Extenuating circumstances are factors which address instances where the borrower’s credit history and/or property charge payment history do not meet the standards specified in the HECM Financial Assessment and Property Charge Guide.
Compensating factors are borrower characteristics that document why the borrower’s residual income represents an acceptable level of risk even when it falls below the applicable amount on the Table of Residual Income in Section 3.100 of the HECM Financial Assessment and Property Charge Guide.
Mortgagees (Lenders) must document any extenuating circumstances to address derogatory credit and property charge payment history, and/or compensating factors to support residual income shortfalls.
Mortgagees must identify in writing on a HECM Financial Assessment Worksheet all specific circumstances and factors it relied upon to make its favorable determination. Supporting documentation must be included in the origination case binder.
For additional information see Mortgagee Letter 2016-10, and the attached revised HECM Financial Assessment and Property Charge Guide, Sections 4.1 - 4.5 at https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee