[Update] More VantageScore/FICO Score Drama
Give me a break.
The author holds shares in Equifax and FICO.
A few days ago (March 9), all three credit bureaus (Equifax, TransUnion, and Experian) announced that they were cutting the effective price of their per-pull mortgage score royalty to $0.99 from about ~$4. Per Scotsman Guide:
Following intense industry pushback over surging credit report expenses, the major credit bureaus released new pricing on Monday. TransUnion announced a new stand-alone price of $0.99 per mortgage origination score early in the day. Experian and Equifax followed later Monday afternoon, with Experian matching the $0.99 price and Equifax setting its score at an even $1.
On the 11th of March, Transunion CEO and President Christopher Cartwright, let slip during an investor event that one of the GSEs had completed a ‘pilot’ securitisation of a VS-scored portfolio of mortgages. This disclosure was closely followed up on by analysts at RBC Capital Markets Global Financial Institutions Conference who pressed the issue on the very next day:
Ashish Sabadra: Yesterday, you made a comment around one of the GSEs doing a pilot and securitizing the portfolio using VantageScore. I was wondering if you could unpack that a little bit. One of the questions that we've gotten from investors was, was this an exclusive VantageScore? Was it both VantageScore and FICO? Anything you can share on the pricing of that securitized portfolio?
Christopher Cartwright: Yes. Unfortunately, the color I can provide is fairly limited, and this was something done internally by one of the GSEs that we learned about fairly recently. And so we look at this -- and I think it was a very modest pilot. But I mean, I think that obviously, introducing choice and scores and competition in a market as large and dynamic as U.S. mortgage is it's a considerable thing. And we look at it as essentially the GSEs running water through the pipes -- before more volume more to come. But nonetheless, an encouraging step forward in the adoption and the implementation of a competing score, which we firmly believe the market needs.
Consequently, all hell broke lose for the shares of all three CBs and FICO. The former coming off much better than the latter - FICO having another of these dramatic multi-day drawdowns which we have been getting used to over the last 15 months or so:
There are a number of competing narratives here - for both the CBs generally and FICO specifically - but it appears that once again the baby is being thrown out the with bathwater with very little regard for the nuance behind the actual positioning of these businesses and the rapidly evolving regulatory environment they operate in.
The CBs (and their folly):
We shall start with the villains of this particular story and the source of so many unfortunate developments. After the Mortgage Bankers Association (MBA) and FHFA Director Bill Pulte finished upending the longstanding mortgage scoring regime at the end of last year, our quarrelsome friends at the former institution began agitating for regulatory changes to the credit reporting regime—specifically, the status of the tri-merged credit report. After a pleasant interlude of very little activity by the FHFA Director over the holiday period, he began taking aim at the CBs’ credit file pricing. Their actions here, which I have been decrying for many months now, have been ill-conceived and badly timed.
Not to rehash too much, but the CBs, to a man, decided to make up lost revenue from their long-time practice of marking up the FICO score royalty by effectively doubling their credit file pricing in CY ’26. To try and assuage the regulator, they all, in one form or another, offered discounted pricing for VantageScores pulled with a credit file. FICO, of course, masterfully implemented success-fee direct scoring, which appeased the FHFA Director and the MBA before these credit file changes were announced.
The narrative that is taking hold with respect to this current round of VantageScore pricing “adjustments” is that they were implemented under pressure from the industry bodies and regulator. I’m a little incredulous on virtually all fronts here: