While you can certainly report errors found on your credit report, the resolution of these active disputes can take a while and take a toll on your ability to get a mortgage. That is, disputed tradelines stall the loan application process under generally strict underwriting guidelines.
But that may not be the case for loan applications bearing disputed accounts under Fannie Mae’s improved process.
Its Desktop Underwriter® Version 10.1 essentially permits consumers with open, disputed information to go ahead with their loan application process and get approved for a loan, as is. When the accounts affect DU®’s recommendation, there are easy workaround methods.
With this innovation, Fannie Mae’s automated underwriting seems to be slowly moving away from credit scores — credit scoring models like FICO’s don’t include accounts in disputed status — as it turns its focus on the information found in credit reports. This could bode well for consumers with problematic credit scores, too.
Don’t let errors on your credit report get in the way of your mortgage. Under more relaxed guidelines, your ability to qualify for conventional financing has improved.
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Fannie Mae Relaxes Rules for Disputed Tradelines
DU® contains an updated risk assessment that essentially makes it easier for borrowers with disputed accounts to obtain approval and work their way toward getting that approval.
Take a look at these scenarios under the latest Desktop Underwriter®.
1. “Approve/Eligible” – The borrower has a disputed account and DU® issued an “Approve” recommendation. The loan can close as is, without further documentation with respect to the account in dispute. No further action is necessary.
2. Not “Approve/Eligible” – The borrower has a disputed account and DU® did not issue an “Approve” recommendation with the disputed credit account included in the credit risk assessment. DU® will run a risk assessment again, this time without the disputed tradeline.
If an Approve recommendation is achieved as a result, the lender is required to determine if the borrower is the owner of the account in dispute. If he/she is cleared of responsibility, then the loan gets delivered as an automated loan and no further action is necessary.
But if it’s been determined that the borrower is responsible for the tradeline in question, then the loan may be manually underwritten if it’s eligible for manual underwriting.
Lenders can ignore medical debts as they are excluded from the credit profile analysis.
Essentially, Fannie Mae’s new credit profile analysis takes into account the disputed information and hands out an “Approve” recommendation with the accounts in dispute intact.
Even when the loan casefile did not pass for an Approve recommendation initially, it can be re-assessed under DU® without the disputed information and the approval obtained if the account does not belong to the borrower.
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Treatment of Disputed Tradelines: Manual vs Automated Underwriting
Fannie Mae requires lenders to determine the veracity and accuracy of credit information found in credit reports. It is even more expedient when borrower credit reports contain derogatory information or erroneous data that don’t belong to them.
The lender is required to review the disputed information and ask the credit reporting company or credit bureau who is responsible for compiling and selling the information.
The treatment of disputed tradelines however varies between manual underwriting and DU®.
For manually underwritten loans, the lender may have to rely on a borrower’s traditional credit history if the credit report can’t be corrected in time for the underwriting. In this case, a credit score is not used for credit risk assessment.
If the borrower has multiple disputed accounts or one that concerns a mortgage, he/she is required to provide the lender with a reason for the dispute. The disputed account’s balance and payment history are integral in assessing their impact on the borrower’s credit profile.
It’s more simplified under Desktop Underwriter® as it will instruct the lender when it is required to investigate a disputed account.
With Fannie Mae’s handling of disputed tradelines — not requiring for their resolution prior to loan closing and thus allowing them to be underwritten as they stand, the process is faster and less costly as no further documentation may be required.
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Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.
