Fannie Mae makes it harder for bad credits to borrow

http://www.washingtonpost.com/wp-dyn/content/article/2009/11/25/AR2009112503415.html Fannie Mae, the giant mortgage finance company that helps shape lending guidelines, plans next month to raise minimum credit score requirements and limit the amount of overall debt that borrowers can carry relative to their incomes. Starting Dec. 12, the automated system that Fannie Mae uses to approve loans will... [more]

http://www.washingtonpost.com/wp-dyn/content/article/2009/11/25/AR2009112503415.html Fannie Mae, the giant mortgage finance company that helps shape lending guidelines, plans next month to raise minimum credit score requirements and limit the amount of overall debt that borrowers can carry relative to their incomes. Starting Dec. 12, the automated system that Fannie Mae uses to approve loans will reject borrowers who have at least a 20 percent down payment but whose credit scores fall below 620 out of 850. Previously, the cut-off was 580. Also, for borrowers with a 20 percent down payment, no more than 45 percent of their gross monthly income can go toward paying debts. Fannie declined to disclose the previous threshold, except to say that it was higher. The company will raise the level to 50 percent in cases with "strong compensating factors." Brian Faith, a Fannie Mae spokesman, said these limits reflect the company's recent experience. Loans to people with credit scores below 620 fell seriously behind at a rate approximately nine times higher than other loans purchased in the same period, Faith said. Loans taken out by borrowers with lots of debt also suffer higher levels of serious delinquency, he said. "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 in a statement. Jennifer Du Plessis of George Mason Mortgage, a direct lender that sells loans to banks as well as to Fannie and Freddie, said that at least one bank she knows of started imposing the 45 percent debt limit within the past few weeks while others have set that limit at 50 percent. [less]