Fannie Mae will soon require a minimum credit score of 580 for most loans that it buys on an individual basis, the company announced earlier this week. The new rule is one of several new lending standards that Fannie Mae is implementing to stem the tide of default-related losses. In the past, Fannie Mae did not require a minimum credit score. The company said that it will still acquire loans with lower credit scores in certain circumstances.
Other rule changes include:
• Increasing the time period needed for borrowers to re-establish their credit history after a foreclosure from four years to five years.
• Allowing loan service firms — the companies that collect loan payments — to increase the forbearance period from four months to as much as six months to give borrowers more time to seek alternatives to foreclosure. Fannie Mae hopes the move will reduce the number of loans that it needs to recognize as losses.
• Adding fees for riskier types of loans.