UPDATE 2-Fannie Mae tightens rules for mortgages

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NEW YORK, April 2 (Reuters) - Fannie Mae (FNM.N: Quote, Profile, Research) has told lenders that it will require a minimum credit score for the loans it buys, tightening mortgage standards to protect itself from record foreclosures sweeping the country.

Lawmakers have been pressuring the largest U.S. home funding company, along with its rival Freddie Mac (FRE.N: Quote, Profile, Research), to more aggressively buy home loans in a bid to lower mortgage rates and prop up housing.

However, the two government-chartered companies are battling their own problems as home loans sour. In response to soaring mortgage defaults, they are increasing fees, restricting the loans they purchase and trying to preserve and raise capital.

The latest steps are part of amended underwriting practices for loans Fannie Mae buys, aimed at adjusting prices to reflect heightened housing market risk and protecting the company's capital, Fannie Mae spokesman Brian Faith said in a statement on Wednesday.

Fannie Mae will require a minimum score of 580 for most loans, adding it will still acquire loans with lower credit scores in certain circumstances.

Credit scores generally range between 300 and 850 and are used by lenders to predict a borrower's ability to pay on time.

Mortgages with credit scores below 620 made up less than 6 percent of Fannie Mae's conventional single-family business volume in 2007, according to the company's annual report. It didn't provide further breakdown in the report.

Fannie also said it will lengthen the period needed for borrowers to reestablish their credit history after a foreclosure to five years from four years.