Credit Recovery 

Defining Extenuating Circumstances

The Federal National Mortgage Association (FNMA), or Fannie Mae as it is called, is a government-sponsored enterprise whose purpose is to expand the secondary mortgage market by providing mortgage-backed securities and low interest rates, and in effect increasing the number of lenders in the mortgage market by reducing the reliance on locally-based savings and loan associations. Recently the "waiting period" for Fannie Mae credit approval following a Significant Derogatory Credit Event ("Significant Event") has been reduced, as indicated in its 2014 "Single Family Selling Guide". Examples of a Significant Event are bankruptcies, defaults,  and foreclosures.

This adds the possibility for a person with a bankruptcy on their credit history to proffer the existence of Extenuating Circumstances, or "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 such extenuating circumstances include 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.).

In the event that a borrower can establish the existence of such extenuating circumstances, then the "waiting period" for approval by Fannie Mae is cut in half-from two years to four years. This seems to be a step in the right direction, following economic downturn as was experienced in recent decades past.