Fannie Tightens Standards on Lending to B&C Borrowers.

Washington -- Fannie Mae continues to tighten its underwriting standards and this time the changes will fall heaviest on borrowers with blemished credit who are seeking to refinance out of subprime mortgages.

A new seller guide issued last week establishes a minimum credit score of 580 on most mortgages and reduces the underwriting flexibility lenders enjoyed under Fannie's affordable housing product line known as MyCommunityMortgage and Expanded Approval.

Under the new eligibility requirements, Fannie will no longer accept borrowers who have missed two monthly payments in the previous 12 months or suffered a foreclosure in the past six years. The government-sponsored enterprise used to finance homebuyers who had a foreclosure four years ago.

"We have taken these steps to ensure that borrowers receive loans that give them the best chance of sustained homeownership," Fannie spokesman Brian Faith said. "Given the current state of the mortgage and housing markets, it is critical for our company to conservatively manage our business and risks through prudent pricing and underwriting."

Fannie's tightening comes as the Federal Housing Administration is considering changes to its FHA Secure program so more delinquent subprime borrowers can refinance into an FHA-insured mortgage. FHA officials say these changes are coming soon.

Meanwhile, industry trade groups like the Mortgage Bankers Association are becoming increasingly concerned about the tighter lending standards and higher loan fees that Fannie Mae and Freddie Mac have imposed over the past few ...