FICO Faces Senate Investigation Over Mortgage Credit Score Pricing, TD Cowen Remarks

Investing.com - According to TD Cowen analyst, Senator Josh Hawley launched an investigation on Monday into FICO’s credit scoring pricing practices used in mortgage lending.

Hawley, chairman of the Senate Judiciary Committee’s Crime Subcommittee, sent a letter to FICO requesting 10 independent documents related to the company’s pricing. He also wrote to the Federal Trade Commission, asking it to investigate whether FICO’s pricing practices violate antitrust laws.

TD Cowen analyst noted that neither letter accuses actual illegal activity. Instead, both suggest that FICO’s profits are excessive and that the credit scoring market lacks competition.

The senator’s letter implies that FICO benefits from a “state-supported monopoly” in mortgage credit scoring. TD Cowen pointed out that the Federal Housing Finance Agency (FHFA) has blocked the use of VantageScore for years. The agency approved VantageScore last year but has yet to release the loan-level price adjustment table required for lenders to use this score.

TD Cowen analyst believes the goal of this investigation is to target FHFA Director Bill Pulte, for maintaining FICO’s monopoly rather than ending it by releasing the VantageScore loan-level price adjustment table.

According to TD Cowen, FICO faces the risk that FHFA will respond by releasing the VantageScore loan-level price adjustment table. However, analysts think lenders will need to obtain both FICO and VantageScore credit scores to determine which yields the lowest price adjustment, as the costs of both scoring methods are small relative to potential savings.

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