Second, your question relates to Fannie Maeâ€™s adoption of an underwriting policy for its Desktop Underwriter Version 7.1, under the section "Miscellaneous," which mortgage LENDERS MUST VERIFY THE ACCURACY of the trade line(s) when the DU system identified certain trade lines as disputed by the borrower and did NOT include the trade line(s) in credit risk assessment.
Consumers have a legal right under the Fair Credit Reporting Act (FCRA) to dispute, with both credit bureaus and creditors, any information in their credit reports.
The issue is the â€œinterpretationâ€ by mortgage lenders of Fannie Maeâ€™s consumer dispute underwriting policy, which some mortgage lenders hastily declined the credit requests by responsible borrowers who happen to have consumer disputes with their credit purchase transactions.
Based on an article from PrivacyTimes.com, it appears that Fannie is now â€œreviewingâ€ its consumer dispute policy for its DU systemâ€¦.so hang-in-there.
Fannie's consumer dispute DU policy: http://www.efanniemae.com/sf/guides/duguides/pdf/current/rndodu71.pdf
Article by Privacy Times: http://www.privacytimes.com/fannie-mae.html
I hope the information helps.
It doesn't matter if the loan is a 50% LTV purchase with an 835 credit score, ratios of 5% over 5%, has $500,000 in reserves, and are only disputing a 4-year-old 30-day late payment on a paid-off Sears account. It won't go! Most lenders will NOT do loans that won't go DO/DU, so while the "official Fannie-mae position may say one thing, the fact is the borrower will not get approved by anything but a portfolio lender. What you CAN do is remove the dispute, have the credit report re-scored, and approve it that way - but that means that you are not allowed to dispute the account!
I've heard of a class action against Fannie - I can only hope it's true.
First, the "disputes" are those on the credit report, not the credit report itself. And the words "consumer dispute" or "disputed" stay on that report until you get them taken off. THIS is the issue. If you read the Fannie Mae policy (the link is in the content of Jenny's answer), it is pretty clear.
If a lender sends in a mortgage app for Fannie Mae approval and the credit report has any tradelines that have the word "dispute" in it, Fannie Mae will kick it back to the lender for 'validation'. It is here wherein lies the problem.....the lender has two choices: either resubmit the application with a new credit report (after having the tradelines removed which have the word 'dispute' in them) OR they may manually underwrite the loan. The lender isn't going to manually underwrite.
So, the applicant has to go through the process of contacting the accounts (credit card co, whatever) requesting that they contact the credit reporting agencies to remove this tradeline language from the report.
Having this corrected info appear on the credit report can take WEEKS. In the interim, your loan application is dead. You have lost your rate, for sure. And, if this is for buying a house, you could lose the house.
I know there is some buzz about this and frankly, I don't know how many people this affects. Only those who are trying to buy a house or refinance and in the past have disputed some charge with their credit co.
I just think that people in the real estate and mortgage business should be aware that this glitch exists and may well affect a client. If a realtor has a client who is getting ready to buy a house, they should be told to review their credit reports - not just for 'negative' reporting or credit score, but also for any account that they may have had a dispute with. And it does not matter if the dispute was resolved (which ours all were) or that the account has been closed (which ours were).
Forewarned is forearmed.
If you have proof that the info on the report is inaacurate the loan officer should be able to take that info and submit it to their credit vendor who will update the credit report. turn time for that is usually less than 24 hours.
As long as you do not need your loan re-scored to change the credit score this should be a non issue!
Your loan officer is spinning the issues and blamming Fannie Mae!
The "dispute" on a consumer's credit report only stays their for 30 days. For example, if I had a dispute and following the FCRA guidelines then the "dispute" would only be for 30 days and the bureau would either honor my request or deny my request and close the matter. However, you are correct during that dispute process my credit report would show a dispute.
Here is how I deal with this additional obstacle in our business. First I like to see where the borrower or person who wants to refinance stand.
provides a free credit score
provides a free credit report
These will show you the baseline of a consumer's credit rating. If they have good credit above a 749 credit score then they are in good standing and should not need to dispute anything on their credit reports. If their score is 620 or higher they will qualify for a mortgage but not a good one. Don't get me started here because there is qualifying for a mortgage and qualifying well for a mortgage.
Ok, then if the consumer does have negative trade lines on their credit report they should dispute them and wait until the items are cleared off their credit report before applying for a mortgage especially FHA because of Fannie Mae's policy. This way you can qualify yourself or your client's efficiently and get around the 'dispute' problem.
I hope this helps.. Good luck!
The Credit Restoration Expert
I would not be shocked to see someone dispute any account they have had negative reporting on simply to have the credit score driven up by eliminating the negative information. If several accounts are in dispute the lender may be questioning the accuracy of the credit report and score. If the reasons for the disputes does not satisfy the lender, I could see the lender declining the loan.
This will be an interesting topic to follow,