FHA Versus Conventional Disputed Tradelines Mortgage Guidelines

This BLOG On FHA Versus Conventional Disputed Tradelines Mortgage Guidelines Was UPDATED And PUBLISHED On April 27th, 2020

FHA Versus Conventional Disputed Tradelines
Gustan Cho Associates

The question to are there differences between FHA Versus Conventional Disputed Tradelines, the answer is yes.

  • HUD has much more lenient credit requirements between FHA Versus Conventional Disputed Tradelines
  • A consumer credit dispute is when a consumer will dispute a derogatory and/or incorrect item on the consumer’s credit report because it is wrong or it is incorrect
  • Many times, consumers who have derogatory credit tradelines
  • They will try to dispute derogatory credit items such as collection accounts, charge off accounts, and late payments in the hopes of the credit bureaus removing it from their credit report

In this article, we will discuss and cover FHA Versus Conventional Disputed Tradelines Mortgage Guidelines.

How Does Credit Disputes Work?

Disputing derogatory credit items is the oldest trick in the book for credit repair companies and consumers trying to delete derogatory credit items off their credit report.

Here is how credit disputes work in trying to get bad credit items deleted off your credit report:

  • The consumer will write a letter to the three credit reporting agencies contesting that the creditor is wrong or that the derogatory credit tradeline is not theirs
  • Once the credit bureaus receive the letter from the consumer, they notify the actual creditor about the consumer’s credit dispute
  • The creditor has 30 days to provide documentation proving that the consumer credit dispute is wrong
  • Creditors need to provide the validity that the way they are reporting is correct

If the creditor does not respond to the creditor within the 30-day window, the credit bureaus need to remove the disputed tradeline or correct it.

Why Do Lenders Make Credit Disputes Such A Big Deal?

There are reasons why mortgage lenders halt the mortgage process with borrowers who have credit disputes.

Here are the reasons:

  • Credit disputes will halt the mortgage process
  • When a consumer disputes a particular credit tradeline, the credit bureaus automatically exempts the individual credit tradelines that are being disputed from the credit scoring formula
  • So the disputed credit tradeline is like it doesn’t exist
  • With the above statement, whenever a consumer disputes a credit tradeline that is a recent collection account, their credit scores will jump up

This is because the credit bureaus will exempt the derogatory collection account from the credit scoring formula:

Results Of Credit Disputes

When a credit dispute is removed from a derogatory credit tradeline the following happens:

  • whether it is by the consumer’s request and/or the credit dispute has been resolved
  • the creditor has provided the credit bureaus validity of the derogatory credit item
  • the consumer’s credit scores will drop
  • It is like having that derogatory credit item back on the credit dispute like a new derogatory

There are tricks of the trade to use credit disputes to boost credit scores with FHA Loans, which we will explain later.

FHA Versus Conventional Disputed Tradelines

What is FHA compared to traditional disputed tradelines

FHA Versus Conventional Disputed Tradelines are the same. FHA and Conventional Loan Guidelines are exactly the same with regards to disputed tradelines.

Here are FHA Versus Conventional Disputed Tradelines:

  • Both allow for disputed tradelines on medical collections no matter how much the outstanding collection account balance is
  • Both HUD and Fannie/Freddie do not allow for disputed tradelines on charge off accounts
  • Both FHA and Conventional Loans does allow for disputed tradelines on zero balance non-medical collection accounts
  • Agency guidelines will allow for disputed non-medical  tradelines as long as the total outstanding total of all non-medical collection accounts does not exceed $1,000

Any disputed non-medical tradelines that are greater than $1,000 needs to be retracted in order for the mortgage process to proceed.

Conventional Versus FHA Disputed Tradelines

Conventional Versus FHA Disputed Tradelines are the same per agency guidelines.

  • Fannie Mae Desktop Underwriter (DU) requires that all credit tradelines in dispute cannot be ignored
  • DU requires that the mortgage underwriter on a Conventional Loan via Fannie Mae needs to ensure that all Desktop Underwriter, DU, conditions associated to tradelines in credit dispute are completely satisfied
  • Desktop Underwriter, DU, requires that DU Conditions needs to be looked at
  • The underwriter reviews as to the accuracy of the credit disputes on disputed tradelines by making sure and verifying that the credit tradelines belongs to the borrower

The underwriter needs to verify the validity of the borrowers’ credit payment history on their credit report.

FHA Versus Conventional Disputed Tradelines And How Mortgage Underwriters Clear Conditions

Here is the bullet points on how mortgage underwriters are required to satisfy the conditions:

  • In the event if the disputed credit tradelines does not belong to borrower and/or the credit payment history on the borrower’s credit report is inaccurate, they need to have the borrower provide written documents and needs to place those in the file of borrower
  • If the information provided by the borrower provided to the mortgage underwriter determines that the information is valid and correct, DU will require no further action
  • In the event if the disputed tradelines does belong to the borrower and the derogatory payment history on the credit report is accurate, the disputed credit tradelines needs to be retracted from the credit report
  • A new credit report needs to be pulled showing that the disputed tradelines no longer reflect on the credit report and that new credit report needs to be resubmitted to DU

Manual underwriting is not permitted on Conventional Loans like they are on FHA Loans.

Quick Fixes On Resolving Credit Disputes So Mortgage Process Can Proceed

On cases where it the credit dispute of the tradelines cannot be proved that it doesn’t belong to the mortgage borrower then the second needs to be followed:

  • The second bulletpoint doesn’t permit for a credit supplement as satisfactory proof nor evidence that the credit tradelines is not longer in credit dispute
  • This holds true as the Desktop Underwriter won’t be able to decipher the credit supplement
  • Borrowers needs to make contact with the creditor who they are currently in credit dispute with and a new credit report needs to be pulled
  • A new DU AUS needs to be pulled
  • This tactic and procedure is mandatory on all zero balance credit disputes as well

This procedure applies to all mortgage loans when a Desktop Underwriting Finding shows this condition concerning tradelines that are in credit disputes.

Qualifying For Mortgage With A Lender With No Overlays

How to qualify for a mortgage loan with no overlays

If you are in need to qualify for a mortgage, whether FHA, VA, USDA, Conventional and have outstanding credit disputes, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at [email protected] We are available 7 days a week, evenings, weekends, holidays. Gustan Cho Associates is a national mortgage company licensed in multiple states with no overlays and known by many for its 21-day closings.

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