Equifax’s Work Number is too expensive and regulators should look into it: CHLA

Equifax’s Work Number product is too expensive for consumers and the Federal Housing Administration (FHA) and Federal Housing Finance Agency (FHFA) should potentially do something about it, an influential mortgage trade group argued this week.

In a letter submitted to FHA commissioner Julia Gordon and FHFA director Sandra Thompson on Thursday, the Community Home Lenders of America (CHLA) expressed concern that the cost of employment verifications charged by Equifax is “excessive” as income verification is required for both during loan underwriting and just before closing.

The current cost of each verification pull ranges from $55 to $70 and therefore, the cost on a two-borrower application can easily reach $280 just for the cost of employment verifications, the trade group said.

“Borrowers are not generally aware of this cost, but the impact is clear,” said the CHLA.  “Because these employment verifications are a requirement of the loan, the costs get passed along to the borrower.”

The trade group urged the regulators to examine Equifax’s pricing practices.

“Mortgage lenders have little or no ability to scrutinize or restrain these income verification costs. Therefore, since FHA and Enterprise loans require their submission as condition of the mortgage loan, CHLA asks that these fees and the non-competitive nature of this market be scrutinized – and that whatever legal and appropriate actions that are available are pursued.”

Equifax did not immediately return a request for comment.

The CHLA said the employment verification market lacks competition.

Although there are startups gaining ground, including Truv and Argyle, Equifax Work Number (WN) is used in more than 60% of all mortgage loans, making it easily the largest provider of electronic verifications of employment, according to CHLA estimates.

The CHLA added: “We estimate that Equifax WN is used in the overwhelming majority of loans in which income verification is done electronically through a third-party service provider.”

The third-party mortgage cost has similarities to the characteristics identified in the Consumer Financial Protection Bureau‘s (CFPB’s) recent blog post on closing costs, the CHLA argued. 

The CFPB earlier this month stated that closing costs — including costs of title insurance, origination fees and credit report and appraisal fees — “all too often are full of junk fees.”

Fixed closing costs have an outsized impact on borrowers with smaller mortgages, particularly lower income borrowers, first-time homebuyers and borrowers living in Black and Hispanic communities, according to the CFPB.

The CFPB also noted that closing costs have little competition and borrowers who can’t bring cash to the table often have to pay more, through higher interest rates or mortgage insurance payments.