The stock of Fair Isaac Corp. (FICO) is down 10% on news that Fannie Mae (FNMA) and Freddie Mac (FMCC) are now allowing lenders to use the competing VantageScore credit scoring model.
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William Pulte, Director of the U.S. Federal Housing Finance Agency, who has accused Fair Isaac of having a de facto monopoly on credit scoring in America, announced the change on social media, stating: “To increase competition to the Credit Score Ecosystem and consistent with President Trump’s landslide mandate to lower costs, Fannie and Freddie will ALLOW lenders to use Vantage 4.0 Score…”
The decision is seen as a threat to Fair Isaac’s widely-used FICO credit score and exposes the company to increased competition in the mortgage lending market. Meanwhile, the credit bureaus that jointly developed VantageScore, Equifax, Experian (EXPGF), and TransUnion, are seeing their stocks rise on the news.
New Approach
The FICO score has long been the primary way that banks and other financial institutions evaluate a person’s credit worthiness. VantageScore, first released in 2017, employs machine learning and trended credit data to evaluate consumer creditworthiness. The model is designed to assess borrowers with limited or “thin” credit files, potentially expanding the pool of mortgage-eligible consumers.
Director Pulte has singled out Fair Isaac for criticism in recent months and threatened to increase competition in credit scoring. This policy change aligns with Pulte’s stated goal to reduce costs in the housing finance market. FICO stock is now down 16% on the year.
Is FICO Stock a Buy?
The stock of Fair Isaac has a consensus Strong Buy rating among 11 Wall Street analysts. That rating is based on nine Buy and two Hold recommendations issued in the last three months. The average FICO price target of $2,430.50 implies 30% upside from current levels.
