We haven’t put either of those into our framework for 2024 because we’re not sure they’re going to happen or what the impact would be. But you point out that if it’s a mandatory to have a FICO and Vantage score, that’s a positive for our business to sell a second score in every mortgage. And no, we haven’t thought about pricing on it because we really — it’s unclear if it’s going to happen or when it will happen, if it does.
Operator: Our next questions come from the line of Heather Balsky with Bank of America.
Heather Balsky: I wanted to ask first — well, I guess two clarifying questions for you. One is the issuance metric for workforce on the mortgage side. I know that’s something you guys introduced last quarter. Can you just help us again walk us through what that measure, kind of how you’re getting to that number? And there’s a lot of data out there around what issuance is. So just kind of helping us think through if we’re comparing your number to kind of market data out there, what should we be thinking about? And then my second question is on the incremental margins on mortgage. I think last year, the 80% came up a fair amount, and I realize there’s a mix impact, I think you said 65% earlier. Just trying to reconcile that, too.
John Gamble: So I’ll do the second one first. And so I think I was asked about what I gave as gross margins, right, so that people should think about gross margins. Incremental margins may be a little higher, right? They’re going to be a little lower than the 80% that would have been talked about last year simply because there’s been a significant price increase from one of our vendors. We pass it through. We do mark it up, so we can maintain EBITDA margins, but we don’t — we can’t mark it up to maintain gross margins, right? So we did see — we’ll see some negative impact on variable margins on the mortgage business overall.
Mark Begor: Regardless, incremental mortgage margins are super attractive. And we tried to be clear in including that our view of what normal mortgage volumes are in the 2015 to ’19 range versus where we are today at 50% below that. There’s a lot of upsides in ’24, ’25, ’26, and we try to frame that in talking about the $1 billion of revenue potential in the future. On the second half of your — or first half of your question about inquiries. The USIS inquiries because of shopping are different than the EWS inquiries, which generally are more involved in closed loans, meaning on the shopping side, someone will do shopping on two or three different mortgage originators, but close with only one. So that’s the difference. And last year, we opted to try to disclose that data.
You referenced market volume data that’s out there. There really isn’t any market volume data out there, except on a very long lag basis. There are forecasts which you can describe as data, I would call those forecasts and that data. And we talked about what MBA is forecasting and some of the others and some of the Street is forecasting improvements later in the year based on rate cuts that haven’t happened yet for mortgage volume. We’ve been very clear, and we’ve been doing it since I’ve been here that we forecast mortgage volumes on the way up. We did it on the way down, and we’re doing it currently based on our current trends. And as it changes, we’ll share it with you. We tried to frame the positive potential impact on us on the top line as well as the bottom line as mortgage returns to normal.
And again, we think over time, whether it’s ‘24, ‘25, ’26, mortgage volumes will return to normal. It’s just uncertain when the Fed is going to make those rate changes and we’ll be transparent on what our activity is because we see activity every day. And that’s what we talk about when we talk about trends. We have — we know what the inquiries are we got yesterday, and we know what they were last week and the week before, and we used those to really forecast what we think they’re going to be going forward.
Heather Balsky: I think — I was curious more on the origination side, but potentially, the answer is kind of the same there.
Mark Begor: It’s actually, it’s a little bit different. Originations, we don’t get actual originations and the industry doesn’t for until six months after they happen, somewhere in that time frame. It’s a complex process for mortgages to close and then those mortgages to be posted in essence, on the credit file is when we see it. So the — any mortgage origination data is actually on a lag basis. Obviously, there are forecasts that lots of people put together, but those are forecasts and not actual data. You can’t determine what — how many originations happened yesterday, that’s just not available. Inquiries, yes, and we’re super transparent with you about inquiries that we see on a current basis.
Operator: Our next questions come from the line of Shlomo Rosenbaum with Stifel.
Shlomo Rosenbaum: First one, John, for you. Could you talk a little bit about maybe quantifying the duplicative cost and migration costs during the first half of ’24? That should go away as you start to hit those milestones. And is there a substantial risk of some of this stuff kind of trickling into 3Q and 4Q in terms of just not necessarily getting all the clients to migrate? That’s kind of the first question I got.
John Gamble: Yes. So I think in the margin bridge, we talked about this, right? I think what we indicated is the net benefit is about 30 basis points in the year, right? And so what you can think about Shlomo’s exactly as described, right, we’re incurring incremental costs in the first half of the year. The bulk of which go away by the second half of the year, principally related to the North American migrations to the — of the consumer credit file to Data Fabric. And so we see those incremental costs mostly occurring in the first half. Some of them continue, right, because we’re continuing to do migrations in international, et cetera, but we see a substantial cost reduction or benefit from the elimination of the redundant costs principally and also the elimination of migration costs as you go into next year. So in total, it’s 30 basis points for the year. The biggest part of the cost occurs in the first half.
Shlomo Rosenbaum: Okay. And then also just going back to kind of those inquiries forecast. I think last quarter, you said that based on what you were seeing in the market, the inquiries would be down around close to 15%. And it seems like that’s the same forecast this quarter despite the fact that rates are — have gone down. And I was wondering, did you kind of hone your forecast a little bit based on changes in shopping activity like — can you talk about the difference in terms of — or I guess the reason why you kept that forecast the same despite the fact that rates have gone down?
Mark Begor: I think we did highlight that we saw some — we used the term slight because they are slight improvements in, call it, the net last almost 60 days, which we view as a positive, which is why we’re — it feels like we’re at a bottom in the mortgage market, which I think is a positive for Equifax. And when you look at Equifax at — and again, we’re calling a mark-to-market that’s down. But meaning said differently, in a flat mortgage market, we grow our revenue because of our outperformance in both businesses through price product, more records in EWS and penetration in EWS. I think the 15, John, is kind of in the same ZIP code even with those slight improvements. But we’ll continue to be transparent as we look forward.
And we know you and many others on the call, are looking for an improvement in inquiries. We are, too. When it happens, we’ll share it with you, and I think that’s going to be a real positive for Equifax going forward. But we want to be consistent in how we forecasted for as long as I’ve been here around — off of current trends because, look, we’re not economists, we can’t forecast where rates are going. None of us forecasted the rates last year and the increases. And as recently as this past weekend, I think the Fed kind of pushed out the potential rate decreases that many were expecting in March out to later in the year. So we think it’s prudent to have a balanced forecast that’s consistent with how we’ve done it historically.
Operator: Our next questions come from the line of Owen Lau with Oppenheimer.
Unidentified Analyst: This is Guru on for Owen. Can you maybe please talk a little bit about the mortgage increased trends in January? Has it been — was it better or has it trended down 16% full year expectation?
