Zabriskie v. Federal National Mortgage Association

Facts: A homeowner defaults on their mortgage and short sells their home. The homeowner later obtains a mortgage for the purchase of a new home. More than two years after their short sale, the homeowner applies to several lenders to refinance their mortgage. Fannie Mae’s Desktop Underwriter (DU) software inaccurately reports to the refinance lenders that the homeowner experienced a foreclosure within the past seven years. The homeowner’s refinance applications are denied. The Fair Credit Reporting Act (FCRA) promotes the accuracy of consumer information among consumer reporting agencies.

Claim: The homeowner seeks money losses from Fannie Mae, claiming they violated the FCRA since they falsely reported a foreclosure, preventing them from refinancing their mortgage.

Counterclaim: Fannie Mae claims it is not liable for the homeowner’s losses since it is not a consumer reporting agency and is not responsible for false foreclosure reports as it does not regularly assemble or evaluate consumer credit information for the purpose of producing consumer reports.

Holding: A California court of appeals holds Fannie Mae is not responsible for the false foreclosure report since it is not a consumer reporting agency within the meaning of the FCRA. [Zabriskie v. Federal National Mortgage Association (January 9, 2019) _CA6th_]

Editor’s note—Fannie Mae’s DU software is intended to be used solely by lenders to determine whether Fannie Mae would purchase the mortgage originated. The DU software does not evaluate or provide new information on a purchaser’s creditworthiness beyond what lenders and credit bureaus already provide, and is thus outside the scope of FCRA.

A dissenting judge argues consumers are left without the recourse the FCRA is designed to provide in these cases if Fannie Mae is not held responsible for false reports in its underwriting software.

Read the case text.