The average FICO score on single-family loans purchased by Fannie Mae and Freddie Mac now stands at 750--up from 715 on purchases during 2006 and 2007, the two years that account for most of the GSEs' credit losses.
The government sponsored enterprises have tightened their underwriting standards since being placed in conservatorship in September 2008, according to the Federal Housing Finance Agency's newly released annual report to Congress.
The GSE regulator notes that the shift to higher credit quality also has resulted in lower guarantee fees and income. In addition, interest income in 2010 will be reduced due to an accounting change that will stop the GSEs from accruing interest income on delinquent loans.
Meanwhile, Fannie and Freddie are still dependent on the U.S. Treasury for financial support. FHFA notes that credit losses on the GSEs' 2006-2008 book of business, in particular private label securities, will "remain substantial," adding that, "Consequently, financial results will be greatly affected by the success or failure of loss mitigation initiatives." Fannie and Freddie are major participants in the government's Home Affordable Modification Program.