FICO Survey: Secondary Market Expects Higher Volatility in 2023

FICO pulse survey finds that secondary market wants more information on transition to FICO Score 10 T

FICO recently sponsored the Structured Finance Association’s annual conference on capital markets in Las Vegas, an event that always features insightful guest speakers and draws attendance from a wide range of investors and secondary market participants across sectors. The conference boasted a record total of 8,000+ registered attendees, and FICO experts shared their insights in various panel discussions.

Like in years past, we also surveyed SFVegas 2023 attendees on the overall economic climate and how they use credit scores to support securitization risk management. Here are a few key takeaways about how the secondary market sees the overall state of the economy, the role of credit scores in securitization, and the upcoming transition to FICO® Score 10 T in the conforming mortgage market.

  1. Secondary mortgage market participants expect a U.S. recession in 2023.

Conference attendees were skeptical of the overall state of the U.S. economy. More than 75% of respondents said a recession was likely or very likely in 2023, and only 7% said it was unlikely. Inflation was by far the most likely source of respondents’ alarm, with 87% citing it as a source of concern for the overall U.S. economic outlook, while only approximately 3% of respondents cited COVID-19. Notably, this poll took place before the recent liquidity challenges faced by several financial institutions.

  1. But they view their own companies’ financial outlook more positively.

Still, attendees remain more optimistic about their own companies and investment portfolios. 14% said the financial outlook for their company was very strong, and another 50% assessed the outlook as strong. Less than 5% believe their company is heading into 2023 in a weak financial position.

  1. Greater volatility in the securitization market is anticipated this year.

Just over 40% of respondents said that volatility in the securitization market in 2023 would be higher than 2022, and another 36% believe it will be about the same. Only 23% expect volatility to be lower in 2023 than it was in 2022.

  1. Investors and other secondary market participants want a credit score that is predictive of credit risk and proven over time.

When asked what factors were most important to them in selecting a credit score model, more than half (55%) ranked a score’s ability to predict credit risk highest on their list, followed by a score that was proven over time (32%). The FICO® Score has been trusted across consumer credit markets for more than 30 years as a proven and reliable measure of credit risk which helps secondary market participants feel confident about their investments.

  1.  Secondary market participants want to learn more about the upcoming transition to FICO® Score 10 T in conforming mortgages.

Only a third of respondents said they were at least somewhat familiar with the upcoming requirement that FICO® Score 10 T be used in the origination of conforming mortgages that can then be delivered to the government-sponsored enterprises, Fannie Mae and Freddie Mac. And less than 20% said that they were prepared for the transition (which is expected to take several years). The vast majority said they would benefit from additional information.

FICO® Score 10 T is FICO’s most powerful credit score to date, and it incorporates new characteristics such as trended data to give lenders unparalleled flexibility and predictive power while preserving the trusted and proven FICO Score minimum scoring criteria. We always work with lenders and investors throughout the process of updating their FICO Score models to make the process as seamless as possible, offering resources and information to support the migration to our newest, most powerful models.

To learn more about the upcoming transition to FICO® Score 10 T, please register for more information on the FICO Score ABS website:

Findings reflect 127 respondents’ answers to a survey administered in person at SFVegas 2023, from February 26 - March 1, 2023.

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