What is 'Buy & Bail" practice? Is the result of buying a new home with the intention of bailing on the old one... It is considered mortgage fraud.
With the home price falling and inability to pay heir "old mortgage" some owners find an alternative... Buy a new home with the new drastically reduced price and bail out from the old home. A home bought few years ago in the range of $500.000 today is worth little over $250.000. The home owner is locked into a home mortgage that no longer can afford and more importantly doesn't reflect the true market value. In Las Vegas this practice is quite spread.
NEWS - LAS VEGAS REAL ESTATE UPDATE - BUY & BAIL
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"Buy & Bail" practice? ... It is considered mortgage fraud.
However, it does not change the fact that Buy and Bail constitutes mortgage fraud and is against the law. Read more >>> What is Wrong With Buy and Bail? By Elizabeth Weintraub, About.com
As a result of buy and bail practices, Fannie Mae guidelines now require buyers to qualify for mortgages on both homes at loan inception, unless the existing home has plenty of equity. That's because a home owner with plenty of equity would be foolish to walk away from it.
Read more>>> FHA Moves to Prevent 'Buy and Bail' September 22, 2008 By MortgageDaily.com staff
- All new FHA loan submissions must be considered excluding any rental income on the current residence.
"The exclusion of rental income from property being vacated is being instituted on a temporary basis while FHA further analyzes this situation to determine whether permanent measures may need to be taken," the letter said. "Although the property being vacated will not have a mortgage insured by FHA, surrounding properties may and, thus, FHA may be indirectly negatively affected should that property result in a foreclosure."
- Borrower can make payments on the full debt service of both mortgages.
"This will assure that a homeowner either has sufficient
income to make both mortgage payments without any rental income or has an equity
position not likely to result in defaulting on the mortgage on the property
being vacated,"
The government agrees. New rules will require future buy-and-bail suspects to
show real income to cover payments on both homes. Foreclosures also sting more
than they used to. Defaulters can't apply for a mortgage for five years. It used
to be four.
Totally unbelievible... I see the Dow was in the 12K range and people wonder what happened...
your friend in Charlottesville!
It is absolutely Fraud! and Both Fannie and FHA have some pretty strong guidelines to avoid it now.
Arina great reminder of how some manipulate the market and current economic conditions. I need to remind and inform some of our newer agents who may be unaware of this trend.
Arina, thanks for posting this in my group! It is sad that a few bad apples spoil the bunch--a lot of people depend on rental income to qualify for another loan--this was the foundation of how many of us built up our real estate portfolios.
This mess just keeps getting messier! Where and when will it end!