Fair Isaac Announces Price Increases in New White Paper
Fair Isaac Corporation has recently submitted a study arguing that its FICO 10T scoring model surpasses the VantageScore system in determining the creditworthiness of American families seeking home loans. This claim arises amid growing scrutiny over the accessibility and affordability of mortgage credit scoring options.
Market Dominance and Pricing Concerns
Currently, Fair Isaac’s FICO Classic maintains over a 90% market share in the mortgage sector. In an alarming trend, the company has increased its baseline pricing by 700% over the past three years. This kind of price escalation is seldom seen outside the pharmaceutical industry.
The Community Home Lenders of America (CHLA) has consistently expressed concern over these significant hikes. They anticipate that additional increases may occur as this Fall approaches. Although CHLA supports the introduction of alternative mortgage credit scores, such as VantageScore, they believe more than two options are essential for a competitive market.
Claims About FICO 10T
Fair Isaac asserts that the FICO 10T model excels in predictive accuracy and fairness. According to the company, it is the preferred choice for lenders, investors, and stakeholders focused on market safety and soundness. Fair Isaac’s CEO emphasized during a CNBC interview on July 31 that FICO 10T is “the best score in the industry today.”
Unanswered Questions
However, there are pressing questions that arise from Fair Isaac’s claims. If FICO 10T is genuinely superior to VantageScore and even to Fair Isaac’s own Classic product, why has its adoption in the U.S. mortgage market been so delayed? Additionally, if 10T could have facilitated greater loan approvals for American families in need, what has prevented Fair Isaac from implementing it more swiftly?
Despite being available, FICO 10T remains scarce in the general mortgage marketplace. Observers note the increased lobbying efforts by Fair Isaac in Washington, aimed at countering the FHFA’s latest announcements. Questioning the company’s past lobbying strategies, one must wonder why more effort wasn’t directed at accelerating the adoption of FICO 10T earlier.
Impacts of Monopoly Power
Economic theory indicates that monopolies can negatively impact markets in two significant ways. First, they can set prices without competitive pressure, hurting consumers by extracting excessive rents. Second, monopolies often stifle innovation, keeping superior products from entering the marketplace.
Fair Isaac’s recent report, intended to undermine VantageScore, inadvertently highlights its own product’s obsolescence. The substantial price increases of 700% over a short span reveal a troubling truth: the company’s monopoly power may be harming creditworthy families by keeping them from homeownership.
This situation should prompt concern among policymakers in Washington and advocates aiming to protect American families from potential monopolistic abuses. With additional price hikes on the horizon, the need for a more competitive mortgage credit market has never been more urgent.
