Fair Isaac Announces Price Increases in New White Paper
Optimizing Credit Scores: The Debate Between FICO 10T and VantageScore
Understanding FICO 10T’s Advantages in the Mortgage Market
Fair Isaac Corp recently released a study showcasing the benefits of its FICO 10T model over the VantageScore in assessing the creditworthiness of American families aspiring to buy homes. This announcement follows FHFA Director William Pulte’s decision to introduce VantageScore as a second choice for mortgage credit scores, aiming to benefit both homebuyers and lenders by offering more options.
The Dominance of Fair Isaac Classic and Its Pricing Dynamics
Currently, the Fair Isaac Classic maintains over 90% market share in the mortgage sector and has seen a significant price increase of 700% in under three years. Such dramatic price hikes are unusual in American commerce outside the pharmaceutical industry, raising concerns among organizations like the Community Home Lenders of America (CHLA). They foresee further price increases this fall, although they welcome the appearance of a second option.
Evaluating the Claims of Predictive Accuracy
Fair Isaac claims the FICO 10T surpasses other models in terms of predictive accuracy and fairness. According to their summary, “FICO Score 10T is the clear choice” for lenders, investors, and consumers prioritizing safety and soundness. However, the CHLA remains skeptical about these claims and questions why the implementation of 10T in the U.S. mortgage market was delayed.
Potential Benefits of FICO 10T Implementation
Fair Isaac argues that FICO 10T is a next-generation product capable of significantly boosting loan approvals for prospective borrowers, which could have alleviated the burden of rising rents for many American families. The delay in its introduction raises questions about the corporation’s priorities and decisions.
Questions Surrounding Lobby Influences and Market Adoption
Amidst its current lobbying efforts to counter the FHFA announcement, Fair Isaac’s past lobbying activities—or lack thereof—for the quicker adoption of 10T in the conforming marketplace are questioned. Why wasn’t there a more aggressive push to integrate this superior product into the 40-50% of the U.S. mortgage market financed by GSEs?
The Impact of Monopoly Power on Innovation and Pricing
- Monopolies can set prices without healthy economic price discovery, leading to consumer “rents.”
- They can also stifle innovation, withholding superior products from the market that may benefit consumers.
The recent report from Fair Isaac emphasizes this point, inadvertently highlighting how its outdated product has kept creditworthy families from homeownership, all while its monopoly power has harmed consumers. The 700% price increase on its existing product, with more hikes expected, should raise alarms among policymakers and organizations advocating for young American families against monopolistic practices.
