FICO stock tumbles on report of credit bureau requirement change

Investing.com -- Fair Isaac (NYSE) shares fell 7% after hours Thursday, while TransUnion (NYSE) dropped 6%, following a Bloomberg report that the Federal Housing Finance Agency plans to direct Fannie Mae and Freddie Mac to require lenders to pull credit data from two major credit reporting bureaus instead of three.

The potential move would mark another significant change for an industry already facing pressure from FHFA Director Bill Pulte, who has repeatedly called for lower credit-reporting and scoring costs in the mortgage market.

The new requirement could be announced by Pulte as soon as Oct. 12, when he is scheduled to speak at a mortgage industry conference in Chicago, according to a person familiar with the plans cited by Bloomberg. FHFA did not immediately respond to a request for comment, according to the report.

The development adds to a brutal stretch for FICO shares. The stock plunged nearly 49% in September, including a 27% drop on Sept. 29, after FHFA announced changes that put VantageScore, FICO's main rival, on the same mortgage-pricing grid as the traditional FICO Classic score.

The move opened the door for lenders to use VantageScore more broadly in loans sold to Fannie Mae and Freddie Mac, undermining FICO's longstanding position in the mortgage market.

Three companies -- Equifax Inc. (NYSE), Experian Plc and TransUnion -- dominate the credit-reporting industry and jointly own VantageScore. Mortgage lenders have traditionally used a "tri-merge" report that combines credit data from all three bureaus.

Pulte has argued that the existing system adds unnecessary costs for homebuyers and has repeatedly pressured the credit bureaus and FICO to lower fees. On Sept. 3, he said the agency was "seriously considering bi-merge," referring to a system in which lenders would use data from two rather than all three major credit bureaus.

The latest report therefore represents a potential double hit for the companies involved: FICO faces greater competition from VantageScore in mortgage scoring, while the credit bureaus could face lower demand for their traditional three-bureau reports.