Mortgage financier Fannie Mae released a pricing and eligibility update for the home loans it buys, stepping up mortgage underwriting guidelines to better mitigate risk during the ongoing mortgage crisis.
Fannie Mae noted that its purpose is to provide stability and affordability to the housing market in good times and in bad, but added that recent market turbulence has forced it to adjust its risk appetite and tighten eligibility requirements and pricing.
To that end, a minimum credit score of 580 will be required for most loans delivered to Fannie Mae, with certain exceptions such as manually underwritten files with non-traditional credit.
Fannie has also noted that because prior foreclosure action indicates a borrower’s likelihood to default in the future, the time elapsed between a foreclosure and re-established credit history will be bumped up to five years from the previous four.
Additionally, loans with excessive prior mortgage delinquencies, defined as any mortgage tradeline that has one or more 60-, 90-, 120-, or 150-day late reported within 12 months prior to the credit report date, will not be eligible for delivery to Fannie Mae.
The GSE is also cracking down on so-called “authorized user” tradelines, and may not consider them in the underwriting decision unless the borrower can provide written documentation that he/she has been the sole payer for at least the prior 12 months.
Most of these changes will be mandatory effective June 1, though mortgage lenders can apply the new requirements immediately.