What This Rule Means for Your Mortgage Application
When you apply for a mortgage, your lender pulls a credit report that contains your payment history, account balances, and other financial information. Fannie Mae requires lenders to review this report carefully to make sure everything is accurate before making a lending decision.
This matters because errors on credit reports are surprisingly common. You might see accounts that belong to someone else with a similar name, or negative marks that were reported incorrectly. These errors can hurt your credit score and your chances of getting approved for a mortgage.
Say you're reviewing your credit report and notice a credit card account with a $5,000 balance that you've never opened. Or maybe there's a late payment showing on your mortgage that you know you paid on time. These are exactly the types of errors this guideline addresses.
When You Dispute Information on Your Credit Report
If you tell your lender that information on your credit report is wrong, they have specific steps they must follow. The lender will review the disputed information with you, then contact the credit reporting company to verify whether the information is accurate.
This process can affect your loan approval in different ways depending on how your loan is being underwritten. For loans processed through Desktop Underwriter (DU), the system will automatically flag which disputed accounts need investigation. For manually underwritten loans, the rules are more restrictive.
How Disputed Accounts Affect Manual Underwriting
If your loan is being manually underwritten and you have disputed information on your credit report, your lender faces a significant limitation. They cannot use your credit score at all if the credit bureau confirms the disputed information is incorrect but the credit files haven't been updated yet.
Instead, the underwriter must evaluate your creditworthiness by looking at your actual payment history and credit accounts. This is called a traditional credit review, and it requires more documentation and analysis.
Multiple disputed accounts make this process even more complex. If you're disputing several tradelines or if one of the disputes involves a mortgage account, the lender must get a written explanation from you about why you're disputing the information.
What Documentation You'll Need
When you dispute credit information, be prepared to provide specific documentation to support your case. The lender needs to determine whether your explanation is reasonable and whether additional proof is necessary.
For payment disputes, you might need to provide canceled checks, bank statements, or payment confirmations. If you're disputing an account that doesn't belong to you, you may need to provide identity theft reports or correspondence with the creditor.
The lender will also want a written statement from you explaining the nature of each dispute. Be specific about what aspect of the tradeline you're challenging - whether it's the balance, payment history, or the account itself.
Why Fannie Mae Requires This Verification
Credit report accuracy is crucial because mortgage underwriting relies heavily on credit information to assess risk. An incorrect late payment or a fraudulent account can significantly impact your credit score and loan terms.
Fannie Mae wants to ensure that lending decisions are based on accurate information. If your credit report contains errors that make you look like a higher risk than you actually are, you could be denied for a loan you should qualify for or offered worse terms than you deserve.
The verification process also protects Fannie Mae from purchasing loans based on inaccurate credit data. When lenders verify disputed information, they're ensuring the loan meets Fannie Mae's quality standards.
Common Complications and Gotchas
Medical collections present a special case under these rules. Lenders are not required to investigate disputed medical tradelines, which means medical debt disputes may not get the same level of scrutiny as other types of credit disputes.
Timing can create challenges during the loan process. If you dispute information and the credit bureau investigation takes several weeks, this could delay your loan closing. It's better to address credit report errors before you start shopping for a mortgage.
Some borrowers assume that simply disputing an item will remove it from consideration, but that's not how it works. The lender must verify whether the dispute is valid, and if the information turns out to be accurate, it will still count against you.
Be aware that frivolous disputes can backfire. If you dispute accurate information hoping to improve your credit profile, the lender's investigation will reveal the truth, and this could raise questions about your honesty.
How Desktop Underwriter Handles Disputes
For loans processed through DU, the system automatically analyzes your credit report and identifies which disputed accounts require investigation. DU will provide specific instructions to your lender about which disputes need follow-up.
This automated approach typically makes the process smoother and faster than manual underwriting. DU can often work around certain types of disputes without requiring the extensive manual credit review that manual underwriting demands.
However, DU's analysis depends on having accurate data fed into the system. If there are errors in how your credit information was imported into DU, this can affect the automated decision. Your lender must verify that the data DU analyzed matches what's actually on your credit report.
References
For the official guidelines, see B3-5.2-03: Accuracy of Credit Information in a Credit Report in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B3-5.2-03, Accuracy of Credit Information in a Credit Report (07/25/2017)
Accuracy of Credit Information in a Credit Report
For all mortgage loans (including DU loan casefiles and manually underwritten loans), the lender is responsible for reviewing the credit report, as well as all credit information, to determine that the credit report meets Fannie Mae's requirements and that the data evaluated by DU was accurate.
If a borrower indicates that any significant information in the credit file is inaccurate—such as reported accounts that do not belong to the borrower or derogatory information that is reported in error—the lender should carefully review the credit information with the borrower, then request the credit reporting company that provided the information to confirm its accuracy.
Manually Underwritten Loans
If the borrower has disputed information in their credit file, and the credit reporting company confirms that the disputed information is incorrect or incomplete and underwriting the loan needs to be completed before the credit files can be corrected, the lender cannot use the credit score(s) when manually underwriting the loan. Instead, the credit risk assessment must be based on a review of the borrower’s traditional credit history.
If there are multiple disputed tradelines or a dispute on a mortgage tradeline, the lender should obtain correspondence directly from the borrower indicating the reason for the dispute. The aspect of the tradeline–such as balance and payment history–that is being disputed is of particular interest when considering the impact to the borrower’s overall credit profile.
The lender is responsible for determining whether the borrower’s explanation is reasonable and/or whether additional documentation (such as canceled checks) is necessary to disprove the adverse information. Lenders are not required to investigate disputed medical tradelines.
DU Loans
For loan casefiles underwritten through DU, DU will indicate if the lender is required to investigate the disputed account to determine if the account belongs to the borrower and confirm the accuracy and completeness of the information reported on the account.
See B3-2-09, Erroneous Credit Report Data; B3-2-10, Accuracy of DU Data, DU Tolerances, and Errors in the Credit Report; and B3-5.3-09, DU Credit Report Analysis for additional information.
