February 2, 2024
By Julie Piepho, Principal, BlackFin Group
Gone are the days when credit report fees were cheap, and they were ordered by the dozens for whatever customers the loan officers wanted. The past two years have shown a dramatic increase in fees due to FICO increasing their fee to the bureaus which is then passed onto the customer. The practice of 99% of mortgage companies of not charging the customer the credit reports up front may be changing due to the rapidly increasing cost. As lenders look at their credit report costs the main focus needs to be on the “stranded cost” – credit reports that never turn into a closed loan and are typically pre-quals and on-line apps.
How companies handle pre-qualifications with credit reports vary. Some allow soft pulls where the cost is not charged to the customer, the cost is minimal however the data provided leaves gaps in the evaluation / eligibility determination process. One of the benefits of doing a soft pull is it allows the customer to do the opt-out for trigger leads, which takes about 3-5 days, which can then allow the loan officer to customize a loan program for the customer and then pull a full prequalification credit report with 3 bureaus which is much more expensive.
Another method is for the loan officer to pull one or two bureaus to see what the credit looks like; the cost is higher but so is the level of data for qualifying purposes. Or many will just jump immediately to the more expensive full prequalification credit report, which then allows AUS to be run.
If the full prequalification credit report is run, is this the time for the loan officer to charge the customer for the fee? Many mortgage companies are now starting to incorporate this practice into their workflow or are strongly thinking about it.
Now is the time to calculate the pull-through rates on prequalification to application to closing by loan officer. If this hasn’t been done in the past, these numbers might astound you, and this is where you could see a big loss to the bottom line. If many of the loan officers are always pulling the more expensive full prequalification credit report and their pull-through ratio is only 20-25% to application, all those fees will directly impact the bottom line of the branch/company, unless they are collected up front.
Today, it is not uncommon to see the ‘stranded’ credit report costs of 1 to 1.5% of closed loan volume, and this is only getting worse due to the inventory challenges driving longer shopping periods. While charging for credit reports may drive away some potential customers the cost can’t be ignored; especially when this could make the difference on retaining one or more valuable colleagues. It is time to look at fees that are non-reimbursable. Which fees are and which ones aren’t? Credit report fees may be one that you want to take that hard look at to see if you can start decreasing that cost to your bottom line.
Julie Piepho, CMB, is a Principal Consultant with BlackFin Group in the Mortgage Strategy Practice. Julie is nationally recognized as a Mortgage Strategy Consulting expert with over four decades’ experience leading and coaching sales and operations teams while in executive roles at Cornerstone Mortgage, Norwest Mortgage and Wells Fargo Mortgage. She holds the prestigious Master Certified Mortgage Banker designation from the Mortgage Bankers Association. For more information on how we can help contact firstname.lastname@example.org