Freddie Mac and larger rival Fannie Mae cracked down on buy and bail in 2008 by banning in most cases the use of rental income from an existing home to qualify for a new mortgage unless the first property has at least 30 percent equity.
In addition to the rental restrictions, the mortgage giants now usually require reserves equal to six months of loan payments for both homes. The measures have been sufficient to block most applicants who attempt to buy and bail, said Pete Bakel, a spokesman for Washington-based Fannie Mae.
So if you don't have cash reserves and enough income to qualify for a second house, you're out of luck. But if you do have plenty of cash and income, Fannie and Freddie will be happy to give you a new 4.5% loan to facilitate your buy-and-bail.
The rich, of course, see this opportunity and are taking advantage of it:
Most likely to walk away are borrowers with the best credit scores and so-called jumbo loans that exceed the caps set for mortgages bought by Fannie Mae and Freddie Mac, which range from $417,000 in most locations to $729,750 in high-cost areas, according to the Morgan Stanley report. People who choose to default typically have lost $100,000 or more in property value, said Brent White, a law professor at the University of Arizona in Tucson.
Your government-run housing finance industry doing the People's Work!