Fair Isaac Corp.: Updated FAQs into FICO World next week...

Research evidence excerpt

Fair Isaac Corp.: Updated FAQs into FICO World next week...

increase in defaults per Milliman's

study). Hence, mitigating risk would require significant GSE revenue loss (potentially ~$11B)

or increased borrower costs ($350–$1,500 on ~$300k mortgage). Because of these notable

numbers, there is likely political risk as well to consider for a two-score system.

Our view: Hard to know, and surely some work is going on since the ‘lenders choice’ policy was

announced – but perhaps the significant amount of time this is taking speaks to the complexity

referred to above (recall VS was mandated alongside FICO by the FHFA during the Biden

administration, yet not much progress was made on actual adoption due to the various

challenges that add costs to the system).

• Also recall that a FOIA uncovered that the GSEs wanted a single score system with FICO

10T (and did not want another score/VS4) - which is an important validation of FICO’s

views, and the GSE staff will likely be managing the mortgage system for a lot longer than Mr.

Pulte will be in charge of the FHFA. We think the market continues to overlook the bi-partisan

consensus on not adding costs/risks to the mortgage system; moves that impair the safety of

the GSEs means risks for the U.S. Federal government as the backstop (and the firestorm

from the 50-yr mortgage proposal is strong evidence in favor of this argument).

**What are guarantee fees (g-fees) and the loan level price adjustment (LLPA) matrix? G-fees

are charges imposed by government-sponsored enterprises (GSEs) on lenders for insuring,

bundling, and selling mortgage-backed securities (MBS). These fees, which have both upfront and

ongoing components, cover projected credit losses from borrower defaults, administrative costs,

and return on capital.