The LA Times reported today that some applicants for refinancing mortgages are having difficulty getting their applications processed simply because they may have disputed a credit card charge (which is their right), this occurring even among applicants with excellent credit histories.
The Fair Credit Reporting Act guarantees consumers the right to dispute erroneous information in their credit files. However raising such a dispute (even when justified by the facts) causes the mortgage application underwriting to switch from “automated underwriting” to “manual underwriting,” by Fannie Mae’s rules. This requires more time and effort by the banks, and in the current market where there are many applications for refinancing, banks sometimes prefer to simply reject the application and blame it on Fannie Mae rather than going throught the more laborious underwriting.
Fannie Mae is considering modifying this policy, so there is reason to hope for a change.