Aaron is correct below; I'll had specifics from a lending perspective.
The practice you describe is known as "Buy & Bail"... a term which now joins other nefarious schemes such as NINJA loans (No Income No Job or Assets), Liar Loans, Equity Stripping, and Jingle Mail (when a home owner mails the keys to the lender and abandons the property).
Fannie Mae has addressed this issue with specific guideline requirements put into practice earlier this summer.
Any home owner wishing to convert a primary residence to a second home or investment property must show 6 months of reserve payments for mortgage principal, interest, property taxes, and home owner's insurance for BOTH the current home and the new home.
If a home owner wishes to convert a primary residence to a renatl and wishes to use the prospective rental income towards qualifying income, he/she must provide an executed lease, copies on cancelled checks from the tenant for security & 1st months' rent, and prove 30% or more equity in the current home via appraisal or BPO. If the equity isn't there, the rental income doesn't count.
In either case, the home owner must qualify for BOTH mortgages.
This rule change combined with Fannie & Freddie limiting borrowers to just 4 properties financed (as before 2003 or so) will make investment property difficult and very expensive.