FHA Seeks to Stop Buy-&-Bail Schemes!

It has evolved and been recognized that the Federal Housing Administration officials need to formulate a policy to prevent homeowners who are preparing to default on their current mortgage from buying a new home with FHA financing.  After the raise in loan limit to $729,000 the FHA loan product has become one of the most popular financing available to a majority of home buyers.  FHA wants financing to be available, but they don’t want it to be abused said  FHA Director Meg Burns. 

Fannie Mae is expected to issue guidelines soon that are designed to prevent such “buy-and-bail” schemes in which the borrower allows the first property to go into foreclosure.  FHA plans to announce a series of new requirements for borrowers who are buying a new primary residence and intend to convert their existing home into an investment property or second home.  These guidelines will make it more difficult for those borrowers who plan to buy a new home and bail on their existing home.  The FHA wants it’s policy to be consistent with those of the government sponsored enterprises without being too stringent.  Borrowers that are planning to walk away from the first property generally provide a bogus lease agreement showing the rental income will cover the old mortgage.  Fannie’s guidance is expected to require borrowers to show that they have the resources to support both properties.  Freddie Mac is also considering changes to its lending policies to deal with the issue.

~ by juliakorpi on June 23, 2008.