Fannie Mae Changing Lending Practices

Fannie Mae which is a very large financial institution has announced that the company is changing its lending practices. This comes after many financial institutions have come under fire for their lending practices due to the number of foreclosures caused by predatory lending practices.

The financial institution is now going to make it harder for people to get loans and lines of credit. They are going to increase the minimum credit scores that are required by consumers to qualify for a loan.
Many consumers who easily qualified for loans with low credit scores have become overwhelmed with their payments due to the economy. Many people are now unemployed and cannot keep up with their monthly loan payments.

Fannie Mae will implement its new automated lending system on December 12, 2009. The system will now automatically reject borrowers who wish to take out loans who have a credit score that is lower than 620. The company had a previous system that only rejected borrowers with a credit score of 580 and below.
The credit score of 620 was chosen because borrowers who had a lower score than this one were nine times more likely to default on making their monthly loan payments.

There are also income restrictions for borrowers who are making a down payment of at least twenty percent towards their loan balance. Borrowers now cannot spend more than forty five percent of their income to pay their monthly payments and other expenses.
This news is actually very beneficial to borrowers and the financial industry as a whole. Many financial institutions who loan money to consumers often lose money because the borrowers default on their loans. This can hurt their bottom line which in turn causes the bank’s profit margin to decrease substantially.
Too many borrowers get in over their heads because they want to live above their own means. Many people think that taking on a lot of debt is not a big concern because they will pay the balance off over time.

The problem is that the economy and job growth in the United States has slowed down a lot. This means that employers are laying off employees and are not increasing their employees’ wages.
Consumers also need to help the financial industry recover by making sure that the budget before taking on a large monthly loan payment. By having a healthy amount of money in a savings account, consumers can prepare for the worst. Having a few months worth of expenses can ensure that financial obligations are met.
Other financial institutions can learn from Fannie Mae’s new stricter lending practices. Everyone needs to take responsibility for their own actions so that money can be lent in a way that is good for consumers, the financial institutions, and the financial market as a whole.

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