One of the most significant recent changes is Fannie Mae’s updated risk credit level assessment within Desktop Underwriter® (DU). This new framework is now in effect and represents a major shift in how loan risk is evaluated across the industry.
FICO Scores Are No Longer Part of the Underwriting Overall Risk Assessment
Prior, FICO scores played a crucial role in underwriting risk analysis. That is no longer the case.
With the new model:
- FICO scores are not used in underwriting risk assessment.
- Borrowers with high credit scores could see unexpected findings if other factors increase their overall risk.
- Borrowers with lower credit scores may actually receive approvals when their broader profile shows strong compensating factors.
High FICO ≠ Guaranteed Approval
Under the new rules, a high credit score alone does not ensure approval.
Scenarios that may trigger increased risk even for high-FICO borrowers include:
- High debt-to-income ratios
- Limited reserves
- Short employment histories
- Overextended real estate portfolios
- Weak income stability
- High number of financed properties
This makes pre-review and strategic structuring more critical than ever, something MortgageDepot excels at.
Low FICO Borrowers May Benefit
Here’s the positive twist:
Borrowers with lower credit scores who may have struggled under the previous system now have a real opportunity to qualify if their overall financial risk is low.
Examples of positive risk factors include:
- Strong assets or reserves
- Low DTI
- Consistent employment
- Stable income
- Minimal real estate exposure
- Clean payment history
Significant Change for Real Estate Investors: The 720 FICO Rule Is Gone
Perhaps the most impactful update for real estate investors:
Fannie Mae’s 720 FICO score requirement for borrowers financing 7 or more properties is no longer applicable.
This is Positive for Our Borrowers
As guidelines shift, experience matters. This new assessment model rewards borrowers with firm overall profiles, but it also requires a lender partner who understands:
- How Underwriting interprets layered risk
- How to properly structure a file under the new system
- How to highlight compensating factors
- How to avoid Underwriting pitfalls that didn’t exist before
Contact us to review your scenario.
