FICO shares fell 24% after Pulte put VantageScore on the same price grid

FHFA Director Bill Pulte announced on Sept. 28 that Fannie Mae and Freddie Mac would stop running separate fee grids for the two credit scores they accept, a setup he said “makes zero sense” ^[2]. FHFA’s credit score page says the companies aligned their upfront fees across Classic FICO and VantageScore 4.0 on Sept. 30 ^[1].

Fair Isaac, the company behind FICO, fell more than 24% to just above $635 on Sept. 29, the first trading day after the announcement ^[3]. Its shares were down 60% for the year at that point ^[3].

VantageScore borrowers now pay fees from the FICO grid

Before the change, Fannie and Freddie priced VantageScore loans as if the score were 20 points lower on the FICO grid ^[2]. HousingWire’s example is a borrower with a 700 FICO and a 720 VantageScore, whose upfront fee on the VantageScore basis falls from 1.5% to 1.25% ^[2]. On a $400,000 loan, we calculate that is $1,000 less at closing.

Pivot Financial estimated that about 68.7% of the historical VantageScore population would get better score-based pricing ^[2]. KBW analysts called the change a “backdoor LLPA reduction” ^[2].

Rocket and UWM make almost all the VantageScore loans

KBW estimated that VantageScore 4.0 loans made up 5.5% of Fannie and Freddie originations in September, and that Rocket and UWM accounted for 95% of that volume ^[2].

Rocket Mortgage CEO Jay Bray said the company compared the two scores on 1.4 million credit reports before making VantageScore 4.0 its default for eligible loans starting this quarter ^[4]. Bray said Rocket “chose the one that helped more qualified clients” ^[4]. Investment property, second-home, FHA, jumbo and home equity loans stay on FICO for now ^[4].

Pulte is weighing more changes before year end

Pulte wrote on Oct. 17 that FHFA is studying the use of “just one or two credit reports” instead of three, and that he expects to decide on any fee changes before year end ^[5]. FICO 10T is approved but not yet eligible for delivery to Fannie and Freddie ^[1].

How to use this

For homebuyers and refinancers

1. Ask your loan officer to price the loan under both scores and show the upfront fee for each in writing. In HousingWire’s example the merged grid saves a quarter point ^[2], which we calculate as $1,000 on a $400,000 loan.
2. Plan on one score model for everyone on the application, because FHFA requires lenders to use the same model for every borrower on a loan ^[1].
3. Ask whether the lender uses VantageScore for your loan type before you apply. Rocket keeps FICO for FHA, jumbo and second-home loans ^[4].

For investors financing rentals

1. Expect FICO pricing on investment property loans at Rocket, which left those loans out of its VantageScore default ^[4]. Ask other lenders in writing which score they use for investment properties.
2. Pull your own VantageScore before you shop. Pivot Financial’s estimate that 68.7% of the VantageScore population gets better pricing ^[2] suggests most borrowers come out ahead, but your own scores decide it.

For lenders and mortgage bond investors

1. Ask your secondary-market buyers how they plan to price VantageScore loans. BankSouth Mortgage’s Erin Dee told HousingWire that bond buyers may not treat the two scores the same even when lenders do ^[2].
2. Use the score-model field in Fannie Mae’s MBS disclosures, which started identifying the model used in pricing with October-issued pools ^[6].