FEDERAL

included loosened underwriting standards, poor risk
management, and servicers with little incentive to
prevent foreclosures.
Loosened Underwriting Standards
Single-Family
As discussed in one of our reports, Fannie Mae’s basic
underwriting standards for mortgage loans secured
by single-family homes have not changed much. On
the other hand, the enterprise has granted variances
that have had the effect of modifying its underwriting
standards over time. Essentially, variances allow
lenders to deviate from underwriting standards
for mortgage loans they sell to the enterprises; for
instance, the enterprises may allow no down payment
instead of the minimum 5% they typically require. 130
As shown in Figure 21 (see above), Fannie Mae’s basic
underwriting standards did not change significantly
before 2006 or after 2011.
However, as shown in Figure 22 (see below), the
number of variances that Fannie Mae allowed
declined substantially from 2006 to 2011. For
Figure 21. Fannie Mae’s Underwriting Standards
for 2006 and 2011
2006 2011
Collateral (LTV) 95 95
Capacity (Debt-to-Income) 36% 36% a
Creditworthiness (Credit Score) N/A 660 b
a
The benchmark is 36% but can go up to 45% if there are
strong compensating factors.
b
Minimum FICO score is 660 if LTV is greater than 75%. If
LTV is less than or equal to 75%, then minimum FICO score
is 620.
example, in 2005 when standards were loosened,
Fannie Mae authorized over 11,000 variances.
Thereafter, Fannie Mae began rescinding variances,
which tightened underwriting standards. Some of
these canceled variances related to risky features, such
as loans made with unverified income. 131
FHFA recognizes the critical role played by variances
in setting underwriting standards and agreed with
our recommendations to establish formal procedures
for reviewing proposed changes to the enterprises’
single-family underwriting standards and variances
from them. 132
Figure 22. Fannie Mae Variances Granted from 2005 to 2011
Number of Variances
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
January 2005
January 2006
August 2007
January 2008
January 2005:
11,718 Variances
857 Lenders September 2011:
638 Variances
188 Lenders
January 2009
January 2010
January 2011
September 2011
1,000
900
800
700
600
500
400
300
200
100
0
Number of Lenders with Variances
56 Federal Housing Finance Agency Office of Inspector General