FHA PFS Application To Participate Denied Due To Homeowner's 2nd Job & Income

Our mortgage servicer, Midland, has just denied an 'application to participate' citing that the homeowner (who currently works 2 jobs) has sufficient income to make his mortgage payments, and will not be approved. The homeowner sought a 2nd job because of a 40% reduction in income at his primary workplace, and to maintain his ordinary living expenses. His property is presently underwater with a FMV of approx 65% of the mortgage indebtedness.

I contacted FHA's National Servicing Center to intervene, but they say because the homeowner has sufficient income to pay the mortgage and they cannot assist. FHA NSC refers to Mortgagee's Letter 2008-43, page 7, para D. We've also requested a variance, but they will not authorize. This response does not appear to be consistent with the purpose of the FHA Loss Mitigation Program, and borrowers who are in imminent default.

Any suggestions about how to overcome would be much appreciated.

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Replies to This Discussion

Permalink Reply by Kevin - Greenville, SC on March 27, 2012 at 10:40am

For a change Midland is spot on. If the Homeowner demonstrates they can afford the debt (in most cases), a PFS is not allowed.

Permalink Reply by Tara Polley on March 27, 2012 at 10:42am

Sorry Michael, if the homeowner has sufficient income to pay the mortgage, they are not in imminent default.

Permalink Reply by Kevin - Greenville, SC on March 27, 2012 at 11:03am

These are the two goals of FHA Loss Mitigation -

Loss Mitigation Results- "The dual goals of the FHA Loss Mitigation Program are to help FHA insured borrowers avoid foreclosure and to minimize losses to our Insurance Funds."

Laurie Maggiano

April 11, 2008

Permalink Reply by Michael Dagner on April 12, 2012 at 9:40am

Kevin, Tara,

Thank you for your replies. The homeowner is now relocating out of state for employment reasons. I suppose all the homeowner can do is to re-apply after securing employment elsewhere. If he's able to demonstrate a deficit in his monthly expenses by carrying both the mortgage, and rent elsewhere, perhaps that will allow him to qualify?

Permalink Reply by Michael Schneider on April 13, 2012 at 4:09am

I don't think the FHA has income guidelines for PFS, at least, I'm not aware of any. It's cash flow that matters. You must demonstrate sufficiently negative cash flow and involuntary financial hardship, basically.

So, yes, a borrower who is relocating to maintain employment and has negative cash-flow would generally be eligible for PFS. Updating the financials may be sufficient.

Midland is okay, I've dealt with them on many FHAs.

Permalink Reply by Michael Dagner on April 15, 2012 at 4:58pm

Thanks for that insight, Michael.

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