Myth: This is a tough myth to bust as there is truth in the foundation but this truth is out of date in current underwriting practice. Yes, you are by law allowed, entitled even, to make a statement of explanation or enter a dispute on any credit account. Simply making a statement to clarify your position is considered a dispute.
Fact: Until such time as the term “Disputed Account” is removed from your credit report(s), you will not be able to obtain mortgage loan approval. This is clearly a case of damned if you do. Is this fair? Of course not. Is this real? Oh yes, this is very real. This information is current. If we see a relaxation of this policy, we will update this post.
Evan Hendricks reported the problem with the term “dispute” and how underwriters interpret the Fair Credit Reporting Act back in 2009. To this day the legal facts have not stopped underwriters from denying credit due to actively disputed accounts on credit reports.
So what is a person to do? Nichole “Niki” B called me on the suggestion of her attorney last week. Her problem is that she just sold her home and had a contract to purchase another. (NOTE: This was not my borrower.) Back to this real life story, her possessions and those of her two children were in a moving van. The underwriter said NO to her purchase mortgage. The problem was that there were two open disputes on her credit reports.
Niki was absolutely beside herself. To say she was distraught would be a severe understatement. The first thing I did was help her calm down. I recalled previous Lamaze classes and in my most calming voice asked her to breathe deeply, breathe deeply . . . in . . . out . . . in . . . out. Take deep cleansing breaths.
This is what I counseled Niki to do: “Call both Experian and Trans Union and explain that the reported disputed accounts are no longer disputed. Explain that all disputes have been withdrawn. At the same time call the disputed account and tell them you are not disputing your account. Niki got lucky. Both credit bureaus and the creditor backed down in two days and removed the fatal Dispute word from her credit.
How was Niki able to get this done by phone and in such a short order is a close to a miracle as I’ve seen. I attribute it to her polite persistence. She continued to call the agencies and the creditor until she got a friendly person. (This is a great negotiation tool by the way, keep dialing until you get someone willing to help. This can also work with other situations but that’s for another blog.)
In reality, for all that dispute credit reports for errors – and I highly encourage such disputes – plan ahead. Make sure all disputes are resolved or removed prior to seeking mortgage loan approval. You have to be prepared to work within the system (it’s not really that hard to do). Hire only the most experienced mortgage lender.James Spray, CNE, FICO Pro CO LMO 100008715 | NMLS 257365 | February 18, 2011
Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.