Buy and Bail

A NEW TWIST ON WALKING AWAY FROM A MORTGAGE

In the hardest hit housing markets, some borrowers with a mortgage worth much more than their home are buying a second home before walking away from their primary residence - a strategy known as Buy and Bail.

How It Works: Borrowers can qualify for a second loan by proposing to rent out their existing residence to cover the second mortgage payments. Once they are approved for a loan, they walk away from the existing home instead of renting it out.

Consequences: Homeowners with a foreclosure will take a big hit to their credit and won't be able to purchase a home for five years under new Fannie Mae guidelines. Also, lenders might sue for personal assets and for fraud.

Lenders Respond: Fannie Mae says that later this month, it will release tougher loan qualification guidelines designed to ensure that individuals who plan to rent their first home after buying a second home show proof that they can make both payments.

Real Estate Open Networkers