Fannie Mae, the largest U.S. home funding company, told lenders on Monday that it will require a minimum credit score for loans it buys on an individual basis.
In the past, Fannie Mae had no minimum score. A credit score is a predictor of how likely a customer is to pay on time, the company will require a minimum score of 580 for most loans, besides it will still acquire loans with lower credit scores in certain circumstances.
Fannie said it will increase the period needed for borrowers to re-establish their credit history after a foreclosure to five years from four years.
Fannie also stated it will allow shorter recovery periods for borrowers with "documented extenuating circumstances" which caused the foreclosure.
Fannie representatives could not immediately be reached for comment.
The Federal National Mortgage Association, commonly known as Fannie Mae, is a government sponsored enterprise (GSE) of the United States government. As a GSE, it is a privately-owned corporation authorized to make loans and loan guarantees. It is not backed or funded by the U.S. government, nor do the securities it issues benefit from any explicit government guarantee or protection.
FNMA's primary method for making money is by charging a guarantee fee on loans that it has securitized into mortgage-backed security bonds. Investors, or purchasers of Fannie Mae MBSs, are willing to let Fannie Mae keep this fee in exchange for assuming the credit risk, that is, Fannie Mae's guarantee that the principal and interest on the underlying loan will be paid regardless of whether the borrower actually repays.