Here is an article I found this morning - It's one more hurdle for buyers to jump through. Of course, now that there are better "conventional" loan rates and plans available out there (98% funding without MI), the decision might not have as huge an impact as it might have this time last year. We seeing that with so many cash investors buying up everything they can find in our market, sellers are typically reaching to the buyers with conventional loans as their #2 contract choice, not FHA funded buyers. Here's what Jon Prior of www.HousingWire.com wrote in his article...
As the Federal Housing Administration (FHA) considers raising the minimum credit score requirement for new borrowers to reduce risks to the single-family insurance fund, Fannie Mae has now jumped ahead, increasing the minimum borrower credit score from 580 to 620.
Brian Faith, a spokesperson at Fannie, confirmed the minimum hike to HousingWire, adding that the adjustment reflects a careful analysis of borrowers' ability to repay their mortgage obligations over the life of the loan.
"Our experience with recently delivered loans with credit scores below 620 is that they reached a level of serious delinquency at a rate approximately nine times higher than other acquisitions during the same period," Faith said in a statement.
Fannie also reduced the allowable debt-to-income (DTI) ratio to 45% when executing loss mitigation efforts under the Home Affordable Modification Program (HAMP). Under HAMP, the US Treasury Department provides allocated capped incentives to servicers for the modification of loans on the verge of foreclosure.
Faith said that high DTI ratio loans also have higher levels of serious delinquency.
"It's not enough to help borrowers buy a home - we must also ensure that they can stay in the home over the long term," Faith said.