A spokesperson for the CDIA wrote HousingWire that the trade group “remains committed to our position that tri-merge promotes data accuracy, market competition and investor confidence.”
According to Broeksmit, this criticism comes from ‘the agencies that profit richly from a privileged market position that protects them from competition’ and that operate in a ‘government-granted oligopoly’.
Broeksmit added that Fannie and Freddie produce loans with impeccable credit quality, citing recent public reports showing an average credit score of 757, with 75% of loans having a score above 740 and only 6% below 680.
“From a risk management perspective, requiring three files and three scores for each borrower has long been an anachronism,” he said. “Our single file proposal protects against excessive risk taking by setting a credit score of 700 and allowing lenders to request two or three reports and scores at their discretion.”
According to the CDIA spokesperson, “Bob’s outbursts aside, the data supports our position. Studies have shown that there can be a difference of as much as 25-30 points between a borrower’s high and low credit scores, which can result in a significant increase in costs for consumers.”
The Community Home Lenders of America (CHLA) has also pushed back against the MBA proposal, releasing a white paper in mid-January arguing that the three major credit bureaus rely on materially different data sets.
Broeksmit noted in his speech that the agencies do not interact with consumers at the point of sale, adding that if CDIA or the credit bureaus “ever want to have a serious and constructive dialogue, get me involved.” He said the two sides do agree on one point: that more competition in credit scores would be a positive development — “even if the entity that would provide that competition is, wait for it, owned by the three agencies.”
Other proposals
A single-agency credit pull is one of several proposals from the MBA aimed at addressing housing affordability. Others include a reduction of Federal Housing Administration (FHA) mortgage insurance premiums (MIP) and changes to loan-level price adjustments (LLPAs), with a focus on middle-income homebuyers, primary home purchases, and rate-and-term refinances.
These topics, which were absent from President Donald Trump’s Davos speech, are expected to be addressed in his State of the Union address on February 24.
On Trump’s executive order to prevent large institutional investors from competing with individual home buyers, Broeksmit noted that only about 3% of homes are owned by institutional investors, when defined as entities that own 1,000 or more properties.
“We understand that the issue is more acute in certain markets, such as Nashville and Atlanta, so there is clearly a political rationale for addressing this issue,” Broeksmit said. “But it won’t do anything to make the loan transaction cheaper from the next first-time home buyer.”
According to Broeksmit, ideas the MBA hopes will be shelved include 50-year mortgages and transferable mortgages as the industry tries to “unlock the lock-in effect.”
The MBA also believes that the idea of allowing penalty-free use of 401(k) funds for down payments is worth exploring because the concept would not involve borrowing from retirement plans, but rather converting 401(k) assets into real estate.
“If you look at the down payment, which is your real real estate investment, and then the appreciation you get for the full price of the house, your return on real estate over time is quite good,” Broeksmit said. “So we actually hope that this is not a dead letter, but the president did pour some cold water on it on the plane back from Davos.”
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