Fannie Mae Tightens Loan Criteria

Fannie Mae, largest U.S. mortgage-finance company, has announced the introduction of a new minimum 580 FICO for all eligible loans. It will no longer buy most loans made to borrowers with credit scores below 580 as it again reacts to the slumping housing market by tightening its lending standards. In the past Fannie Mae had not required a minimum score on most of the loans it purchases.

In a statement released to the press on Wednesday, Fannie Mae's Managing Director, Brian Faith highlighted the fact that the government sponsored enterprise had decided to protect its own interests.

"Given the current state of the mortgage and housing markets, it is critical for our company to conservatively manage our business and risks through prudent pricing and underwriting, while providing sustainable liquidity to our lender customers and stability to the markets as part of our core mission, we will continue striving to responsibly strike that balance."

The change will make it more difficult for borrowers with damaged credit to get home loans, unless they can obtain mortgage insurance from the federal government.

Fannie also said it would lengthen the period needed for borrowers to re-establish their credit history after a foreclosure to five years from four years with, again, some exceptions for extenuating circumstances.