Q-In recent weeks you ran several letters from home loan borrowers who were unhappy with the mortgage lenders who locked in low interest rates, but for one reason or another failed to close their loans within 45 or 60 days. As vice president for loans with a major S&L, I sympathize with them, but I think you should know what Paul Harvey calls ”The Rest of the Story.”
In the first three months of 1992, virtually all home loan lenders enjoyed tremendous home loan volume (and profits). As a result, we locked in loan commitments we couldn`t honor, due to lack of loan processing staff and an acute shortage of appraisers. Although it took our S&L more than 60 days to close loans, I am proud to say we honored all of our interest rate lock-ins and did not use dirty tricks such as low-ball appraisals, loan disapprovals, or interest increases.
Our biggest problem is the tremendous burden of loan qualification placed on us by secondary mortgage market buyers, especially Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corp.), who have created unreasonable requirements that we must meet if we are to sell home loans to them. Also, federal regulators are breathing down our necks if we don`t sell all our fixed-rate mortgages, because they think it is too risky to hold fixed-rate home loans. As a result, banks, S&Ls and mortgage brokers are caught in the middle.
We hesitate to hire new staff because we aren`t sure how long the current boom in home loan refinancings will continue. I hope this helps explain the problem. By the way, your comment, ”The home loan servicing industry is the most corrupt,” is right on target. Although we don`t participate, someday I will explain to you all the dirty tricks home loan servicers use to extract billions (with a B) from unsuspecting home loan borrowers.
A-Thank you for telling us ”the rest of the story.” In recent weeks the mailbag has been filled with horror stories about banks, S&Ls and especially mortgage brokers who locked in interest rates for borrowers, only to stall until the 45- or 60-day commitment expired. As your S&L did, if the lender couldn`t close the loan by the deadline, the least that should be done is honor the interest rate commitment anyway.
As for your comments about the loan servicing industry, I would like to know if there is a more corrupt business. The late payment scam, where lenders don`t process payments received a few days before the deadline, so they can impose late charges, results in billions of extra dollars for loan servicers. Worse yet, escrow impound account overcharges result in millions of cost-free dollars for lenders to use. If I weren`t so honest, I would go into the loan servicing business.
Home office and IRS
Q-A friend told me he deducted part of his home office expenses on his 1991 income tax returns. It saved him $62 in income tax. But when his new accountant heard about this deduction, he said my friend had lost his one-time ”over 55 rule” $125,000 exemption for using the home office deduction. I am very alarmed about this, but have never seen it mentioned in your excellent column. Why?
A-The reason why you haven`t seen that information in my column is because it isn`t true. IRS Revenue Ruling 82-26 says only if home office business tax deductions are claimed within two years before the principal residence sale will the ”over 55 rule” $125,000 exemption be denied for the business portion of the home.
To avoid this problem, don`t deduct home business use expenses within two years before using the $125,000 tax-free exemption. It sounds like your friend needs to find a more competent tax adviser.
Swapping business for home
Q-If I exchange my small business valued at $125,000 for the down payment on a house valued at $250,000 and no money changes hands, will I owe any tax on my sale profit from the business? I would make the home my primary residence.
A-Sorry, personal and real property don`t mix in an Internal Revenue Code 1031 tax-deferred exchange. Only real estate held for investment or use in a trade or business qualifies. Since your business is personal property and the home you would acquire will be your personal residence, neither property is eligible for an IRC 1031 tax-deferred exchange. For further details, please consult your tax adviser.
Assuming VA loans
Q-Recently you wrote: ”Many older VA and FHA home loans can be assumed for just a $45 transfer fee.” Please explain where I can find homes with these assumable mortgages?
A-VA mortgages originated before March 1, 1988, can be assumed or taken
”subject to,” without the new buyer qualifying for the mortgage. The new owner need not be a veteran.
FHA mortgages originated before Dec. 1, 1986, can be assumed without qualification. But FHA loans originated between that date and early 1990 require lender assumption approval unless the loan is more than two years old. Newer FHA loans originated after early 1990 require lender approval for assumptions. For further details, please consult your nearest VA or FHA district offices.
Low appraisal
Q-We bought our home in 1987 for $115,000. When we refinanced in 1989, it was appraised for $129,000. Now we are refinancing to replace our 30-year mortgage with a 15-year loan and we were shocked at the new appraisal of only $109,000. How could our home have dropped $20,000 in value in just two years? The house and neighborhood have remained the same. Does the poor economy cause such a fluctuation?
A-Possibly. Appraisal is an art, not a science. The recent appraisal of your home could be wrong. It is usually based on recent sales prices of similar nearby homes. Perhaps your appraiser was using homes that were not comparable to yours. Or, maybe the lender instructed the appraiser to low-ball your appraisal and come up with a very low value because the lender doesn`t want to make your loan.
That recently happened on me on a house I am selling to my tenants. The appraisal came in at $260,000 even though their purchase price is $285,000 and comparable nearby homes have sold for up to $299,000. When I showed the lender the comparable sales prices, the appraiser agreed to correct the appraisal. Appraisers are often wrong.
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The new special report ”Best Strategies for Profiting from the Current Foreclosure Epidemic,” by Robert J. Bruss, is available for $4 from Tribune Publishing Co., 75 E. Amelia St., Orlando, Fla. 32801.
Please note: Robert Bruss will answer inquiries addressed to Tribune Real Estate Features Service, P.O. Box 280038, San Francisco, Calif. 94128.
