FHFA unlikely to stop requiring FICO scores, says Raymond James

Raymond James analyst Patrick O’Shaughnessy says that while recent commentary by the Federal Housing Finance Agency director is clearly aimed at FICO‘s (FICO) pricing power, it is unlikely the agency will direct Fannie Mae (FNMA) and Freddie Mac (FMCC) to move away from requiring FICO scores. In addition, the FHFA does not have the authority to directly regulate FICO’s pricing, the analyst tells investors in a research note. The FHFA could direct Fannie and Freddie to no longer require the FICO score at all, potentially in favor of the VantageScore alternative which is co-owned by the three credit bureaus, but this is a “low probability nuclear option” by the FHFA that would threaten to disrupt the entire mortgage-backed security ecosystem and would be poorly received by owners of Fannie and Freddie mortgages, contends Raymond James. The firm keeps an Outperform rating on FICO.