Buy and Bail: The Latest Real Estate/Mortgage Scam
Heard of "buy and bail"? No? You will now. First a re-cap.
Mortgages foreclosures increase, as individual's credit scores drop and banks continue to reduce lending. But the games continue. We've been talking about all this. If you remember one of the games going on now is people just stop paying their mortgages. They stop paying because the value of their homes has sunk so low, it'll never recover enough to be equal to or greater than the value of the mortgage. So people figure there's no point in paying the mortgage anymore.
Then they stay in their home for as long as they can. Banks take time to get up the gumption to throw them out by foreclosing on the mortgage. They just let the mortgage stay in the "delinquency" state (when you don't pay your mortgage, that means you're "delinquent"). This could last for months. Meanwhile these folks live free in their homes.
And if they don't want to go it alone, there are law firms that you can engage who'll drag things out even more for a cut of the action.
If you think there's something wrong with this picture, then check this out. People are now planning to be delinquent - but only after they buy a new house. Yep, they figure they can get a house that's fallen in value, slap a new low-interest rate mortgage on it (30 yr. mortgages now go for under 4.5% - the lowest rate since the 1950's) and then - and only then - they stop paying on their current mortgage. They go delinquent after the new house is bought and the mortgage deal is done.
They know that once they're delinquent, their credit rating will suffer and they won't qualify for the low 30-yr. rates with a bad credit rating. Of course, once they do stop paying that first mortgage, their credit rating will take a hit - a big hit. But by then, they've got the cheap mortgage in hand - and there's nothing anyone can do about it.
How is this possible?!!
Well, it turns out mortgage brokers have a term for this: "buy and bail." And in some cases, people tell the brokers what they're planning, figuring the brokers will help them get the new mortgage fast, before they go delinquent.
Only one problem: if they lie on their application for the new mortgage in any way, they'll be committing fraud. And if the broker was aware of what they were planning to do, then the broker should wind up in hot water too.
Then again, haven't we seen "liar loans" before? That's what they called all those mortgage applications that brokers accepted where people just made up their incomes and any other financial information that allowed them to get the mortgage they wanted. And it's those liar loans that were one of the main reasons for the sub-prime mortgage crisis, and subsequent housing collapse.
Come to think of it, do you remember a lot of mortgage brokers being carted off to jail because of those liar loans? I don't. So who knows if brokers taking part in this latest scam will pay a price.
I also don't remember any of the folks who filled out the liar loans applications being carted off to jail or even paying any fines or anything. Do you? So maybe the "buy and bail" folks of today will get away with this. Ya think?
Isn't it sad that this sort of stuff goes on? But even sadder that so many people get away with it.
Now you're probably thinking that there's just got to be a way that this sort of stuff can be prevented, especially after what we've all just gone through with the sub-prime crisis and subsequent disastrous general financial crisis. And you'd be right.
What about all that financial regulatory reform we've been reading about? Well, I'd say we've got a good case here to test just how "reforming" that reform will turn out to be.
I mean, what will people claim who go through with this scam? Will they say that they really didn't intend to stop paying their old mortgages - really - until after they started paying the new one? Will anyone buy that argument? In fact, will banks who are looking at these new mortgage requests - who could easily find out that the applicants own an underwater mortgage - question these people before they grant a new mortgage?
Or let's say the current mortgage isn't underwater. Let's say the mortgage is just at a higher rate and that the house is barely more than the mortgage. Shouldn't the bank looking at the new application still be questioning these folks?
I'm hoping that this latest attempted scam is just too outrageous to succeed. But I'm not betting good money that it won't.
Mortgages foreclosures increase, as individual's credit scores drop and banks continue to reduce lending. But the games continue. We've been talking about all this. If you remember one of the games going on now is people just stop paying their mortgages. They stop paying because the value of their homes has sunk so low, it'll never recover enough to be equal to or greater than the value of the mortgage. So people figure there's no point in paying the mortgage anymore.
Then they stay in their home for as long as they can. Banks take time to get up the gumption to throw them out by foreclosing on the mortgage. They just let the mortgage stay in the "delinquency" state (when you don't pay your mortgage, that means you're "delinquent"). This could last for months. Meanwhile these folks live free in their homes.
And if they don't want to go it alone, there are law firms that you can engage who'll drag things out even more for a cut of the action.
If you think there's something wrong with this picture, then check this out. People are now planning to be delinquent - but only after they buy a new house. Yep, they figure they can get a house that's fallen in value, slap a new low-interest rate mortgage on it (30 yr. mortgages now go for under 4.5% - the lowest rate since the 1950's) and then - and only then - they stop paying on their current mortgage. They go delinquent after the new house is bought and the mortgage deal is done.
They know that once they're delinquent, their credit rating will suffer and they won't qualify for the low 30-yr. rates with a bad credit rating. Of course, once they do stop paying that first mortgage, their credit rating will take a hit - a big hit. But by then, they've got the cheap mortgage in hand - and there's nothing anyone can do about it.
How is this possible?!!
Well, it turns out mortgage brokers have a term for this: "buy and bail." And in some cases, people tell the brokers what they're planning, figuring the brokers will help them get the new mortgage fast, before they go delinquent.
Only one problem: if they lie on their application for the new mortgage in any way, they'll be committing fraud. And if the broker was aware of what they were planning to do, then the broker should wind up in hot water too.
Then again, haven't we seen "liar loans" before? That's what they called all those mortgage applications that brokers accepted where people just made up their incomes and any other financial information that allowed them to get the mortgage they wanted. And it's those liar loans that were one of the main reasons for the sub-prime mortgage crisis, and subsequent housing collapse.
Come to think of it, do you remember a lot of mortgage brokers being carted off to jail because of those liar loans? I don't. So who knows if brokers taking part in this latest scam will pay a price.
I also don't remember any of the folks who filled out the liar loans applications being carted off to jail or even paying any fines or anything. Do you? So maybe the "buy and bail" folks of today will get away with this. Ya think?
Isn't it sad that this sort of stuff goes on? But even sadder that so many people get away with it.
Now you're probably thinking that there's just got to be a way that this sort of stuff can be prevented, especially after what we've all just gone through with the sub-prime crisis and subsequent disastrous general financial crisis. And you'd be right.
What about all that financial regulatory reform we've been reading about? Well, I'd say we've got a good case here to test just how "reforming" that reform will turn out to be.
I mean, what will people claim who go through with this scam? Will they say that they really didn't intend to stop paying their old mortgages - really - until after they started paying the new one? Will anyone buy that argument? In fact, will banks who are looking at these new mortgage requests - who could easily find out that the applicants own an underwater mortgage - question these people before they grant a new mortgage?
Or let's say the current mortgage isn't underwater. Let's say the mortgage is just at a higher rate and that the house is barely more than the mortgage. Shouldn't the bank looking at the new application still be questioning these folks?
I'm hoping that this latest attempted scam is just too outrageous to succeed. But I'm not betting good money that it won't.
Comments