Just a note... I believe that if you have a means to change a faction rep in the game, you need at least one example of a mob with that faction in the game when the player logs in. So if you use waypoints or something to spawn creatures, you should have at least one creature with that rep who does not spawn from a waypoint (or other method).
But this may not be necessary if changing faction from an item in inventory.
I believe my information is coming from the lexicon on this. Its been some many months since I toyed with faction changes. So if you are having an issue, try setting a mob with the faction somewhere safe.