Quick Read
- Fair Isaac added Cotality and Ascend Companies to its FICO Mortgage Direct License Program, allowing resellers to generate FICO scores without paying credit bureau fees for scoring.
- The program aims to eliminate mark-ups by credit reporting agencies and streamline direct delivery of FICO scores to lenders in the mortgage industry.
- The FHFA plans to retire the FICO Classic algorithm, moving lenders to use the more inclusive FICO Score 10T and VantageScore 4.0, but implementation has been delayed pending historical data availability.
- Currently, lenders selling to Fannie Mae and Freddie Mac must continue scoring with the FICO Classic algorithm using tri-merge data from all three major credit bureaus.
Fair Isaac’s Mortgage Direct License Program is aimed at eliminating mark-ups charged by credit reporting agencies Equifax, Experian and TransUnion — backers of competing VantageScore.
FICO score provider Fair Isaac announced Thursday that it has signed Cotality and Ascend Companies to participate in a direct license program that’s aimed at eliminating markups charged by credit reporting agencies.
The FICO Mortgage Direct License Program gives resellers of tri-merge credit reports — such as Cotality (formerly CoreLogic) and Ascend subsidiaries Advantage Credit and Partners Credit — the right to generate FICO scores and deliver them directly to lenders.
While participating resellers still have to pull credit reports from each of the three major credit reporting agencies, they no longer have to pay additional fees to the agencies to take the additional step of calculating the FICO scores.
Julie May
“The addition of Cotality and Ascend Companies to the list of resellers providing FICO Scores is another important step forward in making direct delivery the new standard for the mortgage industry,” Fair Isaac executive Julie May said, in a statement.
Fair Isaac did not say how many resellers are participating in the program, but promised that a “formal update will be provided once the solution is commercially available.”
Fair Isaac announced the direct license program in October, amid criticism of FICO Score price increases and the prospect of competition from rival VantageScore.
A trade group representing the credit bureaus, the Consumer Data Industry Association (CDIA), panned the program at the time, claiming it amounted to a price increase while introducing new operational costs and risks for resellers and lenders.
Credit score algorithms created by companies like Fair Isaac and VantageScore rely on data from the three major credit reporting agencies — Equifax, Experian and TransUnion — which formed VantageScore as a joint venture to compete with Fair Isaac.
Lenders selling mortgages to Fannie Mae and Freddie Mac are currently required to score borrowers using payment history and credit account data from all three credit reporting agencies. Data from each agency is run through the FICO Classic algorithm to generate three separate credit scores.
As part of plans to retire the FICO Classic algorithm this year, Fannie and Freddie’s regulator, the Federal Housing Finance Administration (FHFA), had proposed requiring lenders to evaluate borrowers using two more inclusive algorithms: FICO Score 10T and VantageScore 4.0, but allowing them to obtain scores using data from just two credit reporting agencies.
Credit reporting agencies fought the proposed switch from “tri-merge” to “bi-merge” reporting, while lenders represented by the Mortgage Bankers Association want the mortgage giants to accept single-file reports, which would generate a single credit score with information from one credit bureau.
Both FICO Score 10T and VantageScore 4.0 consider trended credit data and additional inputs such as rent, utility and telecom payments, which Fair Isaac and VantageScore say will help more people qualify for loans.
Although the scores were validated for use by Fannie and Freddie in October 2022, retiring the FICO Classic score has proven challenging.
Under the Biden administration, the FHFA had planned to require that lenders submitting loans to Fannie and Freddie start using both VantageScore 4.0 and the new FICO Score 10T algorithm by Oct. 1.
But FHFA suspended that timetable in January, with lenders still waiting for historical data for FICO Score 10T that would allow them to update their procedures.
Fair Isaac announced on Dec. 1 that it had agreed to release historical FICO Score 10T data to Fannie and Freddie, setting the stage for VantageScore 4.0 to go head-to-head with FICO Score 10T next year.
In the meantime, Fannie and Freddie continue to require that lenders score borrowers using the FICO Classic algorithm to generate three credit scores using data from Equifax, Experian and TransUnion.
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