Fannie Mae tightens mortgage requirements a notch

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Services for Real Estate Pros

Dollar signs to buy a homeThe key home loan financier operating on the secondary mortgage market has seen much better days with its immense portfolio. Just like most other lending institutions it, too, has been slowly bleeding as foreclosures keep shaking its once solid foundation. So much so that Washington had to bail it out a while back. Yet, it's still doing what it was mandated to do, invest in mortgage paper.

Fannie Mae, to stem growing losses, is gradually hiking mortgage underwriting criteria, though. In the latest round of updates that'll go in effect November 1, the borrower's FICO has to be 620 or better for every home loan that complies with its Selling Guide. This date applies to manually underwritten and FHA and VA loans. Furthermore, for mortgages routed through Fannie Mae's Desktop Underwriter the start date is December 12, pushed there to get the software configured. Excluded from this FICO upgrade are Fannie Mae's Refi Plus products and manually underwritten loans with non-traditional credit. The minimum score now is 580 for most programs and government loans have none.

Southern Nevada - Las Vegas, Southern Highlands, Summerlin, Henderson, Mountains Edge, Anthem and Green Valley among the communities here - is trying to emerge from a deep real estate slump and these changes naturally will hamper that. The same goes for many other areas in the country, from Arizona and California across to Florida and elsewhere. Not in a major way, but still. The home loan guidelines are already tough enough, so another degree higher will put more squeeze to getting approvals.

On the other hand, as the national housing market continues to plod along unsteadily, Fannie Mae applying more prudent risk management in mortgage lending is understandable. It's already supported by the government. If it makes more risky loans and they increasingly default, it needs more money from Washington to stay in business. In reality, that means the taxpayer who was approved for a mortgage and subsequently goes bust ends up paying for it himself. Stopping the potentially self-defeating cycle at the first step seems to be the right thing to do.

 

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Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

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Show All Comments
Rainmaker
423,380
Ellen Crawford
Prudential PenFed Realty - Fairfax, VA
Virginia & Maryland Real Estate

Thank you for posting such timely data.  I bet a lot of buyers will be caught off guard.  Have a great day. 

Sep 28, 2009 06:13 PM #1
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Renée Burrows
Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate - Las Vegas, NV
Las Vegas Real Estate Broker - www.urLVhome.com

Well we do need less buyers in the pool for more inventory but those that don't have built up traditional tradelines and very little history (young first time buyers) are going to be hurt!

Sep 28, 2009 08:07 PM #2
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages Connecticut - Middletown, CT
Your Connecticut Mortgage Expert

Esko, we have been dealing with the added layering by investors around here for a while, so these Fannie Mae changes will not effect me much unless it causes investors to further tighten things up and raise their minimum credit scores again.

Sep 28, 2009 08:58 PM #3
Rainmaker
325,145
Esko Kiuru
Bethesda, MD

Ellen,

Predictably it shouldn't affect the market too much. We all hope.

Sep 29, 2009 01:24 PM #4
Rainmaker
325,145
Esko Kiuru
Bethesda, MD

Renee,

First-timers likely will be affected the most.

Sep 29, 2009 01:25 PM #5
Rainmaker
325,145
Esko Kiuru
Bethesda, MD

George,

The trend seems to be towards tightening, to stem further losses, so hopefully it won't go too far.

Sep 29, 2009 01:26 PM #6
Anonymous
Anonymous
Tim Manni

Esko,

How are you?

I see this increase as a good thing. Although I do understand it will limit some borrowers' abilities to secure a loan, part of housing's long-term recovery is to establish a foundation of credit-quality borrowers that will be better suited to maintain their loans throughout the future.

Here's something else to consider (I've been writing about it a lot lately): the re-emergence of the mortgage insurance (MI) industry in the marketplace will serve to better consumer credit conditions. Since standards are so tight (and tightening), it has been very difficult to get a loan without close to 20% down. If MI regained their market share, many consumers would see those downpayment restrictions loosen considerably, and homeownership could become a more realistic goal for many.

Thoughts?

Hope you're well, hope to hear from you soon,

Tim

Sep 30, 2009 10:52 AM #7
Rainmaker
325,145
Esko Kiuru
Bethesda, MD

Tim,

It's great to see the mortgage insurance industry getting back on its feet. Housing overall will benefit from it. Little by little we are climbing out of this messy hole.

Sep 30, 2009 04:37 PM #8
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