Buy and Bail is new real estate market phenomenon
The Wall Street Journal is reporting this morning of a new real estate phenomenon that is being called “buy and bail”.
In markets hit hardest by falling home prices and rising foreclosures, lenders and brokers are discovering a new phenomenon: the “buy and bail,” in which borrowers with good credit buy a new home — often at a much lower price — then bail out of the “upside down” mortgage on their first home.
This is dangerous territory which has some lenders and real estate agents calling it mortgage fraud. With the mortgage industry being turned upside down by all it’s current problems, buyers are finding this approach easy to pull off in a lot of cases.
The downside to all of this is that the homeowner who foreclosues on their previous home will have a big bite taken out of their credit and won’t be able to buy another home for five years under the new Fannie Mae guidelines.
It seems quite likely that all the institutions will begin to crack down on this practice and put in some strict regulations and I expect also a better effort to monitor this activity much closer.