So, you’ve exercised your rights as dictated by the FCRA and disputed some inaccurate information on your credit report. Statistics show that 80% of credit reports contain inaccurate information. Disputing these inaccuracies is your legal right and is encouraged by the Federal Trade Commission and consumer groups. But now you’ve applied for a mortgage and your lender is telling you there is a “problem” because you have done this and it could cost you your loan.

The dispute was valid, so why should this be an issue?

Fannie Mae’s underwriting software flags tradelines listed with a dispute comment. The application is sent back to the lender to determine the validity of the dispute. Unless the dispute remark can be removed at the bureau level the loan would have to go through a manual underwriting process.

The problem is that getting these remarks removed can be a difficult process. If they are not removed the loan will have to be manually underwritten, which is a lengthy labor intensive process. In some cases it causes the loss of the loan.

According to Fannie Mae spokesperson, Amy Bonitatius, “Fannie Mae’s eligibility requirements do not prohibit the delivery of a loan to Fannie Mae where the borrower has dispute information on their credit report. In order to protect borrowers from adverse impacts resulting from inaccurate reporting data, our policy requires the lender to determine and document whether or not the dispute information is accurate and underwrite the borrower’s credit accordingly.”

As for Freddie Mac, according to their spokesperson, Brad German, their policy towards disputed accounts is similar to Fannie Mae’s. “The presence of dispute tradelines will affect the system’s determination of a borrower’s credit reputation and its decision to accept the application or refer it to the lender for manual underwriting.” This means it may be possible for an application to make it through Freddie Mac’s automated approval system and not be returned due to disputes. However, the criteria for determining this is “proprietary” so there is no way to predict what will or will not be returned.

Why all the fuss about disputed accounts? For years many credit repair agencies have been trying to trick the system by disputing items on a credit report for the borrower. This would tag the dispute remark causing the item to be excluded from the scoring model.  This is not always the case anymore. According to Fair Isaac, if a disputed account is derogatory, it will “most likely” still be factored into the scoring model, depending on the nature of the dispute. In the case of accounts in good standing, some information may be excluded from the scoring model. Because their systems are also proprietary they won’t say which items will or won’t be excluded or what would constitute a dispute that would eliminate it from the scoring model. Because a negative account can seriously impact a credit score, having it removed could falsely boost a borrower’s credit score. Fannie and Freddie have implemented this process as a way of protecting themselves from fraud.

What’s the answer? Again, getting the disputed remark removed is the best option. While not easy, it can be done. Currently, Experian will accept a letter from the borrower stating the account is no longer in dispute. However, Equifax and TransUnion require a letter directly from the creditor clarifying the dispute or agreeing to its removal. Loan Originators can use the Rapid Rescore service available through Advantage Credit Inc. to expedite this otherwise lengthy and frustrating process.

Fannie said recently they are reviewing their policies around this issue, but this could take a very long time. In the meantime, if a borrower has a legitimate dispute regarding an item on their credit report, it might be wise to suggest they wait until after the loan process to dispute the account. Otherwise it might severely delay or completely halt their refinance or purchase.

In a perfect world, maybe someday, Fannie, Freddie and Fair Isaac will all have a meeting of the minds and create the perfect system so the consumer won’t be caught in the middle. Yes, in a perfect world…….

Chip Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp

Direct: 303.947.2109

Fax: 303.987.0676

Loanchip@hotmail.com

Your Lender for Life!

When people you care about need a mortgage,

for purchase or refinance, please do not keep me a secret.

It’s the end of the July and in a few short weeks the summer real estate season will begin to slow down. Right around the second week of August, things begin to slow down as parent and children try to sneak in one more vacation before school starts. Then once school kicks in and people get back into their normal routines, real estate will pick up again. If you’re a seller, don’t be surprised if you see a dip in your showings between the second week of August and the second week of September.

The question for buyers is: did you take advantage of the historically low prices and low interest rates this summer? Here are a few things I saw this season:

1)      Unbelievably low prices. I am going to go out on a limb and I’ll eat my words if I wrong, but I think it’s safe to say that values have never been this low and we may never see this again. 50% off some homes is not part of a regular 10-year real estate cycle. This happens once in a lifetime.

2)      Sellers in the 200-400 price range turned the tables on buyers. Sellers understood that the bottom of the market had come and gone, they stayed firm on their prices, and in most cases got full asking price.

3)      Lower than normal inventory. The words “I can’t find a home for my buyers” was spoken by more Realtors this past summer than in the last three years.

4)      Mistakes, Mistakes, Mistakes. More than one buyer decided to do nothing rather than make a decision this past summer thinking that the home would still be on the market whenever they were ready. Those buyers were disappointed to find out that their number one choice had sold. That trend of “I don’t have to make a decision today, tomorrow or in a month” is quickly coming to an end for buyers.

The good news is I think we are poised for good fall. It was fall of last year when we first began to notice the turnaround in the economy. Right around September, showings started to pick up and we had one of our best fall’s selling seasons in some time. I expect the same to be true for this year. The fall selling season goes from mid-September through mid-November.

Dan Polimino is a Realtor with Fuller Sotheby’s International Realty. He can be reached atDPolimino@fullerproperties.com and www.coloradodreamhouse.com/denverpost