Some homeowners tempted to buy a more affordable house in a declining market are committing fraud to ditch the high dollar value mortgages they no longer want. The practice called "buy and bail" has more and more homeowners who could afford their mortgage payments but didn't want to stay in a house where the value has dropped and continues to drop to below what is owed on the property, to take out a new mortgage on another property and ditch the one they currently own.

FannieMae is catching on and this month has put in place new guidelines that could work to stop the practice of the "buy and bail". FreddieMac and FHA are not far behind in enforcing new guidelines as well. Under the new Fannie Mae guidelines, in most cases, a borrower now must have at least 30 percent equity in their house to buy another. Otherwise, they cannot use the rent they say they will get to prove they can support two homes. The logic is that no one would want to walk away from a house in which they had a large amount of equity. Also, the rental income the borrower claims now must be fully documented.

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0816.pdf

What this practice entails is leading the new lender on a new property to believe that the property that they currently own is going to be rented out so they can show that they can afford both mortgages, and they continue to make the payments. If they simply walked away the hit on their credit from foreclosure would prevent them from buying again for over 5 years, so in order to "take advantage" of the current downturn in the market, they wait to close on the new house purchase, and then they stop making payments on the first house, letting it go into foreclosure. This practice is adding to the fraud that is already out of control.

The FBI defines mortgage fraud as "any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan."

Mortgage fraud happens when a borrower withholds information, such as a deliberate intent to stop making payments to another creditor, or falsifies information, either of which would cause the new lender to reject the loan if the lender knew about it. If you lie on your real estate loan application, it's mortgage fraud. If the lender subsequently discovers any part of your loan application is false, not only can it demand immediate full payment of your loan, but you could pay six-figure fines, and find the FBI ringing your doorbell and/or go to jail.

__________________
Moe Bedard
Founder & President

Loan Safe Solutions - Forensic Loan Document Reviews & Loan Modification Processing
(951) 531-0148 ext. 267 Telephone
(800) 801-7979 Fax

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