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Ken Doss' Blog

By Ken Doss | Mortgage Broker
or Lender in Santa Barbara, CA

BEWARE – Disputed credit items are a “show stopper”!

We just had a transaction where Fannie Mae declined a file because of a “disputed” item on a credit report!


The Fannie Mae computer model (aka:  DU) is now calling-out items on the credit report which have been classified as “Disputed”. You may say, “So why is this such a big deal? This account was settled years ago?”…. Ha! Don’t be so quick to discount this as a minor issue.


Just this last week, I had 2 loan applications where this actually happened and it caused serious problems. One application was a purchase and they will NOT be able to close their transaction. It’s a bummer for the agent since she spent so much time with these clients. I just hate to see agents who are 100% commission waste time on something that could have been avoided!


Here’s what happened……


For the most part, every loan application is submitted through the Fannie Mae or Freddie Mac underwriting software programs. These programs analyze the consumer’s credit scores, income, job history, etc., etc. Of course, one of the main elements of this analysis is a consumer’s credit score. When a consumer reports an account as “disputed”, then the credit bureaus set aside this item from the credit score calculations. The theory is that if the consumer says there is a problem with this account, then obviously it needs to be expunged from the scores. Great idea?!


Not so fast… this is where things get “tricky”. Fannie/Freddie say, “OK. Let’s just have the bureaus finalize this issue and move-on.” To get the bureaus to do this is like getting your brother in-law to admit he drinks too much! It can be a very thorny process.


In my recent transaction, these Borrowers had an erroneous $75 bill from a radiologist back in 2008. This bill went to collection and now was being reported by a collection agency. To get this cleared off of ALL three bureaus, we needed to get a letter from the radiologist AND then the collection agency! This is a very lengthy process and most consumers are not aware of the potential time delay.


So what do most people do, when they think they are wrongly charged for something? File a DISPUTE! “I’ll show those idiots!” Well, you might have just lost the opportunity to buy a property.


There is a solution but it takes a seasoned financial person to help (vs. a salesman!).


AGENTS:  Before you start investing a lot of time with your prospects, get them to a good Loan Officer. This doesn’t mean you let the consumer randomly get some easy approval letter. You need to have them get “signed-off” by a real pro.


CONSUMERS:  Some buyers (actually most) just want to get a quick/easy pre-approval letter. That’s like thinking that if you don’t floss your teeth that it won’t matter. As we all know, that will come back to “haunt” you later. Spend quality time on this issue. Be mentally ready to unload ALL of your income/asset paperwork. Help the Loan Officer give you a complete financial check-up. No one likes this process but a helpful consumer goes a long way in getting the pre-approval done properly.


Remember….. “An informed consumer is a happy consumer!”

Ken Doss
Community West Bank
Santa Barbara, CA

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