The Hidden Cost of 'Modernizing' Your Mortgage

NEW YORK, NY – February 20, 2026 – A push to "modernize" the mortgage industry by simplifying how lenders check credit could unexpectedly raise borrowing costs by thousands of dollars for millions of American homebuyers and inject new risk into the housing market, according to a new study.

The research, published by financial analytics firm Andrew Davidson & Co., Inc. (AD&Co), challenges the notion that moving away from the long-standing "tri-merge" credit report—a comprehensive look at a borrower's history from all three major credit bureaus—is a simple step toward efficiency. Instead, the findings suggest that relying on a single credit report could lead to less accurate risk assessments, forcing investors to demand higher interest rates and potentially making it harder for many to qualify for a loan at all.

A Gamble of Thousands of Dollars

For decades, the foundation of mortgage underwriting has been the tri-merge report, which combines data from Equifax, Experian, and TransUnion. Lenders typically use the median of the three resulting credit scores to price a loan. A new analysis, however, reveals just how much those scores can vary and what that variance means for a borrower's wallet.

The AD&Co study, which analyzed data from 245 million consumers, found that relying on a single bureau's score instead of the tri-merge median would frequently produce a different result. For 35% of consumers, at least one of their individual scores differed from the tri-merge standard by 10 points or more. For 18%, the gap was at least 20 points, and for a notable 7%, it was a significant 40 points or more.

While a 20-point swing might sound minor, in the world of mortgage finance, it can be monumental. For borrowers in the common 640-779 credit score range, a 20-point difference can easily push them into a different pricing tier for government-sponsored enterprise (GSE) loans, governed by Loan-Level Pricing Adjustments (LLPAs).

The financial consequences are stark. According to the research, for a homebuyer taking out a $350,000 loan, falling into a less favorable pricing bucket due to a lower single-bureau score could increase the total cost of their mortgage and private mortgage insurance by $3,000 to $5,000 over the life of the loan. This added cost represents a direct hit to housing affordability for families across the country.

An Industry Divided: Risk vs. Efficiency

The debate over the tri-merge standard pits two competing visions for the future of the mortgage market against each other. Proponents of change, including powerful industry groups like the Mortgage Bankers Association (MBA), argue that the tri-merge requirement is an "outdated relic." They contend it stifles competition among credit reporting companies, leading to inflated prices for credit reports that are ultimately passed on to consumers at closing. They point to other lending sectors, such as auto and home equity loans, where single-report underwriting is the norm, as evidence that a more streamlined process is viable.

On the other side, a coalition of credit reporting associations and risk analysts warns that this pursuit of efficiency comes at a dangerous price. They argue that the three reports provide a crucial, more complete picture of a borrower's financial health, as not all creditors report to all three bureaus. The National Consumer Reporting Association (NCRA) has called the idea of using a single credit pull "reckless and irresponsible," warning it would degrade accuracy and lead to higher prices and risk.

This camp also raises the specter of "score shopping." In a non-tri-merge world, a lender could potentially pull reports from all three bureaus but only submit the one with the highest score to the loan investor. The AD&Co study found that about 9% of all consumers could see their score jump by 20 points or more through such selection. While this might seem beneficial for the borrower in the short term, experts warn it masks the true risk of the loan. This increased uncertainty would likely cause investors, who buy mortgages on the secondary market, to demand higher compensation, leading to higher interest rates for everyone.

The Tightrope of Modernization and Equity

Caught in the middle of this debate are regulators and, most importantly, homebuyers, particularly those from underserved communities. The Federal Housing Finance Agency (FHFA) has been tasked by Congress with modernizing the credit scoring models used for loans sold to Fannie Mae and Freddie Mac. This led to the approval of a new model, VantageScore 4.0, to compete with the long-dominant FICO score, a move intended to improve accuracy and expand credit access.

Initially, the FHFA suggested it might allow lenders to use a bi-merge (two-bureau) report with the new models, but more recently reaffirmed that the tri-merge requirement would remain for now, highlighting the complexity and high stakes of the decision.

"We are going through a modernization phase in the mortgage industry," said Sanjeeban Chatterjee, Director of Behavioral Modeling at AD&Co, in the press release accompanying the study. "At such times, it is important to understand the impact of the changes so that the stakeholders can make the right decisions. This study shows why knowing more is better from a risk management and affordability perspective."

The AD&Co study and other analyses underscore that the potential negative consequences are not distributed equally. The research explicitly states that the increased uncertainty from using less data is "greater for minority borrowers and for consumers with lower credit scores." These are often the same individuals who have "thin" credit files or rely on alternative data like rent payments, which may only be reported to one or two bureaus. A move to a single-report system could render them invisible to lenders, shutting them out of homeownership opportunities. Research from TransUnion projected that a shift to a single-pull model could make over four million otherwise-qualified homebuyers ineligible for a mortgage.

As the industry continues to navigate its evolution, the central question remains: how to balance the drive for innovation and cost-efficiency with the fundamental need for a stable, fair, and inclusive housing market. For millions of aspiring homeowners, the answer could determine whether the door to their first home is opened or closed.