If you are applying for a mortgage and your credit report contains accounts that are being disputed, that can cause problems with your mortgage application. The reason being is supposedly when an account is in dispute it no longer has an impact on your credit score, and since mortgage lenders want to have as accurate as possible credit profile for their applicants they don't want any disputed accounts skewing that credit score.
If you are applying for a Fannie Mae
loan program, your loan is run through an automated underwriting system (AUS) which is a computer program that analyzes the information from the loan application & your credit report. Fannie Mae's calls their AUS Desktop Underwriter, or "DU" for short. So when running your application & credit through DU, and an account is in dispute, within the DU report (called "findings") there will be a note that says:DU identified the following tradeline(s) as disputed by the borrower and did not include the tradeline (s) in the credit risk assessment. The lender must verify the accuracy of the tradeline(s) by determining if it belongs to the borrower and by confirming the accuracy of the payment history. If the tradeline does not belong to the borrower, or the reported payment history is inaccurate, no further action is necessary. If the tradeline does belong to the borrower and the reported payment history is accurate, it must be taken into consideration in the credit risk assessment. To ensure it is considered, the lender may obtain a new credit report with the tradeline no longer reported as disputed and resubmit the loan casefile to DU, or the lender may manually underwrite the loan.
Very few lenders are willing to manually underwrite Fannie Mae loans, so if that note comes up on your DU findings, it'll then list the accounts which have been flagged as "in dispute", and you'll need to remove the dispute comments in order for the DU findings to be valid.
If you are applying for a Freddie Mac
loan program, a dispute comment will cause an error in their AUS system (called LoanProspector, or "LP" for short) and it won't be able to process your application. There isn't any note in their findings, it'll just come back with an "Incomplete" status (with a code 21).
If you are applying for an FHA
mortgage, then only certain disputed accounts need to have the dispute comments removed (otherwise the loan must be manually underwritten, which a lot of lenders do, but you are then subjected to tigher qualifying guidelines). FHA's AUS (called FHA TOTAL) won't have any special notes for disputed accounts, so the underwriter must manually apply FHA's guidelines regarding disputed accounts. FHA states:
If the cumulative outstanding balance of disputed "derogatory credit
" of all borrowers is equal to or greater than $1,000, the
mortgage application must be downgraded to a “Refer” and an underwriter
is required to manually underwrite the loan. If the cumulative
outstanding balance of disputed derogatory credit accounts of all
borrowers is less than $1,000, a downgrade is not
Certain accounts are excluded, such as disputed medical accounts &
disputed derogatory credit accounts resulting from identity theft,
credit card theft, or unauthorized use (however in the latter a letter
is needed from from the creditor, or other appropriate documentation to
support the dispute, such as a police report disputing the fraudulent
"Derogatory credit accounts" are defined as
disputed charge-off accounts, disputed collection accounts, and disputed
accounts with late payments in the last 24 months. Disputed derogatory
credit accounts of a non-purchasing spouse in a community property
state are not included in the cumulative balance for determining
if the mortgage application is downgraded to a “Refer”. "Non-derogatory
disputed accounts" are excluded from the $1,000 cumulative total.
"Non-derogatory disputed accounts" include disputed accounts with zero
balance, disputed accounts with late payments aged 24 months or greater,
and disputed accounts that are current and paid as agreed.USDA
financing's guidelines are:When an applicant’s credit report indicates a tradeline or public record is in dispute, a GUS underwriting recommendation of “Accept” may need to be downgraded by the lender to a “Refer.” A downgrade is not required if any of the following conditions are met in regards to the disputed item listed on the credit report::
- The disputed account has a zero balance
- The disputed account is marked as "paid in full", or "resolved"
- The disputed account is both
- less than $500, and
- more than 24 months old, based on the date of dispute
It's pretty obvious if an account has a zero balance (#1) or is marked
"paid in full" or "resolved" (#2), as all of that is listed on the
credit report. However what isn't so obvious is if the account is less
than $500 and
the dispute is more than 24 months old (#3), because credit reports
rarely ever say when the dispute happened. So a general rule of thumb
is if it isn't a $0 balance or doesn't say "paid in full" or "resolved"
then it's generally advisable to remove the dispute comments., however they take it one step further and require that any account in dispute have a evidence showing a justifiable reason for doing so - such as correspondence from you or your attorney to the creditor.VA
financing states "Disputed Accounts: Lenders may consider a veteran's claim of bona fide or legal defenses regarding unpaid debts except when the debt has been reduced to judgment. Account balances reduced to judgment by a court must either be paid in full or subject to a repayment plan with a history of timely payments. For unpaid debts or debts that have not been paid timely, pay-off of these debts after the acceptability of applicant's credit is questioned does not alter the unsatisfactory record of payment" - which isn't very specific at all. In general, VA underwriters have been OK with disputed accounts, but if credit is borderline between qualifying & not qualifying, you may be asked to remove accounts from being in dispute so they can have a more accurate underwriting picture. There are some lenders may add "overlay" guidelines regarding disputed accounts, to be sure to ask ahead of time....The Info You Clicked On This Blog Post For...
I always have my clients deal directly with the credit bureaus when removing dispute remarks. We've had a 100% success rate and is the quickest way to go about it.
475 Anton Blvd.
Costa Mesa, CA 92626
714-830-7000 is answered by a live human being, tell them you need the Executive Customer Service Team to end the dispute(s), hours are 8AM-5PM Pacific Time
1550 Peachtree St, NW
Atlanta, GA 30309
404-885-8300 is answered by a live human being, tell them you need to speak with someone in the Executive Consumer Service department.
555 W Adams St
Chicago, IL 60661
312-985-2000 it has a machine greeting but just stay on the line and you are transferred to a live person, tell them you need to speak with someone in the Special Handling Department, you'll have to wait a little bit as they need to connect to customer service then get it elevated to the Special Handling Department (it is hit or miss, TransUnion often proves to be the most challenging)
If you cannot get the Special Handling Department, then when contacting the normal customer service reps you should say:I need to dispute the compliance condition remarks code of "AID" (Account In Dispute) because I am no longer disputing the account.
The customer service rep should be able to immediately end the dispute, as in during the phone call.
There are some situations that disputes cannot be ended by the consumer, and must be ended by the creditor, such as if there are multiple disputes on the same trade line. Remember to always be patient with the customer service reps, as they are trying to help you but may have limited communication skills depending on where the customer service call center is based. If there are confusing terms being used, don't be afraid to admit you do not understand what they are saying and ask for them to re-explain or to transfer you to someone in the U.S.Shane Milne |
Loan Officer in Orange County, CA | NMLS #81195TheBestHomeLoans.com | About Shane & Client Testimonials
Direct local #'s: 949-273-4161 or 646-257-4842