Bi-Merge Credit Reports: The FHFA’s Game-Changing Rule for Homebuyers

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A common misconception in the mortgage procedure is that the more credit reports and scores, the better. However, the reality is different, and this is particularly true for credit reports and scores. The big three Credit Bureaus, however, are advocating that consumers should purchase three credit reports and six scores to secure mortgage approval, arguing that it’s in the consumers’ best interest. However, this standpoint could lead to higher costs and decreased competition.

An affordable method for mortgage applications utilizing bi-merged credit reports

Key Takeaways:

  • There is a common misconception that more credit reports and scores are always better for securing mortgage approval. The big three Credit Bureaus have been advocating for consumers to purchase three credit reports and six scores.
  • In October 2022, the Federal Housing Finance Agency (FHFA) announced that mortgage borrowers would no longer be required to provide a tri-merge credit report from all three major credit bureaus. A bi-merge report from just two credit bureaus is now sufficient.
  • The shift from tri-merge to bi-merge reports represents a cost-saving measure for prospective homeowners, which is significant in the context of rising mortgage-related expenses.
  • he new requirement is expected to introduce more competition into the credit reporting market, which has been dominated by the three major credit bureaus, potentially leading to improved practices.
  • Some Republicans on the Senate Banking Committee have voiced concerns that bi-merge reports may lead to incomplete data for entities like Fannie Mae and Freddie Mac. However, this concern is mitigated by the fact that the majority of information is reported to all three bureaus by major financial entities.
  • TransUnion suggests that while the bi-merge report could prevent some consumers from qualifying, it could also make another group of consumers eligible for mortgages who previously were not.
  • The transition to bi-merge reports is seen as a positive development that reduces costs for consumers and introduces beneficial competition, despite some industry concerns.
  • For those struggling to navigate their credit options, professional credit repair services are recommended as a source of guidance.

In October 2022, the Federal Housing Finance Agency (FHFA) made a significant announcement. It stated that mortgage borrowers no longer need to provide a “tri-merge” report featuring credit reports and scores from all three major credit bureaus. Instead, a “bi-merge” report with details from just two of the credit bureaus would suffice. The move is beneficial for prospective homeowners in two ways.

Firstly, purchasing two reports is unequivocally cheaper than three. In an era where costs associated with mortgages are escalating, including the prices of credit bureaus and FICO, this cost-saving measure is increasingly significant.

Secondly, mandating two credit reports would induce a modicum of competition into the credit reporting market, currently dominated by only three companies. This change could potentially encourage credit bureaus to enhance their practices, shifting the market away from a functional monopoly.

Republicans on the Senate Banking Committee have expressed concerns about this change, claiming that the bi-merge may lead to incomplete data being reported to organizations like Fannie Mae and Freddie Mac. However, with approximately 85% of information being reported to all three credit bureaus by major entities such as large credit card issuers, student loan servicers, mortgage lenders/servicers, and auto lenders, the argument lacks weight.

TransUnion has argued that the bi-merge report could prevent the qualifying of up to 2 million consumers with a middle score over the minimum required 620. Conversely, their research indicates that another 1.8 million consumers, unqualified with a tri-merge report, will now become eligible with a bi-merge report. This introduces a new perspective that may outweigh the initial concern.

The big three have raised concerns regarding the potential harm to consumers with a thin credit file due to their limited credit history. However, there are alternatives available for these consumers, such as Fannie Mae and Freddie Mac’s programs, which consider bank account transaction data to show rental payment history.

Above all, acquiring two is still less expensive than three, and competition still outshines monopoly. Applause is due for the FHFA for their smart move from a tri-merge credit report to a bi-merge report. If you’re having difficulty navigating your credit, consider seeking professional credit repair services for guidance.

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