FHA changing collection account, judgments & disputed account guidelines (effective 10/15/13)

[coterotie]

A quick question on disputed accounts.  The only disputed accounts on my wife's report are all paid in full.  We are disputing the accuracy of the reporting.  E.g. the original creditor agreed to report it as current as long as we were making the payments on time.  We never missed a payment, but a subsequent acquirer went back 3 years and chaged it to 120 past due.  Original creditor was MBNA, then FIA then the offender with the retroactive derogs was BOA.

Same thing with SAKS, we paid in full the account, but they kept showing it as 1,000 charged off with a zero balance.  We paid it off in full directly with them.  They have corrected one account to charged off, paid in full but are double reporting and we can't seem to get rid of the double reporting.

So will we need to go through the hassle of trying to get the dispute comments removed?

[ShanetheMortgageMan]

coterotie it depends on the financing you are applying for.  No one ever has to get disputes removed unless they are applying for Fannie Mae or Freddie Mac financing, then in that situation all disputes need to be removed.  If it's FHA then even if you owe a bazillion dollars in charge-offs and it's being disputed then the disputes can remain if you can still qualify through a manual underwrite.  With FHA non-derogatory disputed accounts never need to be removed.

[coterotie]

Well, the BOA issue has moved a little.  They have changed the reporting for the last two years as ND and current prior to that.  The only remaining issue is they have it listed as an upaid chargeoff for the final month, even though we paid it in full, they just refuse to update the receipt of the final payment.  They have added the comment that the OC failed to honor the payment arrangements.  The dispute says resolved.  Is that good enough?  It is pretty frustrating that I can't get them to reflect a zero balance. 

Good news is the foreclosure no longer reports and almost every other bad account has disappeared.  Have a couple of single 120 day lates that are nearing 7 years on accounts that report perfect for the last 6+ years.  Wife's scores are finally improving, just can't get her to understand about utilization.  She'll spread 1,000 accross 3 cards and let them report.  Even though utilization is low (4%) relative to credit lines, having it on several cards just kills the scores.

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@ShanetheMortgageMan wrote:

@coterotie it depends on the financing you are applying for.  No one ever has to get disputes removed unless they are applying for Fannie Mae or Freddie Mac financing, then in that situation all disputes need to be removed.  If it's FHA then even if you owe a bazillion dollars in charge-offs and it's being disputed then the disputes can remain if you can still qualify through a manual underwrite.  With FHA non-derogatory disputed accounts never need to be removed.

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[ShanetheMortgageMan]

I am not certain, but I think BofA not reporting a $0 balance when it's been paid off is a FCRA violation.  Isn't a creditor required to report accurate information?  If you haven't already, I'd ask the folks over in Rebuilding Your Credit to get their thoughts on that.  The charge-off still reporting a balance may be an issue, as some lenders require delinquent debt to be paid off if it exceeds a certain amount (which will vary depending on who the lender is).  So unless you have something in writing from BofA stating it's been paid off, you could be faced with having to pay it again.  Lastly on this, if this account is a revolving account, then the charge-off balance reporting could be hurting your utilization & thus your credit scores.  In regards to the dispute saying "resolved", if you are qualifying for FHA financing then that should be good enough, but if you are planning on qualifying for Fannie Mae or Freddie Mac financing then the only way to know for sure is when your loan is run through automated underwriting... within the "findings" it'll state if an account was found to be in dispute or not.

[kris10smom]

EXACTLY what I was looking for!  THANK YOU!!!!

[doxiechic]

Question:

My husband is trying to get an FHA loan. Mortgage person is stating the "account disputed" status on certain accounts have to be removed to be approved by FHA. Is that 100% true and typically how does it affect the credit score once the "account disputed" is removed from the credit report?

Also, there is one collection and one charge-off. The charge-off is from '09 and collection is from '11. Is it worth paying off/settling the collection acct. at this point when it is so old?

Thanks!

[kris10smom]

QUESTION:  Does FHA use the current credit report or do they pull the one where they can see everything that has ever hit the report...like the one some mortgage lenders use for loans over $150,000?

Thanks in advance!

[ShanetheMortgageMan]

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@doxiechic wrote:

Question:

My husband is trying to get an FHA loan. Mortgage person is stating the "account disputed" status on certain accounts have to be removed to be approved by FHA. Is that 100% true and typically how does it affect the credit score once the "account disputed" is removed from the credit report?

Also, there is one collection and one charge-off. The charge-off is from '09 and collection is from '11. Is it worth paying off/settling the collection acct. at this point when it is so old?

Thanks!

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You need to provide more specifics on the accounts that are being disputed.  The guidelines for disputed accounts and FHA loans are detailed in the original post in this thread, the guidelines are:

Disputed accounts are being handled differently than they have been in the past.  If the cumulative outstanding balance of disputed "derogatory credit accounts" of all borrowers is equal to or greater than $1,000, the mortgage application must be downgraded to a “Refer” and an underwriter is required to manually underwrite the loan.  If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is less than $1,000, a downgrade is not required.  Certain accounts are excluded, such as disputed medical accounts & disputed derogatory credit accounts resulting from identity theft, credit card theft, or unauthorized use (however in the latter a letter is needed from from the creditor, or other appropriate documentation to support the dispute, such as a police report disputing the fraudulent charges).

"Derogatory credit accounts" are defined as disputed charge-off accounts, disputed collection accounts, and disputed accounts with late payments in the last 24 months.  Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance for determining if the mortgage application is downgraded to a “Refer”.  "Non-derogatory disputed accounts" are excluded from the $1,000 cumulative total.  "Non-derogatory disputed accounts" include disputed accounts with zero balance, disputed accounts with late payments aged 24 months or greater, and disputed accounts that are current and paid as agreed.

The answer to your 2nd question, if removing disputes from accounts will impact your score, will depend on the details of each account that you would be removing from dispute as well as your other credit history.  In general, if the account you are disputing has delinquencies reported on it, then removing the account from dispute will have a negative impact on your credit score.

For your 3rd question, 3 & 5 year old delinquent accounts don't have as great of an impact on your score vs. if they were more recent... but they still have a negative impact on your score.  If the charge-off is a revolving account, and the balance is near it's limit (which usuallty is the case) then the utilization on the account could also be negatively impacting your score.  For maximum score improvement, it's usually best to do a pay-for-delete (PFD) when paying off charge-offs or collections.  Not all accounts will agree to do a PFD, so YMMV.

[ShanetheMortgageMan]

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@kris10smom wrote:

QUESTION:  Does FHA use the current credit report or do they pull the one where they can see everything that has ever hit the report...like the one some mortgage lenders use for loans over $150,000?

Thanks in advance!

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There is no difference between the credit reports a mortgage lender pulls based on loan amount.  The credit reports that mortgage lenders use are based on FICO scoring models:

EXPERIAN, FICO v2

TRANS UNION, FICO Classic 04

EQUIFAX, BEACON 5.0 FICO

The same report is used for FHA, VA, USDA, and Fannie Mae/Freddie Mac financing... as well as mortgage programs that don't fall into those categories. 

The history on the reports that mortgage lenders use should match the credit reports you can obtain yourself at www.annualcreditreport.com

[kris10smom]

OK..so they will see the exact same report that we see.  Great!

Thank you!