The FHA TOTAL Mortgage Scorecard User Guide states that the loan casefile must be manually downgraded to a Refer recommendation and the loan must be reviewed by a Direct Endorsement (DE) underwriter if the borrower is disputing any credit accounts or public records. As a result, the following new message will be issued on all FHA loan casefiles to remind lenders of this requirement, but the recommendation will not be changed to a Refer due to this message:
If the credit report reveals that the borrower is disputing any credit accounts or public records, the mortgage loan application must be referred to a DE underwriter for review
Recently, Underwriting guidelines have changed. You can no longer have a disputed account on your credit report and get approved for a mortgage. It must be removed, in order to get approved. When you have a disputed account it is taken out of the scoring model, causing the underwriter to not get a fair and complete picture of your credit situation. You must get this disputed account removed before the file goes into underwriting. The process of removing a disputed account can take 30-60 days. Here is my suggested process to remove a disputed account:
First contact the creditor and make sure that they in fact have it in their system as disputed. If they do not, then have them mail/fax a letter stating “this account #123 is not in a disputed status” If it is disputed verbally ask that they “undispute” the account and mail you a letter. If they refuse revert to the following instructions.
Write a letter to the credit agency asking them to remove the language stating the disputed account.Â Please understand that the process of investigating the account can take 30 days in itself.
At the same time that you are doing #1, you will also want to write a letter to the creditor(that you are disputing) stating “that this account is no longer in dispute” and to remove it.
The next step is to WAIT! You do not want to hound the creditor or agency, or send more then one request. When you send another request it can start the process all over.
Pull a new credit report 35-40+ days after you do #1 and #2. At this time hopefully it shows the account is no longer in dispute.
Fannie Mae, Freddie Mac and HUD(FHA) have all adopted this new guideline.Â It is possible to get an exception if there is just one account in dispute or on a FHA loan(if there is more then one). Keep in mind that if this disputed account is not caught until a file is in underwriting, it could cause your closing to be delayed or worse case you not getting approved.
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, credit-scoring systems due to new FACTA laws will not factor the disputed account into the computation of the consumer’s score.