Your Mortgage : Mortgage Lender Can’t Specify Insurer
QUESTION: We are obtaining a mortgage from a local bank for a home we are buying. The banker very strongly recommended that we buy our homeowner’s insurance policy from a particular insurance agent who just happens to have his office in the same building as the bank.
Since we have our own insurance agent, I asked if we can obtain our insurance there. The banker said the insurance company must have a certain rating and the bank must check out the insurer. I get the strong impression that we will have trouble if we don’t go to the bank’s insurance agent. Is this legal?
ANSWER: No. If your lender is federally regulated, as are most banks and S&Ls;, you cannot be compelled to use a specific insurance agent or insurer. But federally regulated lenders can set reasonable minimum ratings for acceptable insurance companies.
Second Mortgage Can Be Good Investment
Q: We are having difficulty selling our home. It has been for sale since early January with no purchase offers except one. The realty agent is doing an excellent job promoting it. She advertises it every week and holds a weekend open house every other week. But she says the home sale market is slow in our town now.
However, the one offer we received involved the buyer assuming our FHA first mortgage and we were asked to carry back a $45,000 second mortgage at 12% interest for 10 years. The more I think about it, I think we should accept, but my husband feels it is too dangerous to carry a second mortgage. The prospective buyer is still interested in our house. What do you think?
A: Carrying a second mortgage for your buyer can be an excellent investment. Where else can you earn 12% on your money with the safety of being able to foreclose on your former home if the buyer doesn’t make the payments?
Mortgage Broker Plays Bait-and-Switch Game
Q: I am supposed to close the purchase of my first home next month. A mortgage broker quoted me a 10% fixed-interest rate, 95% mortgage, which sounded good. Like many yuppies I have good income, but virtually no savings for a down payment and closing costs.
However, last week the mortgage broker called to say the interest rate on my mortgage is now locked-in at 10.75%, but he could only get me a 90% loan, so I will have to come up with an extra 5% down payment. What recourse do I have against this mortgage broker who assured me I would have no trouble qualifying for the original 95% mortgage at 10% interest?
A: Welcome to the game of bait and switch. Unfortunately, it is very skillfully played by some mortgage brokers who quote attractive loan terms and then tell the borrower shortly before the scheduled closing date, that the promised loan is not available.
Lenders like yours give the mortgage brokers a bad reputation for lack of reliability. Unless your original loan terms were quoted by a mortgage lender, the loan broker’s promise was worthless. Mortgage brokers are middlemen between borrowers and lenders. Some are very, very good. Others, like yours, are not.
When Is Home-Equity Loan an Advantage?
Q: I owe about $7,000 on my auto loan, $14,000 on various credit cards and around $12,000 on a personal unsecured bank loan. My home mortgage is at 9.75% fixed interest, but I have about $60,000 equity in my residence. Do you think I should refinance my first mortgage or get one of those home-equity loans to pay off my various little loans?
A: You have a very desirable first mortgage, so I would leave it alone. A home-equity credit line could serve you well. You can use it to pay off all your personal loans. Since the total is well below the $100,000 home-equity loan limit for federal tax interest deductibility, you will be able to deduct the interest. The nice thing about home-equity credit lines is you get a checkbook and can borrow or repay as you wish.
Mortgage Transferred to Out-of-Town Firm
Q: When we bought our home, just a little over a year ago, we obtained our mortgage from a nearby S&L.; We moved our checking and savings accounts to that S&L;, and the relationship has been very pleasant. But last month we received a notice that our mortgage has been transferred to an out-of-town loan company and we will have to make our loan payments by mail. What can we do to stop this loan transfer?
A: I’m sorry to report that under current federal and state law there is nothing a borrower can do to stop a loan transfer. I have one mortgage which has been transferred among lenders at least six times.
These lenders have lost some of my payments, tried to play dirty tricks, such as claiming the payments were not received on time, so the lender could collect late charges (that didn’t work), and even failed to credit loan payments until I complained.
Questions and comments may be sent to the Real Estate Editor, Los Angeles Times, Times Mirror Square, Los Angeles 90053.
