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.

Been making your credit card payments on time, careful not to exceed your limit, and been shocked when the credit card company cuts your limit or closes the card without warning?

This is occurring more and more because some companies are getting out of the credit card business or trying to limit risk. Even cardholders with strong (720 +) credit scores are having their limits cut or the account closed if it is inactive.

The impact on your credit score can be devastating. Your credit utilization ratio- the amount of debt you owe divided by your available credit- is responsible for about 30% of your credit score. A consumer could easily see a score drop of over 50 points. Worse yet would be if you were on vacation only to discover you did not have the available credit you were counting on. Cardholders should check on the available credit every billing cycle and read every piece of mail sent by their credit card company even if it appears to be junk.

What should you so if your limit is cut? Call the issuer and see why they did it. It is possible the decision was based on erroneous information from a credit bureau. Ask to speak to a supervisor. Try applying for a credit card where you bank or with your mortgage holder. Credit Unions have a reputation for being more reasonable when it comes to credit cards.

Please let me know about your success or horror stories.

Best, Chip

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.

You do not have to be Bill Gates to get a mortgage, however, mortgage requirements have tightened up considerably.  Unless you are a vet applying for a VA mortgage, 100% financing is gone.  Stated income programs, programs where income was not verified, have gone the way of dollar a gallon gasoline.  It might come back someday, but I would not count on it.

Factors that lenders focus on include: income to debt ratios, stability of income, down payment, and credit scores.  While these guidelines have been tightened up significantly people are still getting mortgages to purchase or refinance.

FHA is the most flexible of current mortgage programs.  You may still purchase a home with a down payment of 3.5% of the purchase price.  FHA is also more lenient on credit scores, and other requirements, such as reserves.  Reserves are the cash or other liquid assets a buyer has after the closing.

If you have been turned down for a mortgage, find out why.  The problem may be fixable with a little work, or it could be you have an incompetent lender.  It never hurts to get a second opinion.

Next week: Divorce mortgages

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!