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Tuesday, August 10, 2010

"Buy and Bail" Again

by Calculated Risk on 8/10/2010 10:34:00 AM

This is an update on an old story ...

From Bloomberg: `Buy and Bail' Homeowners Get Past Loan Restrictions (ht Mike in Long Island, Paulo)

Real estate professionals call it “buy and bail,” acquiring a new house before the buyer’s credit rating is ruined by walking away from the old one ...

Freddie Mac and larger rival Fannie Mae cracked down on buy and bail in 2008 by banning in most cases the use of rental income from an existing home to qualify for a new mortgage unless the first property has at least 30 percent equity.

“There were a number of policies put in place to squelch this type of activity, but people who are savvy can always find a way to circumvent policies,” said [Meg Burns, senior associate director for congressional affairs and communications at the Federal Housing Finance Agency] ...

In addition to the rental restrictions, the mortgage giants now usually require reserves equal to six months of loan payments for both homes. The measures have been sufficient to block most applicants who attempt to buy and bail, said Pete Bakel, a spokesman for Washington-based Fannie Mae.
It is really only "buy and bail" if the home buyer intends to walk away from the original house. With these new restrictions, I doubt this is a significant problem any more.