Fannie Mae is tightening down the ship as foreclosures and bad debt piles up on it’s balance sheet. Previously they did not have a minimum FICO score for buying a loan, now it is 580. Another criteria for buying a loan is that the buyer not have a foreclosure on the record for 5 years, up from 4.

And to avoid showing bad loans on the books Fannie Mae now will allow delinquent borrowers 6 months instead of 4 before the loans need to be recognized as a loss.

The government-sponsored provider of funding for home loans told lenders Monday it will require a minimum credit score of 580 for most loans it buys on an individual basis. Credit scores, which range from 300 to 850, are designed to measure borrowers’ likelihood of repaying loans. In the past, Fannie had no minimum score. The company said it will still acquire loans with lower credit scores in certain circumstances.

Among other changes announced to lenders, Fannie also 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 said it would allow shorter recovery periods for borrowers with “documented extenuating circumstances” that caused the foreclosure.

Separately, Fannie last week told loan servicers — companies that collect loan payments — that they can increase their forbearance period on delinquent borrowers to as much as six months from four months to allow more time to seek alternatives to foreclosure. Fannie hopes that move will reduce the number of loans on which it needs to recognize losses, though it may be only delaying the pain in some cases. via RealEstateJournal

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