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Dispute Verbiage!? As if you didn’t have enough to worry about with getting your credit scores in order, making sure you had the down payment taken care of, and getting all of your supporting docs prepared and signed NOW at the last minute you realize that you have an account or accounts with “Dispute Verbiage” on them. It doesn’t matter that mid score which started at a 604 is now at a 692, Underwriting is kicking the loan out because of DISPUTE VERBIAGE! Seriously?

This seems really ticky tacky and to some degree, it is. However, if you understand how and why this happens it’s a little easier to swallow and deal with. Years ago, before the Dispute Verbiage lender overlays and now loan requirements mandated that no dispute verbiage would be allowed, Credit Repair companies and Mortgage Lenders (and sometimes knowledgeable clients) used to play games with disputes in order to artificially inflate credit scores. Thus, a broad and overreaching requirement was put into place which now make things difficult for all parties involved in the mortgage process.

Here’s how it works. When a negative item is disputed, that item (while under investigation) goes into a “limbo” status where it is no longer factored into the credit scoring algorithm UNTIL the investigation has been completed by the Credit Bureaus and the Reporting Creditor, this is typically a 30-45 day window. While these negative items are in this limbo status, a lender can repull credit and have drastically inflated credit scores. These scores are artificial and once an item is verified it is again factored into the credit scoring algorithm causing the scores to plummet. Using this loophole, many Lenders and Credit Repair companies would blanket dispute all negative items and then repull credit while the investigation process was still underway. They would then close the loan quickly before the new scores had a chance to bounce back. When these loans were sold on the Secondary Market and credit was repulled the scores had dropped and the new owners of that loan were not very happy. This mean Loan Buy Backs, a term that every Lender hates to hear. So in an effort to close up this loophole, stipulations were added that did not allow ANY dispute verbiage of any kind.

That seems fair, but it’s not. While an item is under investigation and in “limbo” it will have verbiage that says “investigation in process” or “results pending”. When that investigation has been completed and the scores are again accurate and factoring that account back into the scoring algorithm the verbiage will look more like “Customer Disputes-Meets FCRA” or something like that. As long as it doesn’t say something along the lines of “this item is being investigated” then it IS being factored into the credit scores. I get the question often from Loan Officers “If I remove all the dispute verbiage my scores are going to drop, right?” The answer is no, if you’re just removing dispute verbiage from past accounts it will not impact the scores. Again, only if an item is currently under investigation would you have artificially inflated credit scores.

That seems like a pretty simple explanation, right? So the question then becomes, why can an Underwriter not just look and see if the disputes are current or from the past? It really would be that easy. But in the age of DU and AU (automated underwriting systems) this just isn’t an option and manual underwrites are a rare thing these days.

So now we have Lenders and Consumers both afraid to dispute items that they may not agree with for fear of being left with a minefield of disputed items that stop the loan process in it’s tracks. We even have Collection Agencies holding clients hostage and saying that they will only remove the dispute verbiage if a client pays the debt (that they may disagree with) in full! Then the client and the Loan Officer are left fumbling around, making phone calls, doing rapid rescores, spending time and money, trying to get this verbiage removed. Other credit repair companies claim this process can take up to 30 days!

My Credit Guy Credit Restoration can typically remove dispute verbiage in 3-7 business days.

Hopefully, this entry will shed some light on one of the more annoying roadblocks that Lenders and Consumers are running into on a weekly basis.

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