Q-We bought our home about five years ago with a 95 percent mortgage at 10.5 percent interest. When interest rates came down we tried to refinance but couldn’t because we have insufficient equity since the house is now worth less than the mortgage. We apparently paid too much for the house.
When we asked our lender, a S&L, to reduce our interest rate to 8.5 percent, we were told the lender can’t do that. Since my airline salary was cut by 15 percent and my wife lost her job, we are having a tough time making our mortgage payments. We have no intention of walking away from our mortgage obligation, but what can we do to get our stupid mortgage lender to reduce our interest rate?
A-Unfortunately, some mortgage lenders are not very smart. Most mortgage lenders won’t reduce the interest rate or make other reasonable adjustments for borrowers who are current on their payments. However, if you were in default, your lender would be eager to prevent a foreclosure in a no-equity situation like yours where the lender will lose thousands of dollars by foreclosing.
If you stop making monthly payments, your lender will most likely (1) ruin your credit by reporting your default to the credit bureaus and (2) try to make some reasonable accommodation to prevent foreclosure, such as reducing the interest rate to reduce your monthly payment.
Complicating your situation is your 95 percent mortgage which probably has private mortgage insurance or PMI. The lender must consult the PMI company before making any adjustments on the mortgage. Another problem might be your mortgage may have been sold in the secondary mortgage market. If so, the S&L is only servicing the mortgage and may not have even asked the mortgage owner for an interest rate adjustment.
Since you have everything to gain and nothing to lose by persisting, I suggest you write to the S&L president explaining why you need the interest rate reduction. Be sure to ask who now owns your mortgage. If it isn’t the S&L, don’t hesitate to directly contact the owner, such as Fannie Mae or Freddie Mac, if the S&L continues to stonewall you.
Q-My husband has been working in Singapore for the last five months. His employer recently offered him a permanent job there. We were very fortunate and found a buyer for our home within a month. The sale should close in about six weeks.
Since we both hold title to our home, is there any easy way to close the sale without having to either send the papers back and forth or have him fly back here for the closing?
A-Yes. A power of attorney form can solve your problem. Ask the attorney or title insurance company handling your closing to give you a power of attorney form. Your husband can sign it in Singapore at the U.S. Embassy where his signature will be notarized. When you receive that signed document, it will give you the authority as his attorney-in-fact to sign the necessary papers to transfer title to your home.
Q-Our home hasn’t sold in the six months it’s been listed for sale. We’re considering renting it instead of selling now. What are the tax considerations of renting instead of selling?
A-The rental income received must be reported on Schedule E of your income tax returns. This is where you also deduct applicable expenses such as mortgage interest, property taxes, insurance and maintenance.
In addition, you will get a non-cash depreciation deduction for estimated wear, tear and obsolescence, also claimed on Schedule E. The result should be a tax loss which can offset up to $25,000 of annual taxable income from your other income sources, such as job salary, interest and dividends. Please consult your tax advisor for full details.
Q-Last summer, we were very fortunate to sell our home for virtually all-cash (except we had to pay our mortgage balance of about $15,000). We have contracted to buy a replacement home with the closing scheduled for the second week of January 1995.
Our debate is whether we should take the cash from our home sale and invest it all in our new home. We will then need a mortgage of only about $50,000. Other alternatives involve paying 10, 20 or 25 percent down payments.
Our banker advises us to pay 25 percent down and get a 75 percent “easy qualify” mortgage. My husband owns his business and could use the leftover cash to expand it. But I would feel more comfortable with a small mortgage.
A-I get very nervous when I hear about people having big equities in expensive homes. A better alternative is to share the risk with a mortgage lender.
That is why I recommend conserving cash when buying a home (or any investment property) unless you can get a big advantage for paying cash, such as a large discount. Your banker is giving you good advice to make a 25 percent down payment so you can get an “easy qualify” 75 percent mortgage without much documentation. Since your husband is self-employed, this eliminates the need for him to provide financial statements. Another advantage is you will then have cash to invest in his business.
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Please note: Real estate laws differ from place to place, and laws of your area should be checked before making decisions on real estate problems. Letters should be addressed to Tribune Real Estate Features Service, P.O. Box 280038, San Francisco, Calif. 94128.
