Fannie Mae says no to credit scores below 580

Fannie Mae is setting new rules about what mortgages it will buy, including, for the first time, a credit score threshold.

The District of Columbia-based mortgage giant has told lenders it will no longer buy most loans made to borrowers with credit scores below 580, nor will it buy loans that have been more than 60 days past due within the past year.

Without evidence that extenuating circumstances led to a foreclosure, it also will no longer buy mortgages made to borrowers who have lost a home to foreclosure within the past five years. Fannie Mae currently considers mortgages after four years have passed.

The new rules go into effect June 1.

"The dramatic shifts in market dynamics over the past several months have prompted us to continually review the full spectrum of our risk appetite, eligibility requirements, automated underwriting risk assessment, and pricing," Fannie Mae said in the revised guidelines.

Conforming loan limits for Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), set by their government regulator, will remain at $417,000 in 2009, despite falling housing prices. That ceiling temporarily has been raised to $729,000 in high-cost cities until the end of 2008.

"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, while providing sustainable liquidity to our lender customers and stability to the markets as part of our core mission," Fannie Mae said in a statement.

Jeff Clabaugh, a reporter with the Washington Business Journal, an affiliated publication, compiled this report.