Buy and Bail?

I suppose we could call this an update on the mortgage crisis stories I've been profiling, but in fact I think this one is more of a spin-off (a new story line derived from older episodes). Which is not to say that it isn't the result of a financial services industry apparently run by people who should never be trusted with any business unit more complicated than a lemonade stand, but the outrage here is coming from the general public, or at least that part of it that are so crooked they have to screw on their hat. The amazing part is that no one saw this one coming...

A story being reported this week on the ABC News Online site introduces the concept of "Buy and Bail" -- people who are escaping from their absurd housing market boom mortgages (both ARMs and also sky-high payments from fixed-rate loans they should never have taken out) by purchasing a second house at rock-bottom prices, and then simply defaulting on their original home loan. Their first bank can foreclose on the loan and seize their first house (and a lot of them do), but not the second one, since it's part of a different loan transaction, often with a different lender. Of course, the foreclosure won't do the first bank much good unless they can sell the property to someone else, and even then it won't repay the defaulted loan if the house is currently worth less than the mortgage taken out on it a few years ago...

Of course, the first bank can sue the absconding homeowner, claiming the original mortgage was taken in bad faith, but that can take years, will frequently cost them more than the amount they are trying to recover on the defaulted loan, and may not be successful. It's hard to prove intent in these cases, and if your contractual agreement was "pay this amount or we take away your house" it's difficult to get the court to change it to "pay this amount or we take away your house, and you also have to give us the difference between what we can get for it and the original loan amount." Most people will just figure that if that was the contract you wanted, you should have asked for it in the first place...

Of course, that's what's starting to happen. One of the consequences of the mortgage crisis is that home loans are no longer as easy to get as they used to be, and one of the reasons why not is that lenders are trying to block the "Buy and Bail" tactic. Another is that they're trying to screen out anybody who they think might try such a thing in the first place. And still another is that they're trying to screen out anybody who they think IS trying to do such a thing right now (e.g. if they think you're trying to make THEM the second bank in a "Buy and Bail" scheme)! Which may be a little like closing the barn door after the horses escape, but is still better than nothing...

Now I know some of you are thinking, "these greedy bastards brought the whole mortgage crisis down on themselves in the first place; it's great that someone is finally using their own greed to pay them back!" And in some ways that might be true, but don't forget who is paying the money to bail out all of these stricken mortgage lenders. That's right: you are. Your tax dollars will be used to keep billion-dollar companies from suffering the consequences of being too stupid, greedy and incompetent to avoid losing all of their money in the first place, and protect all of their investors from suffering the consequences of being too heavily invested in an industry with questionable business ethics. None of which is going to be any less expensive just because a few people managed to work themselves out of trouble by screwing the bank back in return...