WC Varones

Don't lend your hand to raise no flag atop no ship of fools

Fannie Mae and Freddie Mac facilitate "buy and bail" for the rich

Back in the early days of the housing crash, there was a prudent strategy called "buy and bail." If you had paid $500,000 for a house now worth $300,000, you could buy another house for $300,000 and then walk away from your $500,000 mortgage. Well, Fannie and Freddie put a stop to that... for the poor at least:
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!

2 comments:

FrackWit said...

Remember this is Fannie and Freddie we're talking about. You know, the biggest welfare queen and king of the nation, both of which recently bellied up their fat @$$&$ to the taxpayer trough again for almost $2M a piece in additional bailout bucks.

FrackWit said...

Sorry - meant to say $2B a piece, not $2M.

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