FICO to License Credit Scores Directly to Mortgage Resellers, Reducing Reliance on Third-Party Bureaus and Enhancing Transparency and Savings.

FICO will now sell credit scores directly to mortgage resellers, bypassing third-party credit bureaus. This move will increase price transparency and savings for lenders, brokers, and other industry participants. The change follows Fannie Mae and Freddie Mac's decision to consider VantageScore Solutions' scores for homebuyers. Shares of TransUnion and Equifax plummeted, while FICO's surged 32%. The shift is expected to benefit FICO and stabilize costs for homebuyers and mortgage originators.

Fair Isaac Corp. (FICO) has recently announced a significant shift in its credit scoring business model, which is expected to disrupt the industry and impact key players. The company has launched a new program, the FICO® Mortgage Direct License Program, that allows mortgage resellers to calculate and distribute FICO scores directly to customers, bypassing traditional credit bureaus Credit bureaus sink as FICO launches a direct program for FICO scores, eliminating reliance on credit bureaus^[1].

The move follows a decision by Fannie Mae and Freddie Mac to consider alternative credit scoring models, such as VantageScore, for homebuyers How Investors Are Reacting To Fair Isaac (FICO) Facing New Competition in Mortgage Credit Scoring^[2]. This regulatory shift has raised concerns about FICO's market dominance and potential loss of revenue in its core mortgage segment.

Shares of major credit bureaus, including TransUnion and Equifax, have plummeted in response to the announcement. TransUnion fell by 11% in pre-market trading, while Equifax dropped by 5% Shares of credit bureaus fall as FICO rolls out direct mortgage score licensing^[3]. FICO's shares, however, surged by 32%, indicating investor confidence in the company's ability to adapt and capitalize on the new market dynamics.

The new program aims to increase price transparency and immediate cost savings for mortgage lenders, brokers, and other industry participants. FICO expects the average fee per score to be reduced by 50%, with the royalty fee set at $4.95 per score compared to the previous $10 per score fee Credit bureaus sink as FICO launches a direct program for FICO scores, eliminating reliance on credit bureaus^[1]. This shift could significantly reduce the cost of obtaining credit scores for mortgage underwriting.

The move also intensifies competition in the credit scoring business, as lenders now have more direct access to FICO scores. Analysts at Jefferies have noted that the new models could hit credit bureau earnings by an average of 10% to 15% Shares of credit bureaus fall as FICO rolls out direct mortgage score licensing^[3]. This could force credit bureaus to negotiate directly with lenders and compete with each other.

Despite the new program, firms can continue to work through the credit bureaus if they prefer. This flexibility ensures that the transition will not be abrupt and gives existing players time to adapt to the new market conditions.

In conclusion, FICO's direct sales program marks a significant change in the credit scoring industry. While it may pose challenges for credit bureaus, it also presents opportunities for FICO and other industry participants to benefit from increased price transparency and cost savings. The long-term impact of this shift remains to be seen, but it is clear that the credit scoring landscape is evolving rapidly.