Buy and bail

[30ashopper]

This just totally had me giggling.. in the end the lenders are the ones that are totally getting scr**ed in all of this -

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.

Homeowners are able to pull off this gambit -- which some lenders and real-estate agents call mortgage fraud -- by taking advantage of mortgage-lending practices that allow them to buy a new primary residence before their existing residence has been sold. And with the lending industry in disarray as it tries to restructure millions of mortgages, some boast they are able to pull off the strategy with ease.

WSJ Link

I love this money quote -

"If you're upside-down $250,000, why would you keep it? It just doesn't make sense."

Um, because you bought it??? When did it become common practice in this crazy country to shirk responsibility for one's own actions?

 

[scooterbug44]

Why wouldn't they just seize that new home as an asset to pay off the old one?

And why are they giving NEW loans to people who are upside down in their current one? Is basic math not even a factor in these decisions anymore?

 

[Bobby J]

The banks are just to blame as the buyer. The litmus test for approval was fogging a mirror and now as it tumbles around them they cry wolf. If they would develop a system to work with the short sales and foreclosures they would not be in half this mess.

Also, the picture the banks paint is not as bad as it really is. For instance, many of these homeowner have paid two or more years of interest only on the loan. They then get the short sale or foreclosure money on top of years of interest payments. In the end many of the deals they are crying about they are actually making money on.

 

[Busta Hustle]

i don't think they would be allowing short sales if they are not making money...seems like they would just foreclose and have a judgement available to them to go after borrowers for their losses.

 

[Bobby J]

i don't think they would be allowing short sales if they are not making money...seems like they would just foreclose and have a judgement available to them to go after borrowers for their losses.

Have you walked into a bank owned property lately? They are a mess. Banks are not set up to be in the selling of Real Estate business. Statistics show that once a property becomes bank owned the values drop considerably with each passing month. Also, judgments drag out forever and people are protected on their primary residence.

 

[Mango]

I can't really see this as having being terribly widespread, but the few that happened, I guess, makes for an article.

Even though one could use a lease, the rents have to make sense, and in markets like FL, CA, the underwriter should have had available market rents for properties, and if not, they should have excepted for evidence in their commitments.

The 1003 loan application lists the date the property was purchased, the remaining balance, PITI. It also will show what the payment is on the credit report, because if you had good credit, most of those Lenders, unlike the subprime Lenders, report on credit. So, it must have taken one really dumb underwriter to not make a phone call to a local realtor for a rental analysis, or ask for an appraisal of the rental property with a rental analysis. They also have access to property valuations for specific areas online. Glad to see that FNMA wised up, and at the same time, will not let the people who have equity in their properties, that they plan to rent but pay, suffer the consequences of the few walkers, in obtaining credit.

 

[Busta Hustle]

sorry Bobby I thought you mentioned in your 1st post that the banks were making money on some short sales and foreclosures...

 

[Miss Critter]

A little devil's advocate here, if you will. I truly believe most "bailers" want to fulfill their financial obligations, just can't afford to do it, and are not getting ANY cooperation from their lenders in trying to restructure their debt. Maybe those who bought new homes and bailed on the old ones are just trying to provide some sort of security for their families before having to surrender their first home to the bank. Please keep in mind that many who bought or refinanced for cash at the peak were encouraged to do so by virtually every "expert" out there. Go back to the news stories from '04 and early '05, and you'll see what I mean. The "shelly's" were definitely in the minority, and let's face it, most of us have at best, a minimal understanding of borrowing and investing. I'm not endorsing the referenced behavior, but desperate times call for desperate measures, and few would argue that these are indeed desperate times.

 

[Matt J]

The only issue I have with the above statement is the fact that no matter what anyone told you there is a simple statement on any mortgage/loan document.

"I have read and understand the above statement and agree by signing below"

Some folks have added the following wording as well:

"Regardless of what I have been told I have read and understand the above statement and agree by signing below"

 

[rancid]

Is the above referenced behavior illegal? If not, why shouldn't someone buy new house and walk on the last one if it makes business sense for them?