“Buy and Bail” Homeowners Get Around Loan Restrictions

Wow, we still have a long way to go before this whole housing crisis is striaghtened out. Homeowners are getting desparate, and getting more creative in how they deal with their underwater homes...

Even after Freddie Mac and Fannie Mae increased their standards against mortgage fraud, a practice known as “buy and bail” is taking hold. A “buy and bail” is when a homeowner acquires a new house before their credit rating is ruined by walking away from their old house that is underwater. It’s an attempt to walk away from payments on a home whose value may never recover, while securing a new property, often at a lower price with a more affordable loan. Make no mistake – this practice is fraud. Most likely to walk away? Borrowers with great credit scores and jumbo loans, that exceed the caps set for mortgages bought by Freddie Mac and Fannie Mae. They have typically lost $100,000 or more in property value. Buy and bail is most often tried by those with big enough pay checks and low enough debt to qualify for two homes. If they have the means, they’re going to make sure they have some place to live before they let their home go into foreclosure.

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