Fannie Mae on Wednesday said it was making changes to its automated underwriting system, Desktop Underwriter — the new changes, effective May 31, represent the latest round of tightening on the mortgage origination side. Clearly, Fannie is attempting to keep the riskier stuff off of its books.
Probably the biggest change is one that hasn’t gotten a ton of press elsewhere: the introduction of a new minimum 580 FICO for all eligible loans. Anything below that score is automatically ineligible — no exceptions. This is a sea-change from how DU has operated in the past, where no such minimum existed, and had some originators up in arms. “I agree with setting a minimum credit score,” said one originator, president of a mortgage company, “but there are certain instances where a credit score should be disregarded — a nasty divorce, a family illness, an unexpected layoff, a failed business, countless other reasons that will occur in the real world.” “How are we supposed to survive in this industry when every other day there are new charges as well as ‘program modifications’ from the prime players that everyone was looking to be the saviors of the mortgage debacle?” The changes go beyond FICO scores, however; Fannie also said it will no longer consider mortgage insurance as a mitigating risk factor for higher-LTV loans. (And it looks to be a good move, given that some insurers are talking publicly about heading into portfolio run-off.) New, stricter rules regarding previous foreclosures and delinquencies are also set to be introduced with the update, Fannie said. In part, the changes will require borrowers with a prior foreclosure to have five years of clean credit before becoming eligible; prior policy had been four years. Tanta at the Calculated Risk blog took an in-depth look at the new criteria, and it’s worth reading if your origination business depends on DU and Fannie Mae. It’s clear that despite strong efforts by Congressional leaders to have Fannie and Freddie play backstop to the entire housing market, both GSEs are being very careful about the risks they take on. And their shareholders should be very happy to see it, too. Disclosure: The author held no positions in FNM or FRE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
