Experian PLC EXPN

Examining the Mortgage Wild Card: Scenarios That Move Our Valuations for Credit Bureaus and Scorers

All three credit bureaus—Equifax, Experian, TransUnion—and Fair Isaac have exposure to mortgage volumes, and in recent years, these volumes have proved difficult to forecast. Equifax's 2023 mortgage inquiries were 60% below 2020 levels and 41% below 2019 levels. But it is not just mortgage volumes that are affecting these firms. Regulatory changes at government agencies and outsize pricing increases can be important profit drivers. We see the transition to an optional bi-merge—a credit report with data from just two bureaus rather than all three—for government-conforming mortgages posing the most risk to Fair Isaac, as it does not have the upside that the credit bureaus get from the inclusion of VantageScore, a credit score developed jointly by the three major bureaus. But Fair Isaac also has the greatest upside to differing mortgage scenarios, as it has the highest incremental margins and the most pricing upside.