Fannie Mae to tighten lending standards

WASHINGTON, Nov. 26 (UPI) -- Fannie Mae, the giant mortgage finance company that helps shape lending guidelines, plans more crackdowns next month to further tighten lending practices.

U.S. officials say the plan includes the raising of minimum credit score requirements and limiting the amount of overall debt that can be carried related to income.

There is concern, however, that the mortgage industry may become too restrictive and impede an economic recovery in its attempts to roll back loose lending standards that led to the current crisis, The Washington Post says.

Lending by U.S. banks plunged by 2.8 percent in the third quarter, the largest drop since at least 1984, federal data released this week indicates.

Some of that problem is said to be fostered by Fannie Mae and Freddie Mac, which refuse to buy loans that do not meet their rules.

Starting Dec. 12, the automated system that Fannie Mae uses to approve loans will reject certain borrowers at a higher cutoff point. These borrowers would have at least a 20 percent down payment but whose credit scores fall below 620 out of 850. Previously, the cut-off was 580.

Also, for borrowers with a 20 percent down payment, no more than 45 percent of their gross monthly income can go toward paying debts.