Credit scores in mortgage lending
How the home loan industry uses the FICO score

Fannie Mae
Tweedledum

Credit scores? We don't need no stinking credit scores.

creditscoring.com, 7/12/2000: "Fannie Mae: 'You might have heard that the next version of Fannie Mae's system - due next month - will no longer rely on the FICO credit score...'"

Guide to Underwriting with DU

Desktop Underwriter is Fannie Mae's automated underwriting system.

"Even though the FICO score is not an integral part of DU's risk assessment (DU performs its own credit analysis)... DU evaluates characteristics within the credit report that research has proven to be predictive of mortgage default instead of relying solely on the credit scores as a measure of the borrower's creditworthiness." (1/07)

Selling Guide

"While there are no minimum credit score requirements contained in the Standard Eligibility Criteria (with the exception of mortgages with a home equity combined loan-to-value ratio in excess of 95 percent, and mortgages with an interest-only feature), we anticipate that lenders generally will use a credit score for all manually underwritten mortgages based on our comprehensive risk assessment approach to underwriting guidelines." (12/06)

MyCommunity Mortgage

"... helps lenders serve low- and moderate-income borrowers and communities with flexible terms and many options."

• Manual underwriting minimum credit score, zero down payment: 620 (1/23/07)
• "Representative minimum credit scores for manual underwriting (or use enhanced credit evaluation): 620 for 100% LTV" (5/31/07)
• "Selling Guide," Minimum Credit Score (06/23/06)

Interest only

"Mortgage Loans Underwritten Outside of DU" - 95% purchase: 640 minimum credit score (12/20/06)

IO Approval Non-DU/ (minimum credit score): 95/95% LTV (640)

Freddie Mac
Tweedledee

"Freddie Mac strongly recommends that the Seller use Credit Scores to underwrite Manually Underwritten Mortgages." (6/22/07)

FICO over 660, 1-unit property: "A Borrower whose FICO score is in this range is likely to have an acceptable credit reputation."

"Loan Prospector [automated underwriting system] will automatically request FICO scores for each Borrower and select one FICO score that will be used to evaluate the Mortgage."

Mortgage insurance
Lines in the $and

Standard conventional loan coverage

FICO SCORE 620+, 25% coverage: .71 (.0071/12 x 200,000 loan = $118.33/mo.)

FICO score 619, 25% coverage: 1.47 (.0147/12 x 200,000 loan = $245.00/mo)

The cost of bad credit: $126.67 a month.**

MyCommunity Mortgage