FHA Issues New Guidelines to Curb the Practice of ‘Buy and Bail’ | RISMedia: "The practice of “buy and bail” is where the home buyer purchases (the “buy”), for example, a more affordable dwelling with the intention to cease making payments on the previous home’s mortgage (the “bail”). Among the various reasons for a home buyer to engage in this practice may be they owe the bank more money than the house is worth, they could no longer afford their monthly mortgage payments, or they simply have found a more affordable or nicer home and can’t sell the home they are vacating.
But how can homeowners get a loan for a new home if they are barely able to make their current payments? In many cases, they tell the underwriters they plan to rent out the first house and seek to use that income to qualify for a new mortgage on their new principal residence. In essence, they are trying to qualify and secure the mortgage on the new home before the severely negative consequences the “pending” foreclosure on the first home will have on their credit rating. According to FHA, the practice of “buy and bail” poses a risk to FHA, FHA-approved lenders, and consequently to FHA’s ability to help new homeowners.
On September 19, 2008, FHA released Mortgagee Letter 2008-25, which addresses underwriting instructions for converting existing owner-occupied homes to rentals. The purpose of these news guidelines is to prevent FHA loans from being used in “buy and bail” situations."
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Where do people learn about all these devious little strategies? All I know how to do is buy a house, make the payment, sell the house, buy another house, make the payments...repeat until hit by taxi while crossing street in downtown Chicago.
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