Investing.com -- Shares of Fair Isaac Corporation (NYSE: FICO ) fell sharply by 12% amidst concerns over potential changes in the mortgage credit scoring landscape. The decline followed comments from Bill Pulte, US Director of Federal Housing Finance Agency (FHFA), regarding the Trump administration’s consideration of supporting manufactured housing and examining title and mortgage insurance costs. Pulte’s remarks at the Mortgage Bankers Association’s secondary market conference in New York also touched on the possibility of transitioning from tri-merge to bi-merge credit scores in underwriting, which could impact FICO’s volumes.

The driver behind the stock movement was twofold: the potential privatization of Government-Sponsored Enterprises (GSEs) like Fannie Mae (OTC: FNMA ) and Freddie Mac (OTC: FMCC ), which could introduce more competition for FICO’s mortgage credit score, and a shift from tri-merge to bi-merge credit score reporting, which would likely result in lower score volumes for FICO. Equifax (NYSE: EFX ) and TransUnion (NYSE: TRU ) also experienced declines, down 1.6% and 2% respectively, indicating broader sector concerns.

RBC Capital analyst Ashish Sabardra provided insight into the market reaction, stating that the privatization of GSEs could increase the risk of mortgage spreads widening and that permitting alternative score providers might raise the cost of home purchases. He noted that GSEs do not pay for credit scores, which could make them less inclined to consider alternatives to FICO’s scoring system. Despite this, Sabardra maintains a positive outlook on Fair Isaac, as reflected in his statement, "We remain buyers on FICO weakness, as we do not believe GSE privatization will have a material impact on the business. While we acknowledge that investors are likely to focus on regulatory risks—such as FICO’s ability to continue increasing score pricing—we maintain our view that the FICO Score will remain the industry standard. Importantly, we believe FICO’s pricing power remains intact, given the value FICO Scores provide to the securitization market."

Investors appear to be weighing the potential implications of the FHFA’s considerations and the administration’s decisions on the credit scoring industry. The market’s response to Pulte’s comments suggests a heightened sensitivity to regulatory changes that could disrupt the established practices within the mortgage lending sector.

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