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Fannie Revises Min Credit Scores, Max LTVs

580 score required as of June 1

April 2, 2008


Fannie Mae this week tightened its credit score requirements and made it harder for borrowers with prior foreclosures to qualify for conforming mortgages.

In a letter to approved sellers, the Washington, D.C.-based company said it took steps to align manual underwriting with Desktop Underwriter 7.0. In addition, DU risk assessment was updated, and pricing was modified.

The changes take effect on loans underwritten June 1 or later, according to the secondary lender. Whole loans underwritten based on the old criteria must be purchased by Fannie no later than Oct. 31 or delivered to mortgage-backed securities pools by Oct. 1.

Fannie said it has established a minimum credit score of 580. Prior to this requirement, no minimum credit was required for manually underwritten loans.

Credit score exceptions can be considered for some streamline refinances, government-insured loans and manually underwritten loans with non-traditional credit.

"The dramatic shifts in market dynamics over the past several months have prompted us to continually review the full spectrum of our risk appetite, eligibility requirements, automated underwriting risk assessment and pricing," Fannie stated. "In some instances, the changes are a contraction of our current policy, but in other cases, the changes represent an expansion of our eligibility guidelines."

Streamlined refinances have no minimum credit score requirements for "Option A" and "Option A Select."

Two-unit properties require a score of at least 640, while three- and four-unit properties require a 680 score, the government sponsored enterprise said.

Fannie said it would increase from four to five the number of years that must elapse since a foreclosure before the borrower is considered to have re-established credit history. With extenuating circumstances, a three-year period is required. A minimum down payment of 10 percent and a minimum credit score of 680 are required with prior foreclosures.

Borrowers with a 60-day delinquency on the mortgage during the prior 12 months will be ineligible for a conforming loans, Fannie clarified. Authorized user accounts will not be considered unless the primary account holder is the borrower's spouse.

Loan-to-values on manually underwritten loans have been reduced for all three- and four-unit properties, second homes and some streamlined refinances, according to the letter. The maximum LTV on MyCommunityMortgage loans was lowered to 97 percent for traditional credit borrowers. Borrowers with non-traditional credit are limited to 95 percent LTV and combined LTV, though eligible Community Seconds will still go to 105 percent CLTV.

On Friday, Fannie issued an update indicating it would extend the maximum months in forebearance from four to six.

The complete letter is online at:

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: [email protected]

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