional FICO scores, for loans sold to Fannie and Freddie.
VantageScore is a joint venture of Equifax, Experian, and TransUnion. It was created in 2006 as a competitor to the FICO Score, which has been around since 1989. Both brands use similar data to calculate their numbers, including outstanding debt, payment history, and other financial information that helps predict whether you’ll pay back the money you borrow. The most well-known versions of VantageScore and FICO have scores on a scale of 300 to 850.
The approved VantageScore (VantageScore 4.0) differs from traditional FICO scores in several ways, including considering alternative data such as rent and utility payments when evaluating a consumer’s creditworthiness.
However, VantageScore 4.0 has not yet been introduced.
“While this approval is an important step, the industry is currently awaiting additional guidance and operational details needed to implement the adoption,” said CDIA President and CEO Dan Smith.
FHFA has also approved the use of FICO 10T, a score that also considers alternative data such as a consumer’s credit usage patterns over at least 24 months rather than a snapshot in time, but FHFA has not yet said that lenders can begin using the score for loans sold to Fannie and Freddie.
