“Buy and Bail”:

This is an interesting new twist on the housing situation that I hadn’t heard of–but which makes perfect sense.  It is the “buy and bail”: you decide you want to walk away from your old underwater home and buy a new home using the extremely low mortgage rates we have today and greatly depreciated home prices.  The problem is that if you bail first, then your credit score takes a hit and you have trouble getting the new mortgage.  So instead you buy the new home first and then you bail on the old one and take the credit score hit.

Apparently this strategy works best for those with excellent credit scores and high income who can qualify for two mortgages.  Some earlier research had found that those with high credit scores were most likely to strategically default (i.e., default when they had sufficient income to pay).  It is difficult to know how many of those were “buy and bail” but this story might provide some explanation for what is going on.

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