Credit Reports & Disputed Accounts

Fannie/Freddie Disputed Accounts:  I have a client whose credit score is 739. They have four disputed accounts, which they paid off years ago.  Underwriting is saying that they are requiring these accounts to come out of “dispute” status, and that a new report has to be run through DU without the disputes. Is there any way around this?

Answer: Unfortunately there is no way around this, and yes, it is accurate.  If DU recognizes as a dispute and provides a feedback message regarding the disputed accounts, the underwriter and lender are bound by these messages and must follow each message specifically.

You might ask:  What is the big deal?… Well, most ‘credit repair’ companies dispute all derogatory accounts, even the legitimate ones, hoping that the creditor will not respond or validate the debt within 30 days.  If creditors don’t respond to the dispute within 30 days, the credit bureaus, Experian, Transunion, and Equifax, are required to drop these accounts from the consumer’s credit file…which may raise the consumer’s FICO credit score.

The problem is when the mortgage lender runs the borrower’s loan application through Fannie Mae or Freddie Mac’s automated software loan approval system, it doesn’t read it or ‘grade’ the disputed derogatory account in the credit report.  This will cause the automated approval engine to give a ‘false positive’ approval.  This results in an approval with less than the full credit profile…a big no-no in the secondary market where mortgages are sold to investors for servicing rights.

It took a while, but Fannie Mae & Freddie Mac are onto this ‘scheme.’Fannie & Freddie require ALL borrowers to have ALL disputes report as ‘resolved’ on the credit report. Once the dispute is removed or resolved at the bureau level, the credit report must go through the automated re-run to see if it still approves the loan.

 

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