Significant changes might be coming for the rules governing credit scoring, a possibility that was putting the hurt on Fair Isaac (FICO 0.23%) stock on Tuesday. Shares of the credit analysis specialist took a more than 8% hit on the day as a result, a far steeper decline than the S&P 500's (^GSPC 1.33%) 0.4% dip.
Unfair changes?
At a Mortgage Bankers Association conference, director of the government's Federal Housing Finance Agency (FHFA) Bill Pulte made remarks about changing the requirement for a mortgage underwriter to determine a borrower's interest rate.
Image source: Getty Images.
Currently, this is done by the so-called "tri-merge" method, in which the analyses produced by all the big three credit bureaus using data like Fair Isaac's -- Experian, TransUnion, and Equifax -- are required for this determination. A "bi-merge" system would mandate only two of the trio. If such a change were made, it would very likely affect Fair Isaac's volume.
Another factor in the stock's decline was Pulte's remarks about the future of government-sponsored enterprises (GSE) that support the mortgage market, Fannie Mae and Freddie Mac. In line with the Trump administration's aim of cutting federal government expenditures and putting some functions into the hands of private companies, Pulte described the two GSEs as "bloated," suggesting deep cuts at each, or even some form of privatization.
NYSE: FICO
Key Data Points
Wariness warranted
Were Fannie or Freddie to be privatized to an extent, it's possible that they would source credit scores from businesses other than Fair Isaac, ramping up competition against the company.
The current administration seems determined to reshape the mortgage landscape somewhat, in ways that might not be beneficial to Fair Isaac. I'd stay away from the stock until it becomes clearer what changes might be in store.
