Shares of Fair Isaac Corporation (FICO) tumbled 6% on Friday morning, while Equifax (EFX) fell 6% and TransUnion (TRU) also slid after a U.S. housing official instructed Fannie Mae and Freddie Mac to approve the use of the VantageScore credit scoring system by all lenders.
Bill Pulte, the U.S. Director of Federal Housing, posted on X that he had directed the two government-sponsored enterprises to allow every lender to use VantageScore. Pulte noted that the initial introduction of VantageScore at Fannie and Freddie had been successful, writing that 50 lenders had delivered loans under the new arrangement, and adding, "FICO has enjoyed a monopoly. No more."
The decline in FICO shares follows an earlier pullback in April, when Freddie Mac and Fannie Mae said they would accept mortgages evaluated using VantageScore 4.0. Friday's comments by the housing director extended that shift to a blanket approval for all lenders effective immediately, according to his post.
In a separate X post on Thursday, Pulte criticized credit reporting agencies, stating that Equifax, Experian and TransUnion had been overcharging Americans. He wrote, "Equifax, Experian, and TransUnion have been overcharging Americans for far too long. This will end soon. We are seriously considering bi-merge, and stronger solutions (SAFER and SOUNDER). We will not allow companies to take advantage of American consumers."
London-listed Experian (EXPN) also moved lower, shedding 3.7% on Friday.
VantageScore, which was founded in 2006, is a credit score modeling and analytics company jointly owned by Equifax, Experian and TransUnion. The current administration has framed the policy change as an effort to reduce costs for American homebuyers and increase competition in a mortgage credit scoring market long dominated by FICO.
Legislative background cited in public statements notes that in 2018, President Donald Trump signed the Credit Score Competition Act into law, directing U.S. Federal Housing authorities to enable Freddie Mac and Fannie Mae to approve more advanced credit score models for mortgage underwriting.
Key points
- FICO, Equifax and TransUnion shares fell after the U.S. Director of Federal Housing ordered Fannie Mae and Freddie Mac to approve VantageScore for all lenders.
- The housing official emphasized both the initial success of VantageScore's rollout and intent to address perceived overcharging by the major credit bureaus.
- Sectors directly affected include mortgage underwriting and credit reporting, with potential impacts for lenders, borrowers and the consumer credit market.
Risks and uncertainties
- Market reaction to regulatory directives may remain volatile - equity prices for credit scoring firms could continue to fluctuate as the implementation details unfold.
- Uncertainty exists around any potential structural changes to how credit reporting firms operate, including proposals referenced by the housing director such as bi-merge and other solutions; the scope and timing of such measures are not specified.
- The transition to broader VantageScore acceptance could create operational and underwriting adjustments for lenders and mortgage guarantors, with effects on the mortgage market dependent on how quickly and widely lenders adopt alternative scoring models.
Market data referenced
- FICO shares fell 6% in early trading.
- Equifax shares dropped 6% in early trading; Experian's London-listed shares declined 3.7%.
Information in this report is based on statements and market moves published contemporaneously with the regulatory announcement and related posts by the U.S. Director of Federal Housing.