How credit disputes delay mortgage
credit decisions


Disputing erroneous items on your credit report by way of adding “consumer dispute” comments on your negative credit accounts is really a disguised credit industry tonic to make you feel better because you think someone is listening and someone really cares.

They’re not listening and they don’t care.

Yes, you have lots of legal rights to challenge inaccurate credit reporting under the Fair Credit Reporting Act or FCRA and under the California Consumer Credit Reporting Agencies Act or CCCRA. Yes, sometimes items do get resolved to your satisfaction.

But, when it comes to applying for mortgage credit, consumer dispute comments remaining on your credit report frequently cause delays, denials or trigger more expensive mortgage rates.

Fannie Mae provided a convoluted explanation when it comes to credit decisions in respect to unresolved consumer disputes. Freddie Mac’s spokesman Brad German said, “It depends. LP (Loan Prospector) will score borrowers who are disputing trade lines up to a limit. The details are proprietary.” FHA is focused on disputed accounts having late payments within the last 24 months and $1,000 or more collectively in dispute. VA did not respond by press time.

Fannie and FHA do have provisions for something called manual underwrite (opposed to the computer generated Desktop Underwriter credit decision). Many lenders either will not do manual underwriting or they may have higher pricing because of their loan buyback fears.

In my experience, lenders almost always require disputes to be removed and to be re-(credit) scored under a process the industry uses called rapid rescoring. Lenders are concerned about borrowers that game the system by falsely disputing derogatory credit in the hopes those bad accounts won’t adversely affect their credit scores.

Mark McNiff applied with my firm to refinance his Irvine home. He had previously disputed the date of delinquency on an old credit account, not the validity of the account.

“I never thought this type of dispute would cause this type of problem”, said McNiff. The long and the short of it was it took several months and a lot of intestinal fortitude to get this account undisputed and get his loan approved.

“Always in writing, dispute to bureau and creditor. (This) acquires (legal) rights both ways, ” said Robert Brennan, a La Crescenta based attorney referring to both FCRA and CCCRA when disputing erroneous credit report information. Use proof of delivery type mail.

To remove a dispute, contact the credit bureaus and the creditor in the same fashion that Brennan suggested. Try to do it long before you apply for mortgage credit because this process takes times.

Brennan cautions against “reviving the zombie debt.” Debt collectors may try to persuade you to make payments along the way. Delinquent collection accounts fall off your credit report after 7 years and 6 months from the date of delinquency unless you make a payment during that time period. For judgments, the rule is 10 years for it to fall off.

If you have questions or comments, please contact Jeff Lazerson by clicking here.

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Jeff Lazerson - Mortgage Columnist since 2011