Fannie Mae describes extenuating circumstances as isolated events that are beyond someone’s control that results in the sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. Extenuating circumstances must be documented. Examples include medical reports or bills, notice of job layoff or severance papers, etc.. The extenuating circumstance needs to be substantiated and support that the nature of the event led to derogatory credit and that there weren’t any other options available.
Note: The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.
Divorce Is NOT Extenuating
Surprisingly, divorce is not considered an extenuating circumstance. While we disagree with the mortgage industry and realize that divorce is very extenuating (and often beyond someone’s control), the mortgage industry does not recognize divorce as an extenuating circumstance.
FHA’s Ruling On Divorce
While divorce is not considered an extenuating circumstance because FHA loans can be manually underwritten, an exception may be granted where a borrower’s loan was current at the time of his/her divorce, the ex-spouse received the property, and the loan was later foreclosed.