Recently, I have had 3 homeowners contact me telling me that the home they currently live in no longer is meeting their needs and they want to purchase another home using FHA Financing.  Also, these borrowers were underwater with respect to the value of the homes versus the present mortgage balance and the cause of them being underwater was not purchasing at the peak of the market, it was them refinancing to take cash out of the property.   Is this something as a lender I should consider doing?  Legally, I could do this, but should I do them morally? 

In two of the cases property was just in one persons name, so I could consider doing the loan in the persons name that was not on the current mortgage.  In one case the prospect told me they had discussed with the Realtor the stopping of monthly payments on the current loan to accumulate funds for the down payment on the new purchase.  I could not even consider this loan because the non obligated borrower did not have sufficient income to qualify.

The second one was similar in that the current home was just in one persons name.  The non obligated person could qualify based upon their income.   I suspect that if this borrower does make a new purchase, they will then default on the current loan, either intentionally or because of their life styles.   The combined annual income of this couple combined is approx $120,000 and according to them they only have approx $2,000 per month in fixed monthly expenses.   I am told there are no extraordinary expenses such as college tuition for children, so I wonder why there are no history of savings.   Any funds for the down payment would be a gift from a family member.  

Legally, maybe the second loan could be done, but should it really be done.   This may be a deliema that loan officers faced a number of years ago.   They could legally write the loan, but should they.    As we know these loans were written and now we have the foreclosures and short sales.