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Advertisement

MORTGAGE WOMEN MAGAZINE


FICO INCREASES 400% FOR TIER 3 LENDERS

Finding solutions in soft pull credit reports

Insider
Chrissy Brown
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Link copied


As lenders reached the final stretch of a very challenging 2022, they were met
with the news of yet another obstacle. One that adds an additional layer of
financial strain to an already struggling industry. Obviously, any financial
increase for our industry adversely impacts the American homebuyer. Especially
when there is very little to zero margin that allows the lenders to absorb the
increase. As most everyone knows at this point, FICO has increased their fees by
400% for Tier 3 Lenders.

What is a Tier 3 Lender? Long and short, most of all lenders. There are 46
lenders in Tier 1 and 6 lenders in Tier 2. They state the tiers are based off
volume. Up until this point, FICO has charged a $.60 royalty to all lenders,
regardless of size. As of 2023, the playing field will be uneven based on your
tier.

Advertisement


Why is this concerning the affordable housing issue that is affecting our
industry? As with any industry, when the cost to produce increases, the end user
feels the impact. Historically, data proves that the IMB sector originates most
of the affordable housing loans. Most of the IMBs fall into the Tier 3 sector.
Therefore, the lenders that are not as adversely impacted can charge less.

However, they are not the lenders originating for this demographic. Isn’t this
counterintuitive to everything we continue to hear? As a lender, we are
constantly getting pressure from the government agencies to solve this crisis in
our Nation. It is frustrating to be the ones delivering on this issue and then
receive more adverse pricing. At the end of the day, it is unfair to the
borrowers wishing to obtain the dream of homeownership.

The affordable housing crisis in America is real and progressively got worse
throughout 2022. Affordability … has hit the worst level in 37 years.



The affordable housing crisis in America is real and got progressively worse
throughout 2022. Affordability (as quoted by Yahoo Money via Black Knight data,
September 2022) has hit the worst level in 37 years. As of September 2022, the
income-to-payment was 35.51%. As stated in that article, it is the highest
income-to-payment ratio since October 1985, which was 36.01%. Not an ideal
environment to increase cost to produce.

Why is FICO doing this? “Beginning in December 2022, consistent with other
markets such as auto loans, credit cards and personal loans, and based on
changes in pricing from our third-party supplier, FICO scores will be priced at
a tier-based pricing structure for mortgage,” a statement from an Equifax
spokesperson said. “As a result of this change, Equifax recently informed
customers that on Jan. 1, 2023, Equifax will move mortgage industry pricing to
this tier-level structure. The new tiered pricing structure to the bureaus is
tied to the entire mortgage industry.”

Advertisement


To be fair to this situation, a peer of mine made a very solid observation. Most
likely the rise in SoftQual/SoftPull technology is going to hurt the overall
bottom line for the large bureaus. What is SoftQual/SoftPull? It’s the ability
to run up to a three-bureau credit report without having any impact on the
score.

This technology is a game changer when working with folks that have credit
challenges they are trying to overcome. They can work on their credit without
having that constant impact to their score. The cost is substantially less than
a full tri-merge report. You still must obtain a tri-merge in order to close.
However, the pull through rate of credit pulled to close would shock you. To
lower that amount is a win for lenders/borrowers and a loss for the bureaus.

The industry has some strong feelings about this not being fair and/or the right
time to add an additional cost to an already strained industry. As this change
probably “is what it is,” our hope is that we can continue to leverage the
SoftQual/SoftPulltechnology to provide a better and cheaper solution for our
clients.

This article was originally published in the Mortgage Women Magazine January
2023 issue.

More from this issue
Chrissy Brown,
Chief Operations Officer, Atlantic Bay Mortgage
Analysis and Data
Facebook LinkedIn Twitter Email
Link copied
Published on
Jan 27, 2023

More from Mortgage Women Magazine
MORTGAGE WOMEN MAGAZINE
Working To Change The Upper Levels Of Business

Tricia Migliazzo has garnered great success at Lenders One helping others

Laura Brandao
MORTGAGE WOMEN MAGAZINE
Job Transition: When Is The ‘Honeymoon’ Over?

How long does the lovefest last for you or your new boss when you land the
position of your dreams?

Tina Asher
MORTGAGE WOMEN MAGAZINE
Complex Algorithms Causing Complex Compliance Issues

Complying with Reg B and ECOA on adverse action

Tyna-Minet Anderson
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