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Dio
@nevermor1
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FICO

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Diogo@Gaiagenetic
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Home page Seeking Alpha - Power to Investors

Fair Isaac stock slumps further after FHFA director comments on FICO
May 21, 2025 11:16 AM ETFair Isaac Corporation (FICO) StockEFX, FNMA, FMCC, TRUBy: Liz Kiesche, SA News Editor1 Comment

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Updates stock price at 11:14 AM ET and adds comments from Jefferies analyst.

Fair Isaac (NYSE:FICO) stock sank 15% in Wednesday morning trading, following an 8% decline on Tuesday, after Federal Housing Finance Agency director William J. Pulte called for the provider of credit scores to be more "economical" and for the privatization of Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC).

Pulte specifically referred to Fair Isaac (NYSE:FICO) and its price increase for mortgage scores during Q&A at a mortgage industry conference on Tuesday. "I think FICO should make sure they’re being as economical as possible," he said. "We’re actively looking at getting it done. I don’t like some things I’ve heard in terms of the cost."

Both Oppenheimer and Jefferies issued notes defending FICO.

Jefferies advised clients to buy the dip. "We continue to believe there is no material risk to FICO's long-term goal of increasing its share of economics within mortgage," analyst Surinder Thind wrote in a note to clients.

Pulte also proposed transitioning to a two-credit bureau report format from the current three-bureau, or tri-merge, format. The proposal is an option for lenders, not a requirement, noted Oppenheimer analyst Owen Lau, who believes that investors are overreacting to the comments.

The comment on making FICO more economical centers on the company's price increase on FICO mortgage scores to $4.95 per score in January 2025. Lau noted that the cost of the score only accounts for 25 basis points of the average mortgage closing cost of $6,000 and is the lowest compared with other costs such as tax stamp, appraisal, title insurance, and notary fees. "We believe FICO still has a strong argument for the price increase," he said. "It is unclear on what FHFA can do to limit FICO's price increase."

The privatization of Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC), meanwhile, could open up credit score companies to more competition. But it would likely have little impact on FICO Score pricing, because it is so embedded in the mortgage lending and securitization processes, the analyst said. The score is reflected in 90%+ market shares in all public asset-backed securitization products.

Regarding the option for a bi-merge report, instead of tri-merge, the Oppenheimer analyst doesn't expect that most lenders will switch to two credit bureaus as it would reduce originations and increase consumer costs. TransUnion (TRU), a FICO competitor, has estimated that if 5% of all new mortgage applications use bi-merge reports, ~600K of those mortgages could result in higher interest rates with consumers paying $6,600 higher interest payments over the next 10 years.

Jefferies' Thind agrees that there's little likelihood a transition to bi-merge would significantly affect FICO, pointing to pushback from the Mortgage Bankers Association, five other industry groups, and several Republican senators who want to codify the tri-merge report into law. "If the bi-merge were implemented and all lenders adopted it, our calculations suggest the maximum negative impact to FICO, EFX, and TRU adj EPS would be roughly -16%, -10%, and -10%, respectively," the analyst wrote.

Openheimer's Lau's overall view of FICO's (NYSE:FICO) stock decline: "There are still a lot of details that have to be flushed out, but the knee-jerk reaction to Director Pulte's comments seems excessive. FICO Scores hold strong inherent value and remain integral to the mortgage lending ecosystem."

Lau has Outperform ratings on Fair Issac (FICO), Equifax (EFX), and TransUnion (TRU).

Equifax (EFX) stock fell 5.7%, and TransUnion (TRU) slid 5.9%.
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Diogo@Gaiagenetic
1Settimana
@Gaiagenetic Fair Isaac (NYSE:FICO) stock dropped significantly after Federal Housing Finance Agency (FHFA) director William J. Pulte criticized the credit score provider for its pricing and advocated for the privatization of Fannie Mae and Freddie Mac. Pulte specifically questioned FICO's upcoming price increase to $4.95 per mortgage score in January 2025, urging the company to be more "economical."
Despite the stock's decline, both Oppenheimer and Jefferies issued notes defending FICO. Jefferies advised clients to "buy the dip," believing there's no significant threat to FICO's long-term goal of increasing its share in the mortgage industry. Oppenheimer analyst Owen Lau suggested investors were overreacting, highlighting that the score's cost is a minimal part of overall mortgage closing costs.
Pulte also proposed an optional transition to a two-credit bureau report format (bi-merge) from the current three-bureau (tri-merge) system. However, Oppenheimer's Lau doesn't expect widespread adoption of bi-merge, citing potential reductions in originations and increased consumer costs. Jefferies' Thind agreed, noting strong industry and political opposition to such a change. Both analysts believe that even if implemented, the impact on FICO's earnings would be manageable.
Regarding the privatization of Fannie Mae and Freddie Mac, analysts anticipate little impact on FICO Score pricing due to its deep integration into mortgage lending and securitization processes, where it holds over 90% market share.
Overall, analysts like Oppenheimer's Lau view the market's reaction to Pulte's comments as "excessive," emphasizing the strong inherent value and integral role of FICO Scores in the mortgage lending ecosystem.
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Diogo@Gaiagenetic
1Settimana
I don't know but I will keep an eye 👀
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Diogo@Gaiagenetic
1Settimana
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Dio@nevermor1
1Settimana
@Gaiagenetic It looks to me as just fear, nothing happened in particular yet
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