Disputed Accounts – Devil In The Details

Disputed Accounts and Your AZ Mortgage

Have you ever had something show up on your credit report that you disagree with – a payment reports as late that you know you made on time or how about a medical collection that you didn’t know about?  There are all types of erroneous information that can sneak onto someones credit report wreaking havoc on their credit score and worse yet limiting their ability to obtain an Arizona mortgage approval.

One of the tools available to an individual to help address credit report mishaps is to dispute the bad info on their report with any or all of the three major credit bureaus.  When this is the chosen path, a note and code is entered into the individuals credit profile noting that the account has been disputed. Perfect..right?  In my world/the mortgage world…WRONG!

DU Needs to See Everything 

While there are multiple ways that a disputed account can cause mortgage challenges, for now let’s talk about how they alter and nullify a DU approval.  First let’s cover what in the world a DU approval is.  DU is an automated underwriting system widely used by mortgage lenders in Phoenix and nationwide to review and approve mortgage applications for multiple products.  What DU says goes for the most part.  After lenders “run” a file through this computerized underwriting engine they are give an approval or a denial (in simple terms).

One of the many items the all-knowing DU reads is the dispute status on an account/credit trade line.  If DU sees a disputed account it eliminates it if from the findings (the approval it issues).  That means DU does NOT consider that account when making its approval or denial recommendation.   This is a HUGE distinction.  Take for example a client that disputed an account that had a slew of 30, 60 and 90 day late payments on it.  DU is going to turn a blind eye to that specific account and will not consider it when approving the application for a home loan.  As you probably guessed, an account with a pile of late payments (when seen by DU and considered in the review) could possibly cause DU to decline a client AZ mortgage application.

To handle a situation like this, DU may grant the client an approval however it would also simultaneously remit a simple message within its findings letting the loan officer know that it in fact did ignore the disputed account and that the disputed account needs to be dealt with per loan guidelines.  So, in reality that DU approval is not valid until the disputed account is handled appropriately.  However, if your Arizona Mortgage Company simply looks at the fact that DU says “approved” and moves forward (which happens often out there in mortgageland), this person/loan applicant would be in for a big surprise later on!  By the time this file hits an underwriters desk, the disputed account would rear its ugly head!

If the account status (meaning the late payments) cannot be erased/corrected on the disputed account in our example, the account would need to be undisputed by the loan applicant with the appropriate credit bureaus per loan guidelines.  Once the account status is changed to undisputed, DU’s eyes would be wide open to the account and would now consider it in its evaluation of the borrower’s mortgage application.  The tattered and torn once disputed credit trade line with multiple late payments could now turn the approval into a denial once DU factors it in.

Disputed Accounts – Proceed Carefully 

This is another example of a situation that winds up in a client being very unpleasantly surprised after they were confidently told they were approved for a mortgage.  Make sure you are working with a loan officer that knows how to read DU findings and that understands disputed accounts and their mischievous power!   If you have any questions or if we can help with you mortgage needs please call or email today!

By Jeremy House
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