January 03, 2019

Mortgage Purchase or Refinance

Loan experts warn consumers that any dispute in a credit report may cost them the refinance they need. As noted by specialists, Fannie Mae and Freddie Mac do not accept loan applications from consumers who have a disputed item under their name. This is regardless of how high the credit rating of a person is.


Experts say consumers who have a credit score near 800 and a solid equity in their home do not have the assurance that they will get mortgage refinancing from government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.


Fannie Mae, which is short for Federal National Mortgage Association, uses an automated underwriting system which does not accept any application where there is a notation in the credit report regarding a disputed account or trade line.


Consumers dispute a medical bill or credit card bill that is inaccurate or does not belong to them (those that were charged on the wrong person’s name because of identity theft). According to loan specialists, a valid dispute closes any inaccurate or fraudulent account. Creditors normally promise to remove disputed items afterwards. However, there are instances when they fail to do so.

Even if a dispute has been won, experts say, a loan officer will not recommend an approval for a mortgage refinance if the lender has not removed the negative items yet.


Federal law, through Fair Credit Reporting Act, guarantees a consumer the right to contest any fraudulent or inaccurate item in his credit report. Once an item is challenged, a notation is placed in his file with the credit reporting agencies (CRAs). Most lending systems do not factor accounts with a disputed notation. But Fannie Mae’s automated underwriting system does not. Instead of forwarding applications to banks immediately, they send those with disputes back to lenders concerned.


A representative from the GSE explains that they automatically send “consumer disputed” accounts back to lenders for manual assessment. Lenders then have the responsibility to determine whether the dispute is valid and underwrite the borrower’s credit accordingly.


Analysts say Fannie Mae does this since banks normally reject consumers with disputed items in their accounts and blame the GSE for forwarding illegible applications.


National Association of Responsible Loan Officers, in a statement, explains that national creditors, large banks in particular, do not entertain applications, which need additional time and manual research. They add that banks do not want delay in operations.


Freddie Mac representatives say they have similar policies with Fannie Mae so they advise consumers to get their credit reports clean before applying for government-back loans.

On a brighter note, Fannie Mae says it is reviewing its policies regarding the matter.

January 10, 2019

Account Disputed by Consumer

"Account Disputed by Consumer"


Credit account dispute could stall mortgage application


Fannie Mae and Freddie Mac, have been kicking such applications back to lenders for manual underwriting.


October 25, 2009|By Kenneth R. Harney

Reporting from Washington — 


Could a little-known and potentially controversial practice by mortgage giants Fannie Mae and Freddie Mac kill or stall your next loan application? Absolutely.


Picture this scenario: You've got outstanding credit scores close to 800 and solid equity in your home. All you want is to refinance your mortgage to take advantage of today's rock-bottom interest rates.


Your application should rocket through your lender's system and get you a great rate. But your bank says: Sorry, we can't do your loan. Fannie Mae's automated underwriting system won't accept any application where there is a notation in the credit report that a consumer has disputed an account or "tradeline."


You explain that the dispute -- over a medical bill or a credit card charge -- was valid. The account was closed. The creditor promised to remove the dispute notation but apparently didn't. Your loan officer won't budge. Policy is policy, he says. Your refi application is dead.


What's going on here? Under the Fair Credit Reporting Act, consumers are guaranteed the right to dispute erroneous information on any account in their credit files. Once a consumer challenges that information, a notation to this effect must be made on the file. As long as it remains, most credit-scoring systems generally will not factor the disputed account into the computation of the consumer's score.


Does Fannie Mae deny loans to consumers simply because they exercised their legal rights? In an e-mail response, communications director Amy Bonitatibus confirmed that the firm's automated underwriting system -- used by virtually all lenders doing business with Fannie Mae -- sends applications with "consumer disputed" items on credit reports back to the lender for what is known as "manual underwriting." Bonitatibus said the company does "not prohibit delivery of a loan . . . where the borrower has disputed information" on his or her credit report. Through manual underwriting, she said, "our policy requires the lender to determine and document whether or not the disputed information is accurate and underwrite the borrower's credit accordingly."


What's the practical effect of bucking back applications to lenders for potentially lengthy discussions with applicants and their creditors? According to consumer postings on FiLife, a financial education website, the net result often is that the bank brushes you off and blames it on Fannie Mae.

Christopher Cruise, a Maryland mortgage originator and founding member of the National Assn. of Responsible Loan Officers, said, "There's no question -- when there are lots of other applications and business is good," applications requiring extra time and research "just aren't going to move."

Evan Hendricks, author of the book "Credit Scores and Credit Reports" and publisher of Privacy Times, a newsletter that outlined Fannie Mae's policy in a recent report, calls it "extremely unfair to honest consumers who are simply doing what they should -- challenging misinformation."

Freddie Mac's policy on disputed tradelines is broadly similar to Fannie Mae's, spokesman Brad German said.


Why are Fannie and Freddie so uptight about applications with disputed accounts? Mainly because credit repair companies have been gaming automated systems tied to credit scores by disputing accurate but negative items. When tradelines in a consumer's files contain a "disputed" notation, most scoring software ignores them for the purposes of computing the score.

A seriously delinquent account that could legitimately depress a FICO score might be taken out of the equation -- at least temporarily -- if a "consumer disputed" notation is in the file. Fannie and Freddie are trying to protect themselves.


For the time being, it's tough luck for all applicants with disputes in their credit files.

Fannie Mae, however, says it is reviewing its policy, so maybe there's a chance for a change.


"account disputed by consumer"

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