FICO CEO Will Lansing on FHFA Drama, Credit Scores, and Market Trends

FICO's Strong Quarterly Performance

• 📈 FICO reported a strong quarter with 20% growth, primarily driven by its B2B scores business, demonstrating consistent performance over several years.
• 💡 Despite excellent results, the stock reacted negatively due to concerns about the company's franchise strength, not the quarterly performance itself.

The FHFA Tug-of-War

• ⚠️ The Federal Housing Finance Agency (FHFA) director, Bill Py, is pushing for lenders to use alternative credit score models for mortgages sold to Fannie Mae and Freddie Mac.
• 🎯 FICO's latest product, FICO 10T, is presented as the superior and most predictive score, outperforming FICO Classic and Vantage scores in preventing defaults and qualifying more borrowers.
• ⚖️ The FHFA's current approach involves comparing an older FICO score (FICO Classic) against a newer, less effective Vantage score, which FICO CEO Will Lansing describes as an "apples to oranges" comparison.

Industry Preference and Market Share

• 🏆 FICO scores are the industry standard across various markets, holding over 90% market share outside of government mandates.
• 🏡 In the non-conforming mortgage market, where there are no government mandates, FICO 10T is being adopted, with $313 billion in originations already using it.
• 📊 While FICO Classic remains in use for conforming mortgages, the FHFA's plan to implement Vantage scores ahead of FICO 10T raises safety and soundness concerns.

Addressing Monopoly Claims and Costs

• 💰 FICO has been accused of raising prices, but the cost of a FICO score for a mortgage is only $4.95 out of approximately $6,000 in closing costs, indicating it's not a barrier to homeownership.

Future Outlook and Market Dynamics

• 📉 FICO's volume is expected to increase significantly as mortgage rates decrease, with current volumes being about 40% off their peak.
• 🏦 The company has performed well in both rising and falling rate environments, and its existing FICO Classic score is well-tested and optimized, making any departure from it a questionable move without adopting the best available score, FICO 10T.