FICO Stock Plunges As Fannie Mae, Freddie Mac Embrace Rival VantageScore

Fair Isaac Corp (FICO) shares tumbled on Tuesday after the Federal Housing Finance Agency (FHFA) announced that it would immediately implement the acceptance of VantageScore 4.0 for mortgages sold to Fannie Mae and Freddie Mac, dealing a sharp blow to the long-time dominant player in the market.

FICO shares were down 19% at $1,522.61 during midday trading. However, retail sentiment on the stock was in the ‘bullish’ territory, compared to ‘bearish’ a month ago, according to Stocktwits data.

The FHFA’s decision significantly modernizes the mortgage market for Government-Sponsored Enterprises (GSEs), ending a decades-long lack of credit score competition in the U.S. mortgage market, where FICO has thrived and held a near-monopoly.

The FICO Score was introduced in 1989 and is used by 95 of the 100 largest U.S. financial institutions. It ranges from 300 to 850, and influences everything from mortgage approvals to credit card interest rates.

The agency had initially mandated Fannie Mae and Freddie Mac to accept mortgages rated by VantageScore in October 2022. Since then, the Veterans Administration and the majority of the Federal Home Loan Banks, including those in San Francisco, New York, Chicago, Cincinnati, and Dallas, have begun accepting VantageScore 4.0.

VantageScore 4.0 distinguishes itself from FICO by allowing for more inclusive credit evaluations, particularly for individuals with limited or short credit histories. It can generate a score from just one month of data and leverages trended insights to assess payment behavior over time.

Unlike FICO, it excludes paid collections from scoring and minimizes the influence of medical debt, offering a more flexible and consumer-friendly approach.

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