Fair Isaac slides 26% as Rocket Mortgage makes VantageScore its default; FHA and jumbo loans stay on FICO

Fair Isaac shares were at $618.83 at 10:52 a.m. on Tuesday, down 26.4% from Monday's close of $840.89, according to Nasdaq quote data, with more than seven times the stock's average daily volume already traded. The drop deepened after the open as two blows landed within hours of each other: FHFA Director Bill Pulte's post saying Fannie Mae and Freddie Mac will price loans off one grid that includes VantageScore, which we covered before the bell, and Rocket Mortgage's announcement late Monday that VantageScore 4.0 will become its default score.

At Tuesday's price the company is worth about $13.4 billion, per Nasdaq, roughly $4.8 billion less than at Monday's close. Rocket Companies stock was up 2.5% at $11.94.

What Rocket actually changed

Rocket said it will become the first mortgage lender to use VantageScore 4.0 as its preferred model on all eligible loans, starting in the fourth quarter, HousingWire reported. The switch covers loans delivered to Fannie Mae and Freddie Mac and VA loans. The company said it pulled about 1.4 million credit reports under both models over roughly four months of testing, and that borrowers who came out ahead with VantageScore saved an average of $1,600 at closing.

"We did the work, compared the models and chose the one that helped more qualified clients," Rocket Mortgage CEO Jay Bray said in the company's statement.

The part the sell-off skips: what stays on FICO

Rocket's announcement is narrower than the stock move suggests. According to HousingWire and The Truth About Mortgage, these products keep using FICO for now:

• FHA loans, because FHA does not yet accept VantageScore
• jumbo loans
• investment-property and second-home mortgages
• home equity loans

Rocket Pro, the unit that lends through independent mortgage brokers, will keep offering both scores and let the broker choose. So the change applies to Rocket's direct-to-consumer conforming and VA business, not to everything it originates.

That does not make the threat small. Fair Isaac's Scores segment made up 68% of revenue in the June quarter, and the company's 10-Q attributed its 49% jump in business-to-business score revenue "primarily" to a higher price per mortgage origination score. The market is pricing the risk that Rocket's move becomes the template, now that a single pricing grid removes the reason lenders had to stay with FICO on conforming loans. United Wholesale Mortgage chief Mat Ishbia also spoke in favor of VantageScore 4.0 this week, HousingWire reported on Monday.

Who it actually hits

For a buyer closing on a conforming loan with Rocket after the switch, the score that sets their rate will be VantageScore 4.0. The model can count rent and utility payments when they appear in a credit file, and it looks at how balances and payments trend over time. A self-employed borrower or a younger buyer with a short card history but years of rent on file is the applicant most likely to see a different result.

The single grid matters here too. Until now, a 20-point haircut applied to VantageScore on loans sold to Fannie and Freddie, The Truth About Mortgage reported, which erased much of the advantage of a higher score. If that haircut is gone once the one grid takes effect, a borrower whose VantageScore runs above their FICO could land in a cheaper pricing tier. FHFA has not given a start date for the grid.

For mortgage brokers, Rocket Pro's choice to keep both scores means the decision on which one to pull stays with them. The cost of each credit pull, paid on every file including the ones that never close, is the line item to watch as the two scoring companies compete on price.

Sources: Nasdaq quote data for FICO and RKT (10:52 a.m. ET); HousingWire; The Truth About Mortgage; Fair Isaac filings on SEC EDGAR. This is market information, not investment advice.