REGULATORY CORNER

CFPB FINDS ONE-THIRD DECLINE IN COLLECTIONS ITEMS ON CREDIT REPORTS

The Consumer Financial Protection Bureau (CFPB) released a report examining trends in credit reporting of debt in collections from 2018 to 2022. The report found the total number of collections tradelines on credit reports declined by 33%, from 261 million tradelines in 2018 to 175 million tradelines in 2022. The share of consumers with a collection tradeline on their credit report decreased by 20% in the same timeframe.

The CFPB also released additional analysis examining factors that increase the likelihood of inaccurate medical collections reporting and may contribute to the decline in medical collections tradelines.

“Our analysis of credit reports provides yet another indicator that, due to a strong labor market and emergency programs during the pandemic, household financial distress reduced over the last two years,” said CFPB Director Rohit Chopra. “However, false and inaccurate medical debt on credit reports continues to be a drag on household financial health.”

Collections tradelines are furnished to credit reporting companies by third-party debt collectors. Commonly reported collection items include medical, rental and leasing, credit card, and utility accounts. Some third-party collectors work on behalf of original creditors for a fee (“contingency-fee-based debt collectors”) and others purchase accounts outright from creditors (“debt buyers”).

Unlike most other tradelines, debt collection tradelines rarely report positive information like on-time payments, and result in reporting of collections tradelines being almost entirely harmful to consumers. Collections tradelines are visible to potential lenders, employers, landlords, and others who run credit inquiries or background checks. Collections tradelines can limit people’s access to jobs and housing, as well as decrease credit scores and increase the cost of credit. Given the potential damaging impacts of collections tradelines, reporting of inaccurate data is especially harmful.

The report is drawn from the CFPB’s Consumer Credit Panel, a nationally representative sample of approximately 5 million de-identified credit records maintained by one of the three nationwide credit reporting companies.

FHFA ANNOUNCES UPDATES TO SINGLE-FAMILY PRICING FRAMEWORK

The Federal Housing Finance Agency (FHFA) announced further changes to Fannie Mae’s and Freddie Mac’s (the Enterprises) single-family pricing framework by introducing redesigned and recalibrated upfront fee matrices for purchase, rate-term refinance, and cash-out refinance loans.

“These changes to upfront fees will strengthen the safety and soundness of the Enterprises by enhancing their ability to improve their capital position over time,” said Director Sandra L. Thompson. “By locking in the upfront fee eliminations announced last October, FHFA is taking another step to ensure that the Enterprises advance their mission of facilitating equitable and sustainable access to homeownership.”

The priorities outlined in the 2022 and 2023 Scorecards for the Enterprises include developing a pricing framework to maintain support for single-family purchase borrowers limited by wealth or income, while also ensuring a level playing field for large and small sellers, fostering capital accumulation, and achieving commercially viable returns on capital.

The pricing changes broadly impact purchase and rate-term refinance loans and build on upfront fee changes announced by FHFA in January and October 2022, which have been integrated into the new grids. The new fee matrices consist of three base grids by loan purpose for purchase, rate-term refinance, and cash-out refinance loans—recalibrated to new credit score and loan-to-value ratio categories—along with associated loan attributes for each.

The updated fees will take effect for deliveries and acquisitions beginning May 1, 2023, to minimize the potential for market or pipeline disruption.

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