FICO Revolutionizes Mortgage Scoring: Direct Licensing and Pricing Transparency for Lenders
FICO sells mortgage scores directly to lenders, cutting out credit bureaus. This seeks price transparency & savings but hurt bureau stock.
FICO has launched a significant change in how mortgage credit scores are accessed and priced with its new Direct Licensing Program. This initiative aims to drive price transparency and deliver cost savings for mortgage lenders and brokers.
The core of the shift is allowing mortgage tri-merge resellers to calculate and distribute FICO Scores directly to customers, eliminating reliance on the three nationwide credit bureaus (Equifax, Experian, and TransUnion) for this specific transaction. FICO stated that this change is designed to eliminate "unnecessary mark-ups" on the FICO Score. Chief Executive Will Lansing emphasized that the program puts the choice of pricing model into the hands of those who utilize FICO Scores to drive mortgage decisions.
New Pricing Models for Flexibility
Under the new direct licensing program, FICO offers two alternate pricing models for lenders to choose from.
The first option is the performance model, which introduces a royalty fee of $4.95 per FICO score. This figure represents a reduction of 50% in average per-score fees into the tri-merge resellers due to the elimination of credit bureau mark-ups. In addition to the royalty fee, a $33 fee per borrower per score will apply when a FICO-scored loan is closed, replacing fees previously charged for redistributing the scores.
Lenders also have the option to continue utilizing FICO’s current per-score-only pricing model. This model maintains a $10 per score fee into the tri-merge resellers, which is comparable to the average price previously charged by the credit bureaus for a FICO score.
FICO confirmed that it will also offer both of these mortgage score pricing models to the three nationwide credit bureaus—Equifax, Experian, and TransUnion—on the same terms. However, FICO does not control any mark-ups the bureaus may subsequently impose within their channels.
Industry and Market Response
The announcement of the Mortgage Direct License Program generated immediate market impact. Shares of the nationwide credit bureaus moved lower. Specifically, Equifax (EFX) shares were down 12%, TransUnion (TRU) shares fell 9%, and Experian (EXPN) saw a 7% drop in European trading following the news.
Conversely, market analysts viewed the change positively for FICO. Barclays called the new mortgage direct license program a "clear positive" and raised the firm’s price target on FICO from $2,000 to $2,400. The firm maintained an Overweight rating on FICO shares. Notably, the analyst also informed investors that the program effectively doubles the mortgage price from $4.95 to $10, reflecting the likely revenue increase derived from the new pricing structure and funded loan fees.
By allowing direct calculation and distribution through tri-merge resellers, FICO has fundamentally altered the path credit scores take to reach mortgage decision-makers, aiming to simplify pricing and empower users with choice.