Extenuating Circumstances Guidelines On Home Loans

In this blog, we will cover and discuss extenuating circumstances guidelines on home loans. When you read the agency guidelines, there is a lot of text about extenuating circumstances. However, the agency guidelines are not specific what exactly classifies for an extenuating circumstance. The team at Gustan Cho Associates gets countless calls and email inquiries about what justifies for extenuating circumstances. As the spring real estate market heats up, we are receiving more and more inquiries about extenuating circumstances. Extenuating circumstances are a grey area of the mortgage industry. I would like to start this article out by saying they are incredibly difficult to approve. Documentation is key. In this blog, we will detail what situation qualifies as an extenuating circumstance and the required documentation involved. Gustan Cho Associates are experts in mortgage guidelines and do not have any LENDER OVERLAYS to get in the way.

What Is Considered Extenuating Circumstance Per Extenuating Circumstances Guidelines

First, it is important to understand what an extenuating circumstance is per Extenuating Circumstances Guidelines. As defined in the dictionary, a circumstance that renders conduct less serious and thereby serves to reduce the damages to be awarded or the punishment to be imposed. The definition is very similar in the mortgage industry.

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Definition of Extenuating Circumstances 

An extenuating circumstance simply means something that was out of the borrower’s control. We will get into more examples later on in this article. In the mortgage industry and per agency guidelines on extenuating circumstances. the mortgage underwriter must determine if the applicant simply has a disregard for financial obligations, is unable to manage, or experienced a true extenuating circumstance. Sounds easy enough, but it is incredibly difficult.

How Are Extenuating Circumstances Granted By Underwriters

In order to be granted an extenuating circumstance per Extenuating Circumstances Guidelines, proper documentation must be provided. Some of the main examples of extenuating circumstances are; the death of a wage-earning spouse, a severe medical issue that results in loss of employment, extraordinary medical expenses not covered by insurance. While these are still somewhat vague, it is possible to be granted an extenuating circumstance with these examples.

Extenuating Circumstances Guidelines On Divorce

Divorce can ruin credit and cause havoc in one’s financial situation. According to the HUD 4001.1 HANDBOOK, Divorce is not considered an extenuating circumstance. Exceptions may be granted where the borrowers’ mortgage was current at the time of the divorce, the ex-spouse receives the property, and then there was a short sale. The inability to sell a property due to a job transfer relocation to a new area does not qualify as an extenuating circumstance. FHA does a nice job of outlining extenuating circumstances and what will and will not be acceptable.

Fannie Mae Extenuating Circumstances Guidelines On Conventional Loans

Fannie Mae defines an extenuating circumstance as a non-recurring event that is beyond the borrower’s control that results in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. When a borrower claims that derogatory information is the result of extenuating circumstances, there must be adequate documentation to substantiate that claim. You must send the lender documents that will confirm the non-recurring event.

Providing Documents Validating Extenuating Circumstances

Examples could be a copy of a divorce decree, medical reports or medical bills, a notice of a job layoff, or job severance papers. These documents must illustrate the factors that contributed to the borrowers’ inability to resolve the problems that resulted in the derogatory event. Insurance paperwork or claim settlements, property listing agreements, lease agreements, tax returns that cover the periods prior during, and after a loss of employment are all examples that can help get your extenuating circumstances approved.

Letter of Explanation Accompanying Documents To Validate Extenuating Circumstances

According to Fannie Mae, the lender must also obtain a written explanation from the borrower explaining the relevance of the documentation. The letter of explanation must support the claims of extenuating circumstances and confirm that the events were a one-time occurrence. We asked for this letter to be signed and dated by all parties on the mortgage application

For more details, please see FANNIE MAE’S definition of extenuating circumstances.

Getting Extenuating Circumstances Approved By Mortgage Underwriters

Extenuating circumstances are extremely hard to get approved. We keep repeating this so everybody understands it is a long shot. If documentation matches exactly the timeframe of the financial event, it will make sense to attempt to receive extenuating circumstances. We have had more cases of extenuating circumstances denied than approved. Some extreme that has been denied includes the suicide of a loved one with result in loss of income and business-related chapter 7 bankruptcies. It is next to impossible to prove that these circumstances happened by something out of your control. Since we are lenders without any lender overlays, we recommend you contact Gustan Cho Associates. We will go over your extenuating circumstance situation one on one. Please contact Mike Gracz on at (800) 900-8569 or send an email to gcho@gustancho.com.After talking through your situation, we will then start your mortgage application. Please feel free to call us seven days a week, morning or night.