Have you heard of “buy and bail”? It’s the latest real estate scam. This published on Bloomberg last week. (http://www.bloomberg.com/news/2010-08-10/-buy-and-bail-homeowners-get-past-mortgage-hurdles-from-fannie-freddie.html):
Harvey Collier, a mortgage broker in Fort Lauderdale, Florida, says he gets as many as 10 calls a month from people planning to default on their loans. The twist: They first want financing to buy another home.
Real estate professionals call it “buy and bail,” acquiring a new house before the buyer’s credit rating is ruined by walking away from the old one because it’s “underwater,” or worth less than the mortgage. It’s an attempt to escape payments on a home whose value may never recover while securing a new property, often at a lower price with a more affordable loan.
The practice, which constitutes fraud if borrowers lie on loan applications, is continuing even after Fannie Mae and Freddie Mac, the biggest U.S. mortgage-finance companies, beefed up standards to prevent it, according to brokers such as Collier and Meg Burns, senior associate director for congressional affairs and communications at the Federal Housing Finance Agency. Whether driven by greed or desperation, the persistency of buy and bail underscores the lingering impact of the worst housing crash since the Great Depression.
“People were holding on, hoping the market would turn around,” Collier, who won’t work with applicants who intend to go into foreclosure, said in a telephone interview. “But now they’re giving up because there’s no light at the end of the tunnel in places like Florida.”
Karl Denninger in his blog, pointed out that although the real estate industry is talking a good game, they’re not necessarily walking the walk.
The Mortgage Bankers Association in Washington issued this statement regarding “buy and bail” through their chief economist, Jay Brinkmann, “Making it possible to pursue people who do this particular kind of default would go a long way to addressing the buy-and-bail problem.”
Yet, it appears that the MBA did something similar in 2008. This from The Wall Street Journal:
On Friday, CoStar Group Inc., a provider of commercial real estate data, said it had agreed to buy the MBA’s 10-story headquarters building in Washington, D.C., for $41.3 million. That is well below the $79 million the trade group agreed to pay for the glass-walled building in 2007, near the top of the property bubble, while it was still under construction. The price also falls short of the $75 million of financing that the MBA got from a group of banks led by PNC Financial Services Group Inc. for the purchase.
John Courson, chief executive officer of the trade group, declined in an interview Saturday to say whether the MBA would pay off the full loan amount. “We’re not going to discuss the financing,” he said.
Guess where these homeowners practicing buy and bail might have learned the strategy?
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