FICO Stock Plunges 24% as FHFA Ends Mortgage Scoring Duopoly Grid

Fair Isaac Corporation's stock fell more than 24% to just above $635 on Monday, the first trading day after the Federal Housing Finance Agency dismantled the company's decades-long lock on mortgage credit scoring. Year to date, the stock is now down 60%.

The trigger came from FHFA Director William J. Pulte, who announced that Fannie Mae and Freddie Mac will transition to a single mortgage-pricing grid that includes both FICO scores and credit scores from VantageScore Solutions.

"We are Simplifying Mortgage Pricing following feedback from lenders and consumers," Pulte wrote. "Instead of two separate pricing grids, which makes zero sense, Fannie and Freddie are hereby moving to ONE PRICING GRID with VantageScore joining the existing FICO Classic pricing grid."

The end of a monopoly position

For decades, lenders who wanted to originate a mortgage backed by Fannie Mae or Freddie Mac had to obtain a FICO score for the borrower, as noted by Investing.com. Fair Isaac Corporation earned a fee every time a score was pulled.

The new single pricing grid changes that. For virtually the first time, mortgage lenders can choose between FICO and VantageScore. Whoever they choose collects the fee for the credit score pull.

That choice introduces price competition into a market that had none. With two companies vying for lenders' business, both will have to compete on the price of each score pull — which should drastically lower what lenders have traditionally paid.

A one-two punch from Rocket

The FHFA announcement was not the only blow to Fair Isaac this week. Rocket Mortgage, the nation's largest mortgage lender, announced on Sunday that it has become the first lender to use VantageScore as the preferred credit score provider on all eligible loans.

"The mortgage industry has relied on one credit scoring model for decades," Rocket Mortgage CEO Jay Bray said. "Competition is healthy, especially when it can lower costs and expand responsible access to homeownership."

Fast Company has reached out to Fair Isaac Corporation for comment.

What changes for consumers

Lenders — and VantageScore itself — are the biggest beneficiaries of the shakeup, but consumers could see some upside too.

A VantageScore 4.0 credit score uses additional data, such as rent payments, to calculate a person's score, according to research from the Urban Institute comparing classic FICO and VantageScore 4.0. That could help people with thin traditional credit histories achieve better scores — at least those whose rent payments were on time.

The change does not guarantee cheaper mortgages for borrowers whose lenders pull a VantageScore instead of a classic FICO score. The ultimate mortgage rate will still be determined primarily by the individual's credit history.

The margin question for Fair Isaac

For Fair Isaac, the shift means real competition in the Fannie Mae and Freddie Mac space for the first time in decades. If the company wants lenders to keep pulling its scores, it will have to remain competitive with VantageScore on price.

Pricing competitively may mean lower profits going forward. That prospect is what spooked investors on Monday.

The stakes are straightforward: a company that once collected a fee on every government-backed mortgage originated in the United States now has to fight for each pull — and the market is repricing the stock accordingly.