Consumer complaint received 2018-06-11
Product: Mortgage — VA mortgage
Issue: Applying for a mortgage or refinancing an existing mortgage — 
Company: UNITED SERVICES AUTOMOBILE ASSOCIATION (CT)

On XX/XX/XXXX, I applied for a VA Home Loan with USAA via telephone. My credit score allowed my application to be prequalified and I was subsequently placed on hold for an underwriter 's review. Shortly thereafter, I was informed that my VA Home Loan application could not be approved due to a charge-off from 5.5 years ago.

I requested reconsideration of my application from the underwriter due to the VA Home Loan guidelines stating clearly in VA Pamphlet 26-7, Revised Chapter 4 : Credit Underwriting, that : ( 1 ) " In circumstances not involving bankruptcy, satisfactory credit is generally considered to be reestablished after the veteran, or veteran and spouse, have made satisfactory payments for 12 months after the date the last derogatory credit item was satisfied. For example, assume a credit report reveals several unpaid collections, including some which have been outstanding for many years. Once the borrower has satisfied the obligations, and then makes timely payments on subsequent obligations for at least 12 months, satisfactory credit is reestablished. '' AND ( 2 ) " Isolated collection accounts do not necessarily have to be paid off as a condition for loan approval. '' Upon requesting reconsideration of my VA Home Loan application on XX/XX/XXXX, I received a phone call back from USAA on XX/XX/XXXX whereby USAA maintained the denial of the application due to the charge-off on my credit report. And, being on a recorded line, I again asked for confirmation of the denial and the application was confirmed denied due to the 5.5 year old charge-off.

I was told that USAA approves other VA Home Loan applications with charge-offs on the applicant 's credit report so long as a balance is not reported. The USAA agent then informed me that he is not an underwriter and could not help further. I then requested a manager for further review of my application because this practice seemed discriminatory in nature.

I held for an executive level underwriter and was informed that the decision would stand as a denial. I asked for a specific reason why the application was denied again and was told it was due to the charge-off on my credit reports. Once again, I asked how this decision could be made in accordance with VA Home Loan guidelines and the executive underwriter informed me that I had insufficient assets and this was the technical reason for the denial.

In isolated cases of an adverse account contained on credit reports, the VA guidelines clearly state that credit is reestablished after 12 months of making timely payments on other debt obligations. Additionally, since we can agree that credit scoring is one major factor of the bank overlay requirement, the denial of my VA Home Loan application with USAA appears to be discriminatory in nature and not in accordance with VA Home Loan Guidelines as outlined in VA Pamphlet 26-7, Revised Chapter 4 : Credit Underwriting.

The denial of my USAA mortgage application is discriminatory for the following reasons : ( 1 ) charge-offs or collections contained on any veteran 's credit report, whether paid or unpaid, remain an indicator of default and impact the perception of credit worthiness by virtue of credit scoring itself. Thus, when USAA grants VA Home Loans to other veterans with paid charge-offs on their credit reports, USAA is granting unfair credit because not all charge-offs are in the same amount or type nor do all charge-offs in and of itself indicate the same risk factor. Additionally, not all creditors report charge-offs equally on credit reports. The VA Home Loan guidelines require a case-by-case analysis of credit reports and USAA is arbitrarily assessing varying degrees of weight to charge-offs on credit reports from applicant to applicant resulting in discriminatory lending practices.

( 2 ) Furthermore, USAA did not allow me to present a legal defense as to why the charge-off remains unpaid. VA Home Loan Guidelines as outlined in VA Pamphlet 26-7, Revised Chapter 4 : Credit Underwriting allow for legal defenses as to why debts remain unpaid except where a judgment against the veteran has been issued by an authority having jurisdiction. There is no judgment against me now nor at the time of this application. Specifically, the VA states the following : " For unpaid debts or debts that have not been paid timely, pay-off of these debts after the acceptability of applicant 's credit is questioned does not alter the unsatisfactory record of payment. '' Therefore, under the VA guidelines, it can be considered discriminatory lending practice to grant credit to other veterans with paid charge-offs, or rather, forcing veterans to pay charge-offs as opposed to those veterans who have unpaid charge-offs since the VA clearly considers each instance to be an " unsatisfactory record of payment '' { SIC }. USAA engages in lending practices where veterans applying for VA Home Loans are placed in arbitrary and subjective risk categories due to whether or not charge-offs are paid or unpaid when the credit risk is considered equal under the VA guidelines.