The US Court of Appeals for the Ninth Circuit ruled Wednesday that the Federal National Mortgage Association (Fannie Mae) does not qualify as a “consumer reporting agency” as defined in the Fair Credit Reporting Act (FCRA), and therefore cannot be sued for misreporting that an Arizona couple had a prior foreclosure.

Fannie Mae’s proprietary software, Desktop Underwriter (DU), lets lenders conduct a credit risk assessment on potential borrowers. By using DU, lenders can determine whether a loan meets Fannie Mae’s requirements for purchasing.

DU reports on the plaintiffs, Richard and Karen Zabriskie, incorrectly contained a foreclosure in their credit history. The foreclosure meant that any loan extended to the Zabriskies would be ineligible for purchase by Fannie Mae. When the DU reports made it harder to secure a loan, the Zabriskies sued under the FCRA which requires credit reporting agencies take reasonable measures to ensure maximum accuracy.

The court held that Fannie Mae did not qualify as a consumer reporting agency as defined in the FCRA.

If we were to hold that Fannie Mae is a consumer reporting agency, it would be required to comply with the other FCRA duties to borrowers. That interpretation would contradict Congress’s design for Fannie Mae to operate only in the secondary mortgage market, to deal directly with lenders, and not to deal with borrowers themselves.

Therefore, the court overturned the summary judgment in favor of the Zabriskies and vacated the damage awards.