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This is taken directly verbatim from Sallie Mae’s Selling Guide – Single Family Home, which was published May 1, 2019. The entire guide can be accessed as a .pdf file here.

This Selling Guide explains how to become an approved Fannie Mae lender and the procedures for normal and routine selling matters. It is primarily written for lenders (banks, mortgage companies, etc.), however, it is quite helpful to review as a prospective borrower/home-buyer to see what’s in store for you in your quest to obtain financing.

One part I found particularly insightful is its explanation of what constitutes “extenuating circumstances” in a prospective borrower’s life and furthermore what is required from the borrower in order to prove it.

“Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event – such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.; and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event – such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.

The lender must obtain a written explanation from the borrower explaining the relevance of the documentation. The written explanation must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate that the borrower had no reasonable options other than to default on his or her financial obligations. The written explanation may be in the form of a letter from the borrower, an email from the borrower, or some other form of written documentation provided by the borrower.”