Freddie Mac has instructed lenders to be more cautious in underwriting would-be borrowers who have been late with their housing payments.

The big secondary market company also has re-instituted limits on the number of financed investment properties any one borrower can own.

Freddie Mac doesn't lend money directly to consumers. Rather, it helps keep the money flowing to local lenders by purchasing the loans they've already made and selling them to investors world-wide. Because the company serves a function is all but indispensable, it's requirements and those of its larger rival, Fannie Mae are pretty much accepted by primary lenders.

"Housing payment histories should receive more weight than non-housing payments when underwriting borrower credit reputation," said John Hemschoot, director of credit policy development, who called the change a "minor tweaking."

"We're re-instituting something that used to be practiced a number of years ago," Hemschoot.

Since the advent of credit scoring and automated underwriting, all derogatories have been treated pretty much the same.

But the Freddie Mac official said "we're a little uncomfortable that underwriters are not paying enough attention to housing payment histories. After all, that is out business."

Lenders must now consider derogatory credit information significant if the borrower has been 30-days late on his rent or mortgage payment more than once in the previous 12 months, or if the borrower has more than two 30-day late house payments and more than one 60-day late payment in the last two years.

In addition, a "cautious review" is now being required of all applicants "regardless of the FICO score" if there is a recent history of late house payments.

Freddie Mac's guidelines also have been changed to limit borrowers to no more than 10 rental properties. The new ceiling is the same as that imposed by Fannie Mae. This change re-institutes a long-standing maximum that was removed two years ago. However, the old ceiling limited the number of financed properties a borrower can own to four. More than that and Freddie Mac would not purchase the loan.

Hemschoot said a limit is necessary because "we weren't really pleased with what wewere seeing in the concentration of investor loans." Borrowers had "lots of properties in very small areas, so much so that we could end up with entire blocks if the owner got into trouble," he explained.

Investment property borrowers also now must have reserves equal to six months of principal, interest, taxes and insurance, even if rental income is not used to qualify for the loan.

Published: July 24, 2002

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.