What’s next for mortgage scoring? In this interview, FICO’s Joe Marsocci sits down with Diego Sanchez to explain how Score 10 T is reshaping underwriting and capital markets strategies. The adoption curve is accelerating with his team supporting lender implementation and growing institutional interest. Marsocci also shares insights on how FICO is working with key stakeholders to modernize credit evaluation and deliver better outcomes for borrowers, lenders, and investors alike.
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00:00Okay, we are live from Dallas. I'm Diego Sanchez, President of HousingWire, and I'm joined today
00:13by Joe Marsocci, Senior Director of Mortgage at FICO. Thanks for joining us today, Joe.
00:20Thank you, Diego. It's great to be here.
00:23First off, congratulations on winning a HousingWire Tech Trendsetter Award. That's awesome.
00:27Thanks, Diego. Yeah, it's really an honor to be recognized by HousingWire for that award,
00:32alongside so many other great contributors to our industry.
00:36So before we dive in, what is your role at FICO?
00:40Our team has 10 team members with experience across different sectors of the mortgage industry,
00:45so capital markets, credit risk, origination servicing, and the tech space. And I was really
00:50excited to join FICO and the MCM team. I spent 20 years of my career at several different
00:56lenders helping consumers, and I love what we do. And now I'm able to help clients utilize
01:00the FICO score more effectively and make it a win-win for lenders, investors, and customers.
01:07And you're going through a little bit of an evolution right now in terms of your scoring
01:13model at FICO. What exactly is FICO Score 10T?
01:2010T is our newest scoring model. Really, it's kind of our continual innovation to address
01:28market and data advancements, and it provides continuity with the other FICO Score versions
01:33now in use. So FICO comes out with new versions every few years. The mortgage industry has
01:38just been on the classic FICO Score since the 90s. And so the 10 in 10T stands for trended
01:45data, and it's really looking at a person's use of credit over a 24-month time period.
01:50So it changes from that single snapshot in time and captures behaviors over a longer
01:55period. And we know with the changes in consumer behaviors, it's a great representation of
01:59where we are today. And the research that we're doing is showing that 10T provides about
02:05a 5% lift in loan approval rates over the classic FICO Score without additional credit
02:10risk. So lenders can better control their default rates. I spent a large portion of
02:15my career focused on credit risk. And so I had the opportunity to manage or play a role
02:21in the entire origination system. And to know that I can get a lift in approvals while maintaining
02:25a strong risk profile was very comforting for me. I just wish it was around when I was
02:30still in lending. But getting both more loans and less risk is really like magic.
02:37Can you tell us a little bit more about how your team is amplifying awareness about FICO
02:44Score 10T?
02:45Of course. Some people don't even realize that FICO is an independent, publicly held
02:50company, not a government organization. So our team is focused on bringing awareness
02:54to new innovative tools like the recently announced FICO Score Mortgage Simulator. That
02:59simulator helps would-be borrowers understand how taking certain actions may impact their
03:03FICO scores. And now we have several lenders that are utilizing it today. But to talk about
03:09the value of the score across the ecosystem, because of the FICO Score, a borrower can
03:13apply for a loan and second later, the loan officer can quote a price up front. That's
03:17pretty significant. So they know which products borrowers are eligible for based on different
03:21FICO Score guidelines for various mortgage products. And for investors, it's a primary
03:26factor in determining a loan's risk profile, cash flow predictability, and liquidity, accurately
03:32identifying charge-offs from prepayment risk or risk of default. And I also want to talk
03:36about how pricing works, because it's very critical. In terms of FICO pricing, we collect
03:41a wholesale royalty of $4.95 for the score used to originate a mortgage loan. It's only
03:47a small percentage of the $80 to well over $100 tri-merge bundle costs. And that score
03:51is used many times more in places like product decisioning, loan and mortgage insurance pricing,
03:56loss modeling, loan pooling, and so much more. However, today FICO generally doesn't collect
04:01any additional amounts beyond the per score amount collected for the initial origination
04:05use. So we are constantly finding ways to make the FICO Score model more powerful,
04:10predictive and useful like with FICO Score 10T.
04:12And huge in this environment where it has been difficult to originate for the past couple
04:17of years. So you mentioned the increase in approval rates. Are there any other benefits
04:22that are involved with FICO Score 10T?
04:27Yeah. I mean, I think there's obviously the lift in approvals that we talked about. There's
04:31also conversely because of that trend of data, a reduction in kind of overall defaults. So
04:38we see about a 17% reduction in default rates, which is also a huge benefit for our lenders.
04:47And so those two things together, there's also different treatments that we could go
04:51kind of deeper into the score on the way medical collections are captured, the way
04:57additional users on your credit cards, so authorized users are treated differently.
05:02So kind of things that we see. So one of the things that I've said before is when we look
05:07at kind of the way that the GSEs that set up their AUS systems, they've been capturing
05:11trended data in their AUS for years. So now with the 10T score, the consumers get that
05:18benefit on the score side of it as well. So certainly a great addition to the industry
05:23when it gets adopted.
05:24And I understand that you're already rolling out this new model with clients.
05:29Yeah, yeah, we are. So currently we have about 25 lenders that are currently utilizing and
05:38pulling the score. Right now, we're encouraging everyone to start utilizing as much as they
05:42possibly can to get the benefits of our early adopters already seeing. And today, lenders
05:48can start getting 10T alongside of their existing credit score. So if they're pulling
05:56the FICO score, we're giving 10T alongside of that. So they can start evaluating the
06:01performance of their own portfolios to see the value that FICO score 10T brings for them.
06:06And today, we're already seeing lenders use it on Jumbo loans, VA loans, DSCR loans, non-QM
06:12loans, so kind of that non-GSE production.
06:16A few of those lenders, just to give you a list, is United Wholesale Mortgages, One Planet
06:20Home, Cross Country, Cardinal Financial, and then several banks, credit unions, and other
06:25lenders. And one of the things I do when I meet with lenders in the industry, I talk
06:30about kind of how I ended up here at FICO. So I spent years doing community reinvestment
06:34or CRA lending, and I also worked in commercial lending and focused on workforce housing.
06:40So for me, providing individuals with a roof over their head has always been a driving
06:44factor. So coming to FICO allowed me to transition from doing this one lender at a time, and
06:49now helping multiple lenders at once, reaching even more consumers. So it was a no-brainer
06:53for me to come here. It's funny, I have a teenage daughter who, now that she's getting
06:58older, she hears a little bit more of kind of what I'm doing, what I'm talking about.
07:02And so she now says she wants to do the same thing that I'm doing, which she's only on
07:06career choice, I think number eight at this time. So we certainly have a long way to go.
07:11But at least with the teenager, I blame half my gray hair on her and then the other half
07:15on our kind of industry. So it's a win for me.
07:19Well, and hey, we need fresh blood in mortgages. That is the way.
07:22That's right. Second generation, right? It's necessary.
07:25Absolutely. And those are some big lenders that are already testing out this new model.
07:29Yeah, I think it makes up for about $264 billion in originations and about $1.4 trillion in
07:36servicing portfolios. So yeah, significant numbers there.
07:40So your team also looks at the capital market side. What has the capital markets appetite
07:44been for FICO Score 10T?
07:47Yeah, there's a lot of excitement around the new scoring model and the capital market space.
07:51So securitizing on 10T offers a more predictable cash flow and greater liquidity for all type
07:58of securitized assets, not just mortgages. So we also see it in auto loans, personal
08:02loans, credit and the ABS market. And really that more predictable cash flow equals more
08:06value. So FICO Score 10T has the potential to increase the overall value of the mortgage
08:11backed security as an investment instrument. And since MBS is a global investment, it makes
08:16perfect sense to use the FICO Score that is universally accepted and is expected to become
08:22the universal standard for investors. And we also recently announced the FICO partnership
08:27with MCT, Mortgage Capital Trading, which I think a lot of our industry is familiar
08:31with and FICO Score 10T loans are now actively trading on the MCT marketplace.
08:36Yeah, digging in a little bit there. Last year, Cardinal Financial issued the first
08:41MBS that was entirely composed of loans that were decisioned on FICO Score 10T. What do
08:48you think that issuance means for the broader mortgage ecosystem?
08:53Yeah, that's correct. Cardinal was one of the first lenders to adopt FICO Score 10T
08:58for its non-GSE loans and began utilizing the score model to originate VA loans in October
09:03of last year. And they reported that the majority of the borrowers received higher credit scores
09:07with the use of FICO Score 10T, allowing for more favorable loan terms to be offered with
09:12no observable increase in credit risk. And then in November, they formed and traded their
09:17first mortgage backed security decision by FICO Score 10T to a primary dealer that traded
09:22that same day. So the new score not only improves credit risk transparency for the
09:28investors, but this first MBS also expanded homeownership opportunities for military members,
09:33veterans, and their families. And we also have early adopters like Primus who are actively
09:38trading FICO Score 10T loans in addition to VA and MCT's platform. So needless to say,
09:44we're seeing a lot of traction in the market with positive results and investors should
09:47really think about updating their buy guides, especially for the non-QM and portfolio loans,
09:52to leverage FICO Score 10T so they're not missing out on quality loans.
09:56Who should lenders go to, whether they're clients or prospects,
10:01if they're interested in starting to integrate FICO Score 10T?
10:05Yeah, certainly we want to connect with everyone in the mortgage ecosystems,
10:09not just lenders, to help them minimize risks and maximize profitability. So we encourage lenders,
10:15servicers, and investors to reach out to our mortgage and capital markets team. And for more
10:19details, they can go to FICO.com forward slash FICO Score 10T, or email us at FICO Score Info
10:25at FICO.com. And we also attend a number of industry events. So come find us at any time
10:31or schedule some time to connect in person. Well, Joe, it's been really good catching up
10:36with you this morning. Thank you so much for joining me today. Thank you, Diego,
10:40for the opportunity. It's been great.