FICO Lets Mortgage Lenders Bypass Credit Bureaus

FICO has introduced a program that lets mortgage lenders bypass working with credit bureaus.

With the FICO Mortgage Direct License Program, tri-merge resellers — mortgage specialists — can now calculate and distribute FICO Scores directly to their customers, eliminating reliance on the three credit bureaus.

The program was announced Wednesday (Oct. 1) and caught the attention of the financial press Thursday (Oct. 2) when FICO’s stock surged and shares of the three credit bureaus — Experian, Equifax and TransUnion — fell.

“This shift will drive price transparency and immediate cost savings to mortgage lenders, mortgage brokers, and other industry participants,” FICO (Fair Isaac Corp) said in a news release. “Firms that favor working through the credit bureaus can continue to do so.”

FICO CEO Will Lansing said the launch of the program marks a turning point in the way credit scores are delivered and priced in the mortgage industry.

“Direct licensing of the FICO Score brings transparency, competition, and cost-efficiency to the mortgage lending process,” said Lansing. “This change eliminates unnecessary mark-ups on the FICO Score and puts pricing model choice in the hands of those who use FICO Scores to drive mortgage decisions.”

A report on the change by The Wall Street Journal (WSJ) echoed Lansing’s assessment of the change’s impact, calling it one of the largest shake-ups in the credit-scoring system in decades.

TD Cowen analysts, the report added, called the move “politically positive,” as it could ease pressure from Washington. Federal housing regulators have pushed to lower the cost of pulling credit scores to help home buyers as the market reaches historically unaffordable positions.

“We believe this change adds substantial uncertainty to a sector that has already been undergoing heightened volatility amid a series of potential regulatory changes,” UBS analyst wrote Kevin McVeigh in a note, per the WSJ.

As PYMNTS wrote earlier this year, FICO has been criticized by Bill Pulte, director of the Federal Housing Finance Agency, for increasing prices charged for access to FICO scores.

His agency had allowed lenders to use rival VantageScore, which was created by the credit bureaus, for government-backed mortgages.

Pulte on Thursday wrote in a social media post that FICO’s move was a “first step,” and called on the credit bureaus to “take similar creative and constructive actions” and VantageScore to ensure “they are competitive, in every way, including but not limited to costs.”