Buy and Bail Schemes

The buy and bail works like this, you secure a new loan for purchasing a new home. You show that you have tenants for your current home and 75% of your current mortgage on the home you are moving from are covered. You close on the new home, then let the old home go into forclosure before your credit gets trashed from the forclosure.

The reason behind doing this is obvious, homeowners are seeing the value of a home they just purchased drop as much $100, to $200 thousand dollars, they have mortgages adjusting to higher payments they cant afford, and this looks like a golden parachute. Some people are even able to move down the street into the same floorplan they've just jumped out of.

What happens afterwords, is that the value of the neighborhoods this takes place in is going to continue dropping, because the bank now has another forclosed property they need to unload. Personally I dont' agree with it, I totally understand how it can be rationalized, and even see how for the individual it may the only option available, other than being homeless.

Fortunately the lending industry, (about a year late), has seen that they need to add some oversight and regulation that will stop or at least slow this practice. One of the excellent lenders I work with, Aaron Gordon, of Countrywide Home Loans, recently sent me a list of fast facts that I would like to include here:

BUY AND BAIL GUIDELINE FAST FACTS

FANNIE MAE- CONVENTIONAL LOANS INSURED BY FANNIE MAE If the buyer is converting his current primary residence to a rental and he DOES NOT have at least 30% equity as determined by an Automated Valuation Model (AVM) like Zillow.com and others.
has to qualify for both residences with no rental income counted
has to have 6 months reserves for both properties If he has more than 30% equity.
Has to have a rental agreement
Can count up to 75% of the rent to qualify
No additional reserves required FHA LOANS - GOVERNMENT LOANS INSURED BY FHA If the buyer is converting his current primary residence to a rental and he is DOES NOT have at least 25% equity as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property.
has to qualify for both residences with no rental income counted If he has positive equity but less than 25% equity.
has to qualify for both residences with no rental income counted If the buyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance he can proceed on the new purchase with the following:
Has to have a rental agreement with at least one year duration
Can count up to 75% of the rent to qualify
No additional reserves required
evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner may be requested The bottom line is if your buyer is moving today, and he doesn't have at least 25% equity in the home he is moving from, and he is not being transferred for work to a new city, he will want to plan on qualifying for both mortgages.

If you have any questions regarding buy and bail guidelines, please don't hesitate to contact Aaron, he's an excellent lend and is very knowledgable about current market

,Aaron GordonHome Loan Consultant /

Sales ManagerCountrywide Bank, FSB

Cell: (702) 283-2333

I am glad to see that the lending institution is finally doing something to slow these practices down, I only hope they finally realize they need to have a more customer friendly approach to their current mortgage holders. It seems like the loss mitigation departments consider everyone to be dishonest in their need to have skyrocketing mortgage payments re-worked into something affordable.