|Fannie Mae has made changes to its requirements for using nontraditional credit scores.
One of the nontraditional sources used in developing a nontraditional credit report must be housing-related, the secondary lender said in Announcement 09-12 yesterday. Depending on the sources, a total of four to six sources are required.
The change is effective on whole-loan purchases on or after Aug. 1 and on mortgage-backed securities pools with issue dates on or after the same date.
Credit scores are either based on the lesser of two scores or the middle of three scores -- even when two of the three scores are identical. Borrowers with only nontraditional credit sources should be defined as "high primary risk" in the comprehensive risk assessment for the loan.
When one borrower has a traditional credit score and the co-borrower does not, then the loan will be priced at the lowest credit score range as if neither borrower had a traditional score. But eligibility in that situation will be determined based on the credit score of the borrower with the traditional history.
Aside from MyCommunityMortgage loans, the lowest acceptable credit score is 580, though most programs have higher minimums. MyCommunity borrowers with insufficient credit histories can supplement the credit file with as few as three nontraditional credit sources.
Fannie said Desktop Underwriter should be used whenever one of the borrowers has nontraditional credit and cashout is involved, more than half of the income comes from the borrower with traditional credit or when the security is non-owner occupied. The same goes for properties that are not one-unit and for borrowers who are self-employed.