DAVID W. MYERS: Some lenders refusing to accept requests for new equity credit lines
Two of the nation's largest banks and several smaller lenders have temporarily stopped making new home equity loans, at least until the future of the economy comes back into focus.
DEAR DAVE: My husband and I have a $35,000 home equity line of credit with Wells Fargo, which also holds the first mortgage on our house. We heard a radio report a few days ago that Wells is now refusing to take new home equity loan applications because it [apparently] is worried about how home prices will fare in the months ahead because of the COVID-19 virus. Does this mean that our equity line will be canceled or reduced too?
ANSWER: No, at least not yet.
As you know, a home equity line of credit — commonly referred to as a "HELOC" — is a credit line that is based on a homeowner's equity stake in the property. The more equity the homeowners have, the larger amount they can borrow in the future.
"The decision to temporarily suspend the origination of new HELOCs reflects careful consideration of current market conditions and uncertainty around the timing and scope of the anticipated economic recovery," Tom Goyda, a Wells Fargo (wellsfargo.com) spokesman, said in a statement.
However, Goyda stressed that the change does not affect bank's existing home equity customers. You and its other borrowers with existing HELOCs will be able to continue to draw funds.
Wells Fargo's move earlier this month came on the heels of a similar decision made by JPMorgan Chase (jpmorgan.com), the nation's largest lender based on its financial assets.
In addition to suspending the acceptance of new applications for HELOCs due to what it called "economic uncertainty," Chase said it would also require borrowers applying for a loan to purchase a house to make at least a 20% down payment and have an above-average FICO score of 700 or more.
While many mortgage lenders are becoming more cautious about the future of the housing market, most real estate agents are confident that sales and prices will resume their upward climb after the COVID-19 pandemic passes.
A recent survey by the National Association of Realtors (realtor.org) of its members suggests that most of them expect a rebound in the second half of the year, thanks largely to the pent-up demand created by Americans who have temporarily put their home-buying plans on hold and the relatively low number of houses that are currently for sale because of virus-related concerns.
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REAL ESTATE TRIVIA: More than 4 million borrowers are now in either government or bank forbearance programs, according to mortgage data firm Black Knight (blackknightinc.com), allowing them to postpone their loan payments for at least 90 days.
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DEAR DAVE: My mother died in 2018, and my father passed away two weeks ago. I was their only child and have been willed their house, which is mortgage-free and worth about $320,000. Will I owe federal estate taxes on my inheritance?
ANSWER: Probably not.
I am deeply sorry for the loss of both your mom and dad. In a way, though, the Internal Revenue Service will help to ease your pain: Current federal law won't tax you unless your inheritance is worth more than $11.58 million.
It's important to note, though, that 12 states and the District of Columbia charge an estate tax that's lower than the federal limit, and six more may charge a tax regardless of the amount that is received.
There are a lot of legal and accounting issues involved here, so talk to a lawyer and tax professional for details.
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DEAR DAVE: I appreciated your recent column about how people can increase their credit score. However, you failed to mention how they can raise their score by simply signing up for automatic bill pay services with their bank. Doing so ensures that their bills will always be paid on time, which will push their credit score even higher!
ANSWER: You are correct. If someone signs up for an automatic bill pay system, their mortgage or other debt payments will automatically be deducted from their checking or savings account and may gradually bolster their credit score.
The problem I have, though, is that automatic bill paying systems don't provide much flexibility in difficult financial times.
To illustrate, when my two children were in elementary school and my then-wife wasn't working, I agreed to an auto-pay plan with my bank to debit my account for the mortgage payment on the first of each month and the utilities to be paid on the 10th.
The plan would save me $8 a month in the bank's checking fees and provide a few other perks, which seemed like a good deal at the time.
Problem was, unexpected bills soon came up. My son needed expensive braces, my ex needed surgery that was only partially covered by insurance and the transmission in my car died. But the bank kept debiting my account for the mortgage on the first of each month — even though it wasn't delinquent until the 15th — and automatically hitting my account for the gas and electric bills while I struggled to reach a new repayment plan with my creditors.
Meantime, I was charged nearly $100 in late fees each month because I didn't have enough money in my account to make those auto-pay agreements, which made our finances even worse. My credit score sank.
It took a few months to bring my past-due bills current, but it took much longer to recover my good credit score.
I haven't signed up for any type of auto-pay plan since.
Our booklet "Straight Talk about Living Trusts" explains how creating an inexpensive trust can allow your heirs to quickly inherit your home and other assets instead of suffering through the long and costly probate process. For a copy, send $4 and a self-addressed, stamped envelope to D. Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405. Net proceeds will be donated to the American Red Cross.