The government-backed mortgage financier Fannie Mae is tightening its lending standards. The GSE says it will require a credit score of at least 620 for all mortgage loansdelivered in accordance with its Selling Guidelines, including loans guaranteed or insured by a federal government agency, such as the Federal Housing Administration (FHA), Veterans Affairs (VA), or HUD. The new minimum will take effect for manually underwritten loans and all government loans on November 1, and for loans underwritten using Fannie’s Desktop Underwriter, when the software is updated on December 12. Currently, the minimum score for most loan types is 580, with no minimum for government loans. Exceptions to the new minimum credit score requirement are limited to mortgage loans that are manually underwritten with nontraditional credit and those originated in accordance with the GSE’s Refi Plus offerings,

which are being used to help underwater borrowers refinance under the Obama administration’s Making Home Affordable program. In a notice issued to lenders, Fannie Mae said raising the minimum credit score will support “prudent risk management and better ensure sustainable homeownership.” Brian Faith, a spokesman for Fannie Mae, told American Banker, “Our experience with recently delivered loans with credit scores below 620 is that they reached a level of serious delinquency at a rate approximately nine times higher than other acquisitions during the same period.” The federal government has leaned heavily on Fannie Mae and its sibling firm Freddie Mac to help ease the credit crunch, but it’s a sticky tug-of-war between thawing the credit freeze and adhering to stricter underwriting standards. Even federal regulators have admitted that they’re now asking lenders to walk a fine line. Sheila Bair, FDIC chairman, recently said in an interview with Steve Forbes for Intelligent Investing, “…we try to emphasize to our banks to strike the appropriate balance. Obviously, we want prudent lending. We want loans that the people will pay. But we do want lending.” When asked by Forbes if credit lines were easing, Bair added, “..the trick, of course, is not to recoil so much, go too far the other way and just pull back on credit even when it’s a good loan and the borrower’s fully capable of repaying it….we don’t want the lax lending of the past but we do want them to lend.”