TLDR
- Shares of FICO declined 7% in after-hours trading Thursday following Bloomberg’s regulatory report.
- FHFA may mandate lenders utilize only two credit bureaus rather than three for government-backed mortgage loans.
- TransUnion (TRU) shares also slid 6% in extended trading on the same news.
- The development compounds FICO’s challenging September, which saw shares plummet nearly 49%.
- This week, Bank of America cut its rating on FICO, expressing worries about the company’s pricing strength.
Fair Isaac (FICO) shares slid 7% in extended trading Thursday. TransUnion (TRU) shares fell 6% during the same after-hours session.
The sell-off came after Bloomberg published a report detailing a potential regulatory shift. The Federal Housing Finance Agency is considering a requirement that mortgage lenders obtain credit information from just two bureaus rather than the current three.
This proposed modification would affect mortgages guaranteed by Fannie Mae and Freddie Mac. At present, lenders rely on what’s known as a “tri-merge” credit report that combines information from all three leading credit bureaus.
FHFA Director Bill Pulte may unveil the policy shift as early as Oct. 12. He’s slated to deliver remarks at a mortgage industry gathering in Chicago on that date.
The FHFA declined to provide comment regarding the Bloomberg story. The regulatory body hasn’t publicly disclosed any implementation schedule.
September Decimates Shares
Thursday’s after-hours selloff compounds an already punishing period for FICO stock. Shares collapsed nearly 49% during September alone.
One trading session delivered the majority of that damage. On Sept. 29, FICO shares cratered 27% following FHFA’s decision to approve VantageScore as an acceptable credit scoring model for mortgage pricing purposes.
The regulatory approval allows mortgage lenders to apply VantageScore more extensively when originating loans destined for Fannie Mae and Freddie Mac portfolios. The decision terminated FICO’s decades-long monopoly as the exclusive scoring standard in government-backed mortgage finance.
The credit reporting landscape is controlled by three companies: Equifax, Experian and TransUnion. These three bureaus collectively own VantageScore, which represents FICO’s primary competitive threat.
Director Pulte has advocated for reduced credit reporting expenses for several months. On Sept. 3, he disclosed that FHFA was “seriously considering” implementing the two-bureau framework.
Adopting a bi-merge system would simultaneously impact two revenue streams. FICO would encounter intensified competition from VantageScore, while the credit bureaus would experience declining sales of three-bureau credit reports.
Analyst Sentiment Deteriorates
Earlier this week, Bank of America lowered its rating on FICO shares. The investment bank highlighted growing concerns about the company’s ability to maintain pricing power within the mortgage sector.
Rocket Mortgage recently selected VantageScore as its primary scoring model. This strategic choice by a major lender intensifies fears that industry heavyweights are shifting away from FICO’s products.
FICO continues generating reliable income from its comprehensive decision-making software platforms. These subscription-based solutions serve clients across numerous industries extending far beyond residential lending.
According to equity analysts monitoring the company, FICO maintains a substantial debt burden. This leverage could restrict the company’s strategic options should the mortgage scoring disruption expand to additional market segments.
Year-to-date, FICO shares have plunged approximately 65%. Average daily trading volume hovers around 453,000 shares.
The company’s market capitalization currently stands at roughly $13.34 billion. Technical indicators for the stock register a sell signal.
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