FICO could be affected by the FHFA’s upcoming decision on credit score models (NYSE: FICO)

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Federal Housing Finance Agency, mortgage giants overseer Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB: FMCC), is expected to announce its decision this week on the type of credit score government-sponsored companies require when buying mortgages.

For years, Fannie (OTCQB:FNMA) and Freddie (OTCQB:FMCC) have required a standard FICO score, which is issued by Fair Isaac Corp. (NYSE: FICO). Today, the FHFA is exploring other ways to assess a borrower’s creditworthiness. The four options considered are:

  • Option 1: maintain the single score requirement for each borrower on each loan;
  • Option 2: require multiple scores;
  • Option 3: Allow lenders to grant loans with any approved score; and
  • Option 4; the “cascade” approach allowing a primary and secondary score.

A report from the American Action Forum, a center-right nonprofit focusing on economic, domestic and fiscal policy issues, said “the word on the street” is that the FHA will announce this week that ‘she’s leaning towards option 3.

It could cost up to $600 million and take two years to set up, the American Action Forum said, citing FHFA estimates.

RBC analyst Ashish Sabadra expects investors to view the decision as negative for Fair Isaac (FICO), which the analyst calls Sector Perform. “We are staying away,” Sabadra said in a note.

FICO is up 0.6% in late morning trading on Tuesday.

In 2019, the FHFA released a final rule that requires Freddie (OTCQB:FMCC) and Fannie (OTCQB:FNMA) to consider alternatives to the Fair Isaac (FICO) score when evaluating an applicant’s creditworthiness. mortgage.

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