Thank you Amy and Diane for your help.
this problem is solved after i go into the 540 Home Mortgage Interest Deduction worksheet and manually enter
$0 for end of year balance on 1st 1098 (because the loan has gone to the new lender by year end)
$0 for beginning of year balance on 2nd 1098. (because the loan has existed yet)
With this, the average loan balance is correct and the deduction is correct.
Frank
