Extenuating Circumstances Mortgage Guidelines On Home Loans

Gustan Cho Associates

Extenuating Circumstances Guidelines On Home Loans

This BLOG On Extenuating Circumstances Guidelines On Home Loans Was PUBLISHED On March 5th, 2019

Mortgage Agency Guidelines description of extenuating circumstances guidelines is very specific. 

  • Extenuating Circumstances Guidelines is specific with all loan programs such as FHA, VA, USDA, Fannie Mae, Freddie Mac
  • All Agency Guidelines description of extenuating circumstances guidelines are isolated events that are above and beyond a person’s control resulting in a sudden, significant, prolonged effect in the ability of the person’s ability to get income
  • Due to the extenuating circumstances beyond a person’s control, that person has suffered a significant increase in debt obligation with little to no income
  • Therefore, the person affected could not pay his or her bills timely and has suffered derogatory credit due to no income stream
  • All lenders require borrowers who have suffered extenuating circumstances to have proper documentation
  • A doctor’s note is not sufficient
  • Documentation of extenuating circumstances includes documented medical records and/or reports
  • Police reports and/or public records reports
  • Notice of job termination and/or layoffs
  • Severance paperwork by employers
  • Death certificate and/or accident reports
  • Under extenuating circumstances guidelines, the isolated incident must support that the incident was the cause of the reduction of income which led to the consumer not being able to pay their bills thus leading to bad credit
  • The mortgage underwriter needs to believe that the person had no other options to avoid paying their bills
  • The recent California Wildfires is considered an extenuating circumstance
  • The recent government shutdown would be considered an extenuating circumstance for government workers

People who could not sell their home due to a new job and/or transfer to a different part of the state or out of state is not considered an extenuating circumstance.

Does Divorce Meet Mortgage Extenuating Circumstances Guidelines?

Unfortunately, under mortgage extenuating circumstances guidelines, divorce is not considered extenuating circumstances.

  • There are many instances where a spouse may have been a homemaker and gotten a divorce
  • It takes time to prepare to get back to the workforce
  • The reduction of household income should be considered an extenuating circumstance

However, agency extenuating circumstances guidelines do not consider divorce an extenuating circumstance.

Extenuating Circumstances Guidelines On Manual Underwriting

VA and FHA Loans allow manual underwriting.

  • Manual underwriting is when a human mortgage underwriter manually underwrites a mortgage loan
  • Although divorce is not technically considered an extenuating circumstance, many lenders will allow underwriter discretion on FHA and VA  manually underwritten loans
  • For example, if the borrower had a perfect credit history and due to a divorce, there was a major reduction in income, and they had a period of derogatory credit due to this reduction of income, it may be considered extenuating circumstances
  • Another example is if a borrower had perfect credit on their mortgage and the property was granted to the ex-spouse but the ex-spouse did not make the mortgage payments and the property foreclosure, this may be considered an extenuating circumstance
  • All manual underwriting requires two years of timely payments by the borrower

However, timely payments in the past 24 months by the borrower may be waived if the borrower had extenuating circumstances.

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