Sbecht, Both Buyer and Seller in Marshfield, MA

Fannie Mae Policy on flagging Mortgage App's with "Dispute" in them

Asked by Sbecht, Marshfield, MA Tue Dec 22, 2009

I want to know if the real estate community (eg the National Board of Realtors) has put any energy toward getting Fannie Mae to revise its policyabout flagging mortgage applications for "consumer disputes". This is bordering on ILLEGAL. We are supposed to have the right to dispute an account without fear of recrimination. And here it is - good consumers, with good credit scores being badly penalized because they raised a dispute on an account. It's really hideous . And, I would think that Realtors would be all over this - their clients may be victims of this horrific practice. Aren't we trying to get people to buy houses?

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Jenny A. Le, , California
Tue Dec 22, 2009
First, your question is better to address to the National “Mortgage” Bankers Association instead of “Realtors” because we are agents. The real estate sales person license prohibits agents from influencing or participating in the mortgage credit approval process.

Second, your question relates to Fannie Mae’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 “interpretation” by mortgage lenders of Fannie Mae’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, it appears that Fannie is now “reviewing” its consumer dispute policy for its DU system….so hang-in-there.

Fannie's consumer dispute DU policy:

Article by Privacy Times:

I hope the information helps.
2 votes
Bob Willett, , Sacramento, CA
Tue May 18, 2010
Adam is wrong. He should probably do a little research before he blabbers on. The fact is Fannie Mae's current policy is a blatant violation of the ECOA, and they really don't care. Since it's part of the government they are pretty-much above any law. While it's true that Fannie will allow manual underwriting, well over 99% of all loans purchased by Fannie are DO/DU underwritten. If you are disputing an account, the loan will NOT BE DO/DU APPROVED. PERIOD.

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.
Web Reference:
1 vote
Sbecht, Both Buyer And Seller, Marshfield, MA
Wed Dec 23, 2009
It's me again. The question "asker". I appreciate the various feedback on this matter and I have further info.
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.
1 vote
Kithub, Home Buyer, Townsend, MA
Wed Jul 14, 2010
I am dealing with the same issue. I have disputed a collection and have been trying to get a mortgage. My reasons for dispute are valid but I have been forced to request the notation that I disputed the collection removed. Equifax and Experian have been cooperative and removed the notation for me. Transunion states they have to investigate and that I can expect up to 30 days before I get an answer. I am supposed to close on my house in 9 days and 30 days will possible loose me the house and my downpayment. The collection was for $183 and it is paid. The collection agency refuses to help. This is rediculous that I may be denied a mortgage based on a notation that I dispute a small collection for a medical bill. I have to move out of my home July30 and am supposed to close on July what...will I become homeless because Fannie Mae flagged me for this dispute. Do I have any rights. The loop whole states that my mortgage company can manually underwrite the loan....not so they are unable to manually underwrite at this time.
0 votes
Andrew Adams, , 01915
Wed Dec 23, 2009

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!
0 votes
Andrew Adams, , 01915
Wed Dec 23, 2009
Someone is giving you a line....Fannie mae does not approve loans. They buy loans from the lender after settlement. Fannie Mae does not look at files prior to a loan closing.

Your loan officer is spinning the issues and blamming Fannie Mae!
0 votes
Hannah Flieg…, Agent, Larkspur, CA
Tue Dec 22, 2009
Hi Sbecht,

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!

Hannah Fliegel
The Credit Restoration Expert
0 votes
Andrew Adams, , 01915
Tue Dec 22, 2009
I think the issue is with the loan officer and the lender not Fannie Mae's guideline. If a borrower has an 800 credit score and has a disputed account it should not be a problem. Now if you are disputig several accounts it would be more of a concern fo rthe lender and they would need to make some kind of a decision in regards to the disputes.

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.
0 votes
Scott A. Nel…, , 02155
Tue Dec 22, 2009
AARP seems to have taken notice, below is a link to a recent article (Nov. 09). Without specific examples it would seem common sense that if you avail yourself of the dispute/resolution process it shouldn't prejudice your application and/or ability to get credit. But I'm sure they look at it as "this person isn't just a lemming so we'll have to penalize them for raising their hand" just like how some homeowner policies cancel your coverage after making a claim from a disaster.

This will be an interesting topic to follow,
0 votes
Andrew Adams, , 01915
Tue Dec 22, 2009
As a Mortgage lender I do not even know what you are referring to. The only time that you will see a consumer dispute is on a credit report. Fannie Mae's guideline on disputed accounts is simply to have the borrower provide a letter explaining the dispute. If your credit score is suffereing as a result of the dispute your issue is with the credit reporting agency and Not Fannie Mae's Policy.
0 votes
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