Fannie Mae Tightens Its Guidelines

Fannie Mae has announced that it will be making changes to its automated underwriting system, Desktop Underwriter effective May 31.  This move is the latest round of tightening in underwriting guidelines in recent months.  These changes have restricted private mortgage insurance to a maximum of 97% financing and imposed pricing adjustments (i.e. higher interest rates and fees) for those with credit scores <680.

One big change is the introduction of a new minimum 580 FICO for all eligible loans.  Currently loans run through DU do not need to meet and minimum score requirement but the totality of factors (debts, income, assets, job stability, credit history, etc) and the reasons for the lower score (illness, divorce, failed business) were considered to make a decision.  With this change anything below that score is automatically ineligible with no exceptions. 

The changes go beyond FICO scores as Fannie has also said it will no longer consider mortgage insurance as a mitigating risk factor for high-LTV loans. Fannie Mae will also impose stricter rules regarding previous foreclosures and delinquencies.  Borrowers with a prior foreclosure will be required to have five years of clean credit before becoming eligible from the prior standard of four years (some minor exceptions are possible). 

It is becoming clear that despite efforts by Congressional leaders to have Fannie Mae and Freddie Mac stabilize the housing market, both are being careful about the risks they take on.  They still offer several great financing options but the pool of qualified borrowers will again be reduced.  FHA still remains a viable option for those in need as well, as they are still not imposing any minimum credit score requirements or penalties to rates/fees based on credit scores as long as the totality of factors meet the underwriting standards.

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Roland Carrillo, PhD
Branch Manager
VanDyk Mortgage in Cary, NC
Email: rjcarrillo@gmail.com
Website: http://www.mymortgageanalysis.com/ 

Our branch specializes in affordable lending options including FHA / VA and the Community Heros program.  As both a banker and a broker, you have access to a full menu of products including all Fannie Mae and Freddie Mac Conforming loans, Reverse, Jumbo and Commercial financing on a variety of property types.  We are located in Cary, North Carolina and are within easy reach of the entire RTP Area including Wake, Durham and Orange Counties.