Does FHA allow for extenuating circumstances for borrowers who experienced a foreclosure
because of a job loss?  On August 15, 2013, FHA issued Mortgagee letter 2013-26, titled
“Back to Work – Extenuating Circumstances.”  FHA acknowledges that as a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income,
were unable to make their monthly mortgage payments and ultimately lost their homes to a pre foreclosure sale, deed-in-lieu, or foreclosure.     FHA recognizes the hardships faced by these
borrowers and realizes that their credit histories may not fully reflect their true ability
or propensity to repay a mortgage.   

Effective with case numbers issued on or after August 15, 2013, FHA will now allow financing
for borrowers who experienced an Economic Event(such as a loss of job or a reduction in income).
The loss of income must be greater than 20% at or around the time of the Economic Event.

Borrowers may qualify for a mortgage if they have re-establish their credit for the past 12 months
with no late on any mortgage or rents since the short sale or foreclosure.   Prior to this Mortgagee
Letter, borrowers in this predicament had to wait 3 years in order to qualify for a FHA mortgage,
unless there were no late payments on the mortgage in question.  The no mortgage late
condition made it very difficult for the majority of borrowers to qualify prior to the 3 year
waiting period.

Following are the qualification guidelines that must be documented:

1.     Certain impairments were the result of a Loss of Employment or a significant loss
 of Household Income beyond the borrower’s control

2.     The borrower has demonstrated full recovery from the event; and

3.     The borrower has completed housing counseling.

Borrowers who believe they meet these guidelines should consult with a lender for
pre-qualification.