How Fannie’s FICO® shift and 50-year loan talk could impact your pipeline

Affordability continues to challenge many homeowners, and potential buyers are feeling the squeeze. While this isn’t a new issue, the pressure has only grown as the Federal Reserve’s past rate hikes have made monthly payments harder to manage.

In today’s high-rate environment, one of the few ways to give borrowers some relief is by extending the term of their loans. That’s where the idea of a 50-year mortgage comes in.

FHFA Director Bill Pulte has raised the possibility of offering 50-year mortgages at origination, but the idea has its skeptics. A longer term might lower monthly payments slightly, but it often comes with a higher interest rate, which can eat away at savings while ballooning the total interest paid over the life of the loan.

The past few weeks have brought renewed market volatility, fueled by the government shutdown and a limited flow of economic data. Analysts are already drawing comparisons between today’s equity markets and the early internet boom and bust.

Despite this uncertainty, tech and AI stocks have remained relatively bullish … until Michael Burry, who closed his hedge fund last week, began posting warnings on X.

Burry is famous for scrutinizing loan-level details of mortgage-backed securities in the early 2000s and betting against the prevailing sentiment.

Investors are now watching closely for his claims of depreciation malpractices, which he alleges may be artificially inflating earnings for certain tech firms by understating the “useful life” of their assets.

Why brokers should pay attention: Market turbulence, especially in sectors tied to technology, can influence borrowing trends and client confidence. Keeping an eye on these developments helps brokers anticipate potential shifts in the housing and lending markets.

Starting November 15, Fannie Mae will remove its 620 minimum credit score requirement for purchase and refinance loans. This aligns Fannie with the move made by Freddie Mac to shift from using a strict minimum credit score in favor of a more comprehensive risk assessment.

Desktop Underwriter, Fannie Mae’s proprietary underwriting engine, will be responsible for evaluating the risk associated with each loan by utilizing a comprehensive set of credit risk factors such as borrower reserves, debt levels, property characteristics, and loan purpose. That being said, we shouldn’t expect credit reports to go away anytime soon. Fannie Mae also announced that lenders still must request credit scores for all borrowers.

This change could open the door for buyers with lower FICO® Scores but strong income and cash reserves. First-time home buyers, who now make up less than a quarter of U.S. purchases and have a median age of 40, may find it easier to qualify despite high affordability pressures.

At the same time, removing the minimum credit score adds some risk for lenders. Credit scores remain a key indicator of a borrower’s ability to repay loans, so Desktop Underwriter must now weigh a wider range of factors to properly assess creditworthiness and determine eligibility.