My thinking;
Why is it not ethical to buy and bail, but if you contact your lender and they tell you that you have to be late on your payment in order for them to consider modification, etc. Also one of customer service reps told me to wait 2 months and then be late, why I don’t know, but I’m certain something is happening in 2 month or 3 months. So you’ve got the case like mine, we love our house we can’t afford it because I am on permanent disability, hopefully not permanent but atleast another 3 years, I was a Loan Officer for 25 years, I lost my clientelle, my business that I had worked so hard to get through the years because of my condition and I average 100,000 + a year, and I’m not making 24,000 a year on disability. In most scenarios with our issues they would not be able to afford it; my husband and I are struggling to make the payment, but we take pride in our credit. So in the mean time, the people that dont live within their means are getting the benefits of loan modification, lowering their principle, payment and interest rate…does this make any since, we are being penalized for living within our means and will have to wait for the market to turn and most like a couple years more than the homeowners that were late on their payment; they will be receiving their equity and be able to sell way before the rest of us…I’m very upset about this whole situation. My husband and I want to purchase a home that will take our payments down to 1500, we can’t work with the bank unless we are late..ridiculous! I am moving forth with purchasing another home, but our INTENT, is to rent it out to my brother and friend, which my brother just lost his home and is going through a divorce. My problem with this is we won’t be able to make the payments if they were to move out and we couldn’t find another renter. Yes on paper we qualify for 2 homes which fnma requires. We have never been this tight on bills, because we give up entertainment to make sure we make ends meet. I am very frustrated but to me this isn’t fraud and we are renting it out to my brother and friend. Honestly though we won’t be able to make that payment if we don’t have a renter. I’m just so stressed with our situation and want to make sure we abide the law even though very unfair to my husband and I and others who live beneath their means. This situation has caused a lot of friction between my husband and I because of the whole situation.
I know that I wouldn’t have any problems if the FBI came and investigated, but I would think he wouldn’t have an interest in our situation, plus I am renting the house out, but we have already discussed it and if my brother does move out we will let the house go. We have lost alot of money on our 401k and stocks, which I know the majority have, this is added stress that we don’t deserve as homeowners.
It would be great if I could hear from someone else in the same situation or someone to guide us. We are in California and the lender can not come after us for the difference if we were to let the property go, but this law is only in effect till 2011 and if my brother leaves after that we are doomed.
Alot of stress leaving our home even though we would be moving into another home that we could afford.
Thanks for your time,

I am somebody that has a mortgage and nice house and wants to buy a cheaper house now... I am looking for a new house with a lot where we can build, vs the current house which was turnkey when we bought. Our existing mortgage is 640K, and the new house purchase price is going to be less, so I could look like one of these "buy and bail" scenarios, so my lender went over this with me.

At this point I am pretty fed up with this hysteria though. The buy and bail article mentions somebody in sacramento who was underwater 200K. In my case, my house is worth 900K, if I bought and bailed, I would lose 270K equity. In fact the median price of homes in the bay area has held remarkably through this downturn so to jump to these conclusions for somebody buying in SAN JOSE is really a stretch. Furthermore, doing something like this would destroy your credit!

All kinds of stuff is going on in Sacramento which everyone could see was a freight train crash in slow motion up there. But what does that have to do with San Jose, nothing. If the Real estate industry wants to get over this crisis they are going to need some common sense.

Here was my lenders email forwarded that the bank sent to all the loan officers:
==============================
When confronted with this scenario, underwriters should apply good judgment and ascribe the following as loose guidelines (i.e.; not solid “rules”):

*Borrowers should have a minimum of 20% equity in their existing property,

*zero mortgage lates

*demonstrate a capacity to repay and have been meeting current obligations

*they should be putting at least 20% down on the new purchase....

EXTREME caution is urged if confirmed the current residence was recently for sale. (Google the street address. You’ll be surprised by what you may find!)
No leaps of faith on those deals.

Yes, as peninsula renter said, it makes perfect sense. There are plenty of people in Brentwood, Sac, Modesto, etc. etc. who seemingly could do this and it would be a very good financial move. Heck, I would probably do it had I bought an overpriced property in a bad area. I don't have any sympathy for banks.

They do it because they might owe $500k on their current house, for example, and they can buy an equivalent home today for say maybe $400k. If you had 2 identical homes, in the same neighborhood, and you could have a mortgage... which would you choose to owe? $400k or $500k? There may be some transaction cost to doing this, but if it's less than $100k the person comes out ahead, right?

I honestly don't know all the implications, but in a simplistic way, I think this is their thinking.

I don't understand why people would want to sink their money into a second house if they were already burned by a first home purchase. Unless they can get substantial financial gain out of it, I don't see a point in doing this at all.