Errors On Credit Reports & How It Affects AUS FINDINGS

This BLOG On Errors On Credit Reports & How It Affects AUS FINDINGS Was UPDATED On October 16th 2017

One of the most important things to realize is before a mortgage loan application can be processed and underwritten is to get a DU ( Desktop Underwriter ) automated approval by Fannie Mae’s Automated Underwriting System.

  • Fannie Mae’s Automated Underwriting System is a sophisticated mortgage, credit, financial analyzer.
  • The AUS analyzes borrowers income, assets, liabilities, information on credit reports and credit scores into account.
  • It then comes up with a decision whether the mortgage loan request is approved or denied. 

How Does AUS System Work?

There are two types of Automated Underwriting System. Fannie Mae has Desktop Underwriter and Freddie Mac is the Loan Prospector. DU is more common so on this blog we will just relate to Fannie Mae DU FINDINGS.

The Automated Underwriting System analyzes credit report in extreme detail by the following:

  • Analyzing prior collections
  • Credit account balances
  • Borrowers payment history
  • Prior bankruptcy
  • Prior foreclosures
  • Recorded dates of bankruptcy
  • Recorded dates of foreclosures
  • Recorded dates of short sales
  • Judgments
  • Tax liens, repossessions
  • Outstanding credit disputes
  • Other factors from your credit reports in its decision process. 

The DU findings only takes a few minutes from the time the mortgage loan originator inputs all of your information.

  • Errors on credit reports will definitely affect DU Findings. 
  • The Automated Underwriting System reads off whatever that is on credit reports and will pick errors on credit reports.
  • It is the loan officers job to check for errors on credit reports .
  • Borrowers should notify the mortgage loan originator so he or she can correct the errors on credit reports prior to submitting it to Fannie Mae’s AUS for the DU Findings.

How Mortgage Approval Get Denied Due To Errors On Credit Reports

As discussed earlier, the Automated Underwriting System will go off whatever is reported on credit reports. AUS cannot pick up errors on credit reports.

  • For example, for a mortgage loan borrower to qualify for a conventional loan after a deed in lieu of foreclosure, there is a four year waiting period after the recorded date of the deed in lieu of foreclosure as long as the mortgage loan borrower has a 5% down payment. 
  • However, the verbiage needs to read deed in lieu of foreclosure on the credit report and not foreclosure and the code needs to be a M5 ( deed in lieu of foreclosure ) and not M9 ( which is a regular foreclosure).
  • If a foreclosure is reported and not a deed in lieu of foreclosure, then Fannie Mae will deny the automated findings because there is a 7 year waiting period on a foreclosure.
  • 4 year waiting period after deed in lieu of foreclosure and short sale to qualify for conventional loan.

Deed In Lieu Being Reported As Regular Foreclosures

On many cases due to errors on credit reports, a mortgage loan borrower who has had a deed in lieu of foreclosure has a regular foreclosure reported on his credit reports which the AUS which will be a denial on the DU Findings.

  • Until errors on credit reports are corrected and the new credit report reflects the correction, AUS will not pick it up and the mortgage applicant will not get an approve eligible on the DU Findings. 
  • On cases like this, the mortgage loan originator can submit the deed in foreclosure paperwork to a third party credit consulting vendor along with the documentation and request a rapid rescore.
  • This will update the corrected information to all three credit reporting agencies within 3 to 5 business days.

Public Records Dates Errors

Other errors on credit reports include the credit reporting agencies reporting a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale the wrong date of the event .  On these types of errors on credit reports, the same correction procedures need to be met as the above.

  • Always monitor credit reports for errors on credit reports and dispute the errors when discovered. 
  • One important note to mention is that credit disputes with open balances are not allowed during the mortgage application process. 
  • When hiring a credit repair company and intend on applying for a mortgage in the near future, tell them to keep away from disputing credit derogatory tradelines with open balances unless there is proof that they are errors. 
  • Borrowers who are going through the mortgage application process currently and are retracting a credit dispute, credit scores will definitely drop when a pending dispute is retracted.
Gustan Cho NMLS ID # 873293

Related> Credit Report And Credit Scores

Related> What Do Underwriters Look On Credit Reports

Related> Common Credit Report Errors

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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