Fannie Increases Credit Score Requirement
by Tim Manni
The current state of both the housing market as well as their own finances have caused mortgage giant Fannie Mae to tighten their lending criteria. Fannie Mae will increase their requirement for a minimum credit score of 620, up from 580 beginning November 1. The change covers virtually all loans in today’s marketplace, including FHA and VA loans.
Certain loans will remain exempt from the credit score increase such as manually underwritten loans with nontraditional credit and originations under Refi Plus or DU Refi Plus programs.
Loathing in Las Vegas
Our friend Esko Kiuru, a mortgage consultant in Las Vegas, says while Fannie’s restrictions will hamper the emergence of a recovery in the areas surrounding his city, he does acknowledge that, given current market conditions, it’s certainly “understandable.”
While Fannie’s more prudent lending requirements do in fact mean that credit will be unavailable for some audiences. This should help to further improve the quality of loans being written, lessening the likelihood of future losses.
Redefaults
The markets continue to struggle with yesterday’s bad loans, and the latest news suggests that efforts to repair those problems just aren’t working. Alan Zibel of the Associated Press wrote an article today which explained that default rates of modified loans are extraordinarily high. Even borrowers who have had their monthly payments significantly reduced are still failing:
More than 50 percent of homeowners with loans modified in the first half of last year had missed at least two months of payments a year later, the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision said Wednesday.
About one in three borrowers whose monthly payments were reduced by 20 percent or more had fallen behind again within a year. That compares with more than 60 percent for borrowers whose loan payments were left unchanged or increased.
The Fed Has Left the Building
And for those of you who think the credit markets are poised to thaw anytime soon, perhaps it’s time to rethink that notion:
Another day, and another Federal Reserve official [Fed Vice Chairman Don Kohn] warning us that the central bank will someday have to take away the enormous wad of cheap money it has provided to the financial system and the economy.
Translation: When the Fed starts sensing that inflation pressures are building because people and businesses are spending again, it will be time to make easy money much less easy.
So by now we all know that credit conditions have and may continue to tighten, and “easy money” is nearly impossible to come by. If you can envision the housing recovery as a puzzle, than your image would be of an incomplete one — you may be developing a sense of what the final product may look like — but are still missing too many pieces (home prices, jobs, mortgage insurance, private capital) for you to know how it will turn out.
