Not all adjustable home loans are created equal

Editor's note: Robert Bruss is temporarily away. The following column from Bruss' "Best of" collection first appeared Sunday, April 16, 2006.

DEAR BOB: In a recent article you said, "Now you know why I never recommend negative-amortization adjustable-rate mortgages (ARMs)." Does that mean you changed your advice? I recall your many articles recommended the COFI (cost of funds index) ARMs, which have negative amortization. --Tom C.

DEAR TOM: ARMs that use the COFI do not always have negative amortization where the borrower's monthly payment increases slower than the interest index increases. The result can be the unpaid interest is added to the mortgage balance, thus creating negative amortization.

Purchase Bob Bruss online.

I have never recommended negative-amortization ARMs. Personally, I have had several COFI adjustable-rate mortgages that didn't have negative amortization.

The key question to ask is how often the ARM monthly payment and the index change. If the index rate can change faster than the borrower's monthly payment changes, then negative amortization results, thus increasing the mortgage balance by the unpaid interest amount.

I have not changed my viewpoint. I do not recommend negative amortization ARMs, which can be a very bad deal, especially when the home buyer made a low- or zero-cash down payment.

CAN THREE OWNERS EACH QUALIFY FOR $250,000 HOME-SALE TAX BREAK?

DEAR BOB: I read in your column that two principal residence co-owners (who are not spouses) can each qualify for up to $250,000 of tax-free sales profits under Internal Revenue Code 121. Can three owners of one house qualify? Would $250,000 be available to each co-owner, or is $500,000 the maximum exemption per home sale? Is there any limit to the number of co-owners who can qualify for this tax exemption? --John S.

DEAR JOHN: There is no limit in Internal Revenue Code 121 to the number of $250,000 principal residence sale exemptions if each co-owner qualifies.

However, when the co-owners are not husband and wife, then all their names must be on the title at least 24 of the 60 months before the sale and the property must be the principal residence of each owner for the required 24 of the last 60 months before sale.

An example would be three sisters who own and occupy their principal residence for the required minimum time before selling, thus qualifying for up to $750,000 tax-free sales profits. For further details, please consult your tax adviser.

DON'T GET A REVERSE MORTGAGE UNLESS YOU EXPECT TO LIVE IN THE HOME AT LEAST FIVE YEARS

DEAR BOB: I am way over 65 and live in my condo that is worth around $300,000. The life expectancy of males in my family is only 50 years. I am considering a senior citizen reverse mortgage, or I might sell my condo and invest the sales proceeds. Which option do you feel is best for me? --Wally D.

DEAR WALLY: If you are in reasonably good health for your age, and expect to remain in your home for at least five years, I suggest you seriously consider the benefits of a reverse mortgage.

The reason you should plan to stay in your home at least five years is to amortize the reverse mortgage up-front loan fees. To illustrate, if you are in poor health with a life expectancy of two years, a reverse mortgage would not be a smart decision.

More details are in my special report, "The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners," available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at . Questions for this column are welcome at either address.

(For more information on Bob Bruss publications, visit his ).

Lenders say many won’t be helped by foreclosure delay

BOSTON - Some on the brink of losing their homes will benefit from the foreclosure delays advocated by Gov. , but many are so financially troubled that a delay won’t make a difference, the state’s top lenders association said Tuesday.
    Despite their portrayal by some housing advocates as "predators," subprime mortgage lenders want to help homeowners find better loans because they also lose money on foreclosures, said Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association.
    But by the time many cases reach the foreclosure stage, it’s often too late, "whether we wait 60 days or not," said Cuff, whose trade group represents about 300 lenders.
    Patrick should use his influence to bring the nation’s largest lenders, which hold loans on much of the state’s foreclosed properties, into discussions on how to address the state’s high numbers of foreclosures, Cuff said.
    The state had a record 19,487 foreclosure filings last year. Last Wednesday, Patrick announced a plan to lower the foreclosure rate that would include making mortgage fraud a criminal offense and prohibiting abusive foreclosure rescue schemes.
    The next day, Patrick met with Bruce Marks, head of the Neighborhood Assistance Corporation of America housing advocacy group, and about 24 people in danger of losing their homes. After the meeting, Patrick instructed the state’s banking commissioner to seek, on a case-by-case basis, foreclosure delays from lenders for homebuyers who file a complaint about their mortgages.
    The state has no power to force lenders to negotiate new terms.
    "We hope the lenders will give us the time and work with us to see if there are any homes we can save," said Kofi Jones, spokeswoman for the state Executive Office of Housing and Economic Development.
    The subprime lending market, aimed at people with poor credit histories, helps people obtain a mortgage with little or no money down, but generally with interest rates that are high or increase sharply after a short period.
    Marks said subprime lenders target people they know can’t pay the mortgages in order to profit from the numerous fees. Cuff said millions of people who wouldn’t otherwise be able to afford a home now have one because of subprime loans.
    Patrick has been criticized for his work with ACC Capital Holdings, parent of the national mortgage company Ameriquest, which has been accused of predatory lending practices. Patrick, a former member of the board of directors of ACC, has said he tried to correct problems at Ameriquest, but his job there has surfaced in the recent debate.
    Cuff said anti-foreclosure advocates have a sympathetic ear because of Patrick’s ties to Ameriquest. House minority leader Brad Jones, R-North Reading, said Patrick may be trying to politically get out in front of an issue that has dogged him.
    "Given the history, it’s certainly a situation where you don’t want to be accused of being behind the curve on what some people think you may have been able to do," he said.
 []1 |  |