Credit account dispute could stall mortgage application

It sure seems as if there are a lot of tripwires and landmines out there when attempting navigate through the finance market these days.

Many of these measures are established with the best intentions however in the haste to implement safeguards, innocent people suffer and the process of tweaking them is excruciatingly slow… The best defense is to be informed.

Read the piece from the New York Times (below) and if you are working on a mortgage or refinance be sure to check your credit report prior to submitting your loan application. RD

Credit account dispute could stall mortgage application

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

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 from fraud.

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.

Source: New York Times, October 25, 2009 by Kenneth R. Harney


Greater South Bay Real Estate: Third Quarter 2009

The bar chart above represents 15 months of Real Estate activity in the Greater South Bay area from July 2008 through September 2009. This is a great representation (in our unique market) of our journey through the leading edge of the sub-prime fiasco, election 2008 and the challenging economy of the first three quarters of 2009.

Inventory is down nearly 57%, however sales and sales pending are up for the period. Granted this is the entire South Bay region and the micro views tell a more accurate tale for individual property owners. There are various factors that have contributed to the recent stabilization of the real estate market. The first-time buyers’ tax credit, low interest rates, depreciation in general and the frenzy to snap up short sales and REOs have fueled the increase in sales and price per square foot in some areas.

Well priced properties are attracting multiple offers while those sellers’ looking to set or guess the upper end of the market sit for months or until the price drops significantly or they retreat from the market. One of the tactics being employed on some sales (especially short sales and REOs) is to list a price well below the median market to encourage a bidding war and drive the upward. In a true eBay auction fashion, if enough buyers are attracted it works. Higher prices are achieved and in certain areas you can see where the price per square foot has inched up over the past few months.

In an effort to control the length of this post I only ran reports on a couple of neighborhoods (below). If you’d like a full report on these or other areas (a full report includes additional metrics not posted, average DOM, PPSF etc.) please contact me with your specific needs.

We are so fortunate to live in this region of the country… As I prepare this blog post, Saturday October 24th most of the country is into or moving rapidly toward cold weather. Here in Southern California the skies are clear, the temperate is predicted to be 80 degrees and so at 2:00 this afternoon I’ll be in shorts and a t-shirt at my son’s soccer game.

Although I’m a third generation Californian, I’ve had an opportunity to live in all four corners of the US. Although they all have charm and appeal of one sort or another, I always came back (and consequently wonder why I left). Married now, with two small children my traveling days are over and I now live a stones throw from my parents, who’ve lived in the same house for over 33 years and in the South Bay since JFK was in office.

Although this blog site is new, I’ve been posting elsewhere since early this year and the relative success of that site prompted me to pursue a more mainstream venue. As it does not seem possible to export that content click various posts and links to articles to view past postings. I may eventually re-post some of that content here…

Thanks for reading my blog. MLS Information used to generate charts is deemed to be reliable but not guaranteed.