Mortgage tech company Blend has launched a soft credit inquiry function for lenders at a time when the industry is facing higher credit report fees.
Credit bureaus and Fair Isaac Corp. (FICO) upped the cost of pulling a hard credit file starting in 2023. In some cases, the costs have increased by four to five times what they were previously.
“With Blend’s soft credit functionality, lenders can expect to save about $50 per file for borrowers at this high-attrition stage of the process,” the company said Tuesday.
Blend noted that lenders who adopted soft credit into their workflows saved up to 71% compared to lenders utilizing all hard inquiries.
Mortgage lenders were grouped by FICO into three tiers, with a wholesale price increase of less than 10% for the top tier of approximately 46 lenders. The cost increased by about 200% for approximately six lenders in the middle tier, and by more than 400% for all other mortgage lenders in the nation, according to a letter from the National Consumer Reporting Association (NCRA) in November.
According to FICO, it charges a royalty of about $0.60 per score to all mortgage lenders, no matter their size. The increase for any tri-merge report is no more than $6 for most lenders; any higher costs are from charges being added by others, FICO said in a statement.
Hard credit pulls has been a hot topic in Congress, with Representative Ritchie Torres (D-NY) introducing a bill in late April that would amend the Fair Credit Reporting Act to prohibit the creation and sale of trigger leads.
Trigger lead takes place when a consumer applies for a mortgage. The inquiry to a consumer’s credit by a mortgage company is a trigger that notifies the credit bureau that the consumer is interested in applying for financing.
The trigger lead is then sold by the credit bureau – including Experian, TransUnion and Equifax – to data brokers, including competing mortgage companies, without the consumer’s knowledge or approval.
This won’t lead to expensive consequences with soft credit pulls, thus removing the friction between borrowers and lenders that can happen when more in-depth preliminary checks occur, Nima Ghamsari, co-founder of Blend, said in a recent commentary.
In addition to reduced costs, lenders gain a competitive advantage when utilizing soft credit pulls. It enhances the borrower’s experience and makes the process more seamless, Ghamsari noted.
About 45% of all credit checks on the Blend platform are soft inquiries, according to the firm.
Blend’s launch of the soft credit pull function couldn’t be timelier, especially given the recent surge in credit report fees. Not only does this reduce costs and enhance borrower experience, it also provides a strategic advantage for lenders by not ‘spooking’ competitors. A soft pull means other lenders remain unaware of the inquiry, reducing the risk of creating unnecessary competition. A game-changer for the industry!