Op-Ed: The Credit Scoring Cartel That’s Cornering The Mortgage Industry

By ROB ZIMMER

Americans are experiencing an affordable housing epidemic. A shortage in housing supply combined with rising interest rates has impacted millions of communities across state and party lines – making it increasingly difficult for families to realize their dream of homeownership.

Unbeknownst to many, there’s another factor significantly contributing to the housing affordability crisis in this country – it’s called the credit scoring industry. Dominated by one company known as the Fair Isaac Corporation (FICO), this government-mandated monopoly has leveraged its market power to corner the mortgage industry and hike prices at the expense of lenders and consumers. As of today, FICO controls 95% of the credit scoring industry, ultimately serving as the iron-clad gatekeeper to the market.

When a consumer decides to buy a home, their mortgage lender is required to “pull” a credit score from FICO and the credit bureaus (Experian, Equifax, and Transunion) to see what they can afford as well as what kind of interest rates they will pay. The agencies that oversee government guaranteed loans require that the mortgage lender pull this initial score, even if the lender thinks the consumer would, financially, be a good candidate.

Once the borrower takes out the loan, the lender is required to pull a second, more complete, score. Given that loans securitized by the GSEs and Ginnie Mae comprise most of the US mortgage lending market, this requirement essentially establishes FICO as a government-mandated monopoly – limiting competition and perpetuating reliance on a single scoring model.

FICO’s dominant market position has allowed them to prevent any meaningful competition and price gouge homebuyers to benefit both their executives and shareholders. Over the past two years, FICO has hiked credit scoring prices by a staggering 400% — ultimately costing consumers and lenders an additional $4 billion. This pricing strategy is particularly impactful for low-to moderate-income borrowers, who must bear a higher financial burden – because such mortgage applications often take longer than 90 days to close, necessitating an additional, costly credit pull.

As FICO price increases exacerbate economic disparities, financial reports show that Fair Isaac’s mortgage revenue was up by 147% year over year, while their other product channels saw average or even negative revenue growth. Per reporting by the Wall Street Journal, their CEO, Will Lansing, was named the fifth highest paid CEO of 2023 — thanks of course to the skyrocketing mortgage price hikes.

FICO’s dominant market position stifles competition and curbs the innovative tools that would make credit reporting more financially accessible for the thousands of independent, community-based mortgage banks that originate loans to millions of American homeowners.

For one, consumers are forced to rely on FICO’s potentially outdated scoring models – which may not reflect current financial behaviors or trends accurately. Additionally, alternative scoring models that offer more equitable solutions are often hedged out by FICO’s exclusionary practices – such as restrictive contracts that penalize lenders who are non-FICO score users.

In January, the Community Home Lenders of America (CHLA) released our white paper on the mortgage credit score marketplace and pricing as a means to educate non-industry folks on how today’s credit scoring industry isn’t functioning the way it ought to. For policymakers, headlines around supply chain issues and rising interest rates are often the ones they like to focus on – because they are generally easier to understand. However, the “backend” world of mortgages is an equally critical contributor to affordability challenges and an area in which Congress must bring more regulation so that consumers are protected from outright price gouging.

Today, we hear market chatter that Fair Isaac is about to hike prices again, from $3.50 to at least $5.00 per credit pull, or $15 for a tri-merge. And market analysts, as well as the CEO, indicate that more price hikes will continue each and every year ahead. 

CHLA is relieved to see that both Republican and Democratic members of Congress are calling on the Department of Justice to investigate this anti-competitive behavior.  

For the sake of those dreaming of homeownership and the lenders tasked with helping them get into their forever home, it is imperative that regulators and policymakers work to stop this runaway train and reign in FICO’s uniliteral, government-guaranteed monopoly power.

Rob Zimmer is the director of external affairs at the Community Home Lenders of America (CHLA).