Fannie Moves to Curb 'Buy-and-Bail' Schemes

Fannie Mae has tightened its underwriting guidelines to prevent homeowners who are preparing to default on their mortgage from purchasing a more affordable home with Fannie-guaranteed financing. To prevent these "buy-and-bail" schemes, Fannie is requiring the borrowers who are proposing to rent their home to show they have 30% equity in the property, a copy of the lease agreement, and a receipt for the security deposit. Usually buy-and-bail transactions involve borrowers with upside-down mortgages. If they don't have 30% equity, the borrowers must show that they have the resources to service both mortgages and reserves to cover six months of mortgage payments (including insurance and taxes) for both properties. These requirements go into effect Aug. 1. The June 25 seller guide announcement also requires lenders that sell loans seasoned six to 12 months to provide warranties that the original value of the property has not declined. Fannie also updated it policies on how long it takes borrowers involved in bankruptcies and foreclosures to quality for a new mortgage. Fannie Mae can be found online at http://www.fanniemae.com.