FHA Seeks to Deter Buy-&-Bail Schemes
Federal Housing Administration officials will be meeting this week to formulate a policy to prevent homeowners who are preparing to default on their mortgage from purchasing a new home with FHA financing. "We want FHA financing to be available, but we don't want to it to be abused," FHA Director Meg Burns told a Mortgage Bankers Association conference. 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. "We plan to announce a series of new requirements for borrowers who are purchasing a new primary residence and intend to convert their existing home into an investment property or second home," said Fannie spokeswoman Amy Bonitatibus.
FHA's adjusted 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 its policy to be consistent with those of the government-sponsored enterprises, but doesn't want to be too stringent. Borrowers that are planning to walk away from the first property generally provide a bogus lease agreement and show that 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.
Comments(0)