![Home owners are leaving existing homes for more affordable housing called "buy and bail"](http://www.examiner.com/sites/default/files/styles/large_lightbox/hash/1e/59/1e5962558972d30e0d1b6a62100414ca.jpg "Home owners are leaving existing homes for more affordable housing called "buy and bail"")
Industry insiders call it buy and bail. Home owners faced with rising rates or simply declining values will purchase a new home at lower market prices and lower fixed rates and simply leave the other property to be foreclosed upon. Many call into questions the ethics of such a decision while others defend it as a solid business move saying it is neither immoral nor unethical.
Brent T. White, a University of Arizona law school professor, recently published "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis" wherein he more encouraged the practice of walking away from a mortgage rather than only being a defender thereof. Calling upon readers to place distance between the ethical boundaries normally associated with such a decision and the cold hard reality of protecting one's family.
Industry changes
Prior to the Federal Housing Administration releasing a new policy on conversion of existing homes to rental properties it was much easier for a home buyer to acquire a new property and walk away from their previous home and any loans for which it was a security. With FHA Mortgagee Letter 2008-25 the Administration set forth the rules which include equity requirement in the existing home as well as length of ownership.
Hardest hit areas such as southern Florida, Nevada and California, were first to see the tactic in volume creating a need for the large buyers and servicers of mortgages to investigate mortgage origination practices. In states where it is permissible under the law home owners are being pursued with more diligence in an effort to recover losses to the note holders resulting from foreclosure and the subsequent sale.
Affects all future home buyers
Home owners who do choose to walk away from their existing home and allow the lender to foreclose will not quickly be able to establish new housing credit. Guidelines from most lenders and the Government Sponsored Enterprises (GSEs), like Fannie Mae and Freddie Mac, generally require four years to pass before the home owner's application for new credit can be considered.
Exact numbers of homes abandoned to foreclosure using this method are so far unknown and may not be known until recovery of the housing industry is complete. In the interim lenders and bankers are doing more to ensure they are not leaving their industry partners holding the bag on existing loans when extending credit to borrowers who may be presenting red flags.
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