WASHINGTON – Fannie Mae is tightening its underwriting standards on adjustable rate mortgages, which accounted for just 4% of the GSE’s total loan purchases in the second quarter.
In a new “selling guideline” announcement posted on its website, Fannie told lenders that maximum loan-to-value ratios will be reduced and minimum credit scores will be increased to 640 from 620 on all manually underwritten ARMs, according to National Mortgage News, an affiliate of Credit Union Journal.
“Fannie Mae also is changing LTV ratios and minimum credit score requirements in certain areas to simplify the requirements and bring alignment across product and property types,” the company said.
It clarified language related to debt-to-income ratios, and changed minimum reserve requirements on a product called “MyCommunityMortgage.”
These changes apply to both manually underwritten loans and mortgages processed through Fannie’s automated underwriting system.
The changes go into effect Oct. 20. Some media outlets suggested that the underwriting changes affect all mortgages.
According to figures compiled by National Mortgage News and the Quarterly Data Report, FRMs account for almost 90% of all residential production. The Mortgage Bankers Association on Wednesday disclosed that ARM fundings remain weak.