You decide to refinance your home. You owe $100,000 and your house will easily appraise for $200,000. Your credit score is 820. You make $75,000 a year. You have no bills. You think this will be a slam-dunk.
Your file is DENIED!
Why? Last year, you disputed a charge on your credit card. The dispute was valid, the account was closed, and the creditor promised to remove the dispute notation from your credit file.
But they didn't. Fannie Mae is telling your lender that they will not buy any loans that have a notation on the credit report. So your lender won't approve your loan, since they can't sell it to Fannie Mae.
Here's what's going on. Fannie Mae has a computerized underwriting program that most lenders use. This program automatically spits out any borrower with a "consumer disputed" item.
If the lender still wants to make the loan and sell it to Fannie Mae, then the lender must manually underwrite the loan and determine if the dispute is credible. The fact is, most lenders don't want to go through the expense of this process. It's simpler and cheaper to just deny the loan.
Why does Fannie Mae have this policy? It is because of phony "credit repair" companies. Seems these weasels "fix" bad credit by disputing any derogatory item on the client's credit report. It doesn't matter if the client "earned" the bad rating; they simply dispute it all.
Why? When an item in a consumer's file is"disputed" most scoring software ignores these items when computing the credit score. So these "credit fixers" tell their clients to dispute ALL negative credit, accurate or not.
Fannie Mae has figured this scam out and they are trying to protect themselves from being defrauded. Meanwhile, honest people who are simply trying to protect their credit by disputing legitimate errors are out of luck.
If this happens to you, talk to your loan agent and push the lender to manually underwrite your loan. And don't give up hope. Fannie Mae is reviewing its policy and may consider changing it.
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