Underwriting leaving divorced buyers behind

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“The world is changing and underwriting isn’t,” according to one broker; especially when it comes to how lenders treat clients who are in the midst of a divorce.

Canadian divorce rates held steady at an average of 70,601 per year from 2001 – 2005 (the last year Statistics Canada collected such data), which  represents a fairly large portion of potential mortgage buyers.

Unfortunately, according to Marcy Berg of Mortgages for Women, these clients are often subject to outdated requirements when trying to attain a mortgage.

“We live in a tick-box world; where we tick boxes for policies and everything and there isn’t much room for traditional underwriting where we underwrite risk,” Berg told MortgageBrokerNews.ca. “When you get into divorce you get into these other nuances where if you want to use your support payments there needs to be a three month track record, there has to be legal separation agreement and if you’re buying out your spouse and there isn’t enough equity you can’t refinance to 80 per cent.

“Past 80 per cent you now have to buy your spouse out and pay the land transfer tax," she continued. "A lot of that is falling through the cracks.”

And often, couples in the midst of a divorce take a path that won’t allow for the necessary requirements to be met.

“If you’re having an amicable divorce, which you see a lot of now, you may not have three months of your support payments because your spouse may still be living in the house,” Berg said. “They may not be fighting, they may still get along and have agreed divorce is the thing to do and they’re moving it forward but the underwriting is stuck in this past that requires you to go to a lawyer and get a separation agreement.”

To combat this, Berg suggests brokers coach their clients to ensure all their requirements are met prior to apply for or renewing amortgage; at least until lender underwriting changes to better accomodate this niche market.
 
  • SJF on 2014-04-11 11:42:38 AM

    Canada Guaranty has recently changed their policy and they will allow debt payout and allow client to go to 95% in the event of a marital split. I also have just had Genworth just approve a deal for 95% for marital split and debt payout. Makes good sense, otherwise, client sells existing home, pays R/E fees, pays out debts and then buys another house with 5% down. Better to keep clients in their existing house.

  • OkanganBroker on 2014-04-11 11:42:41 AM

    Or..Just use another lender...I do a fair number of divorces, I use my local Credit Unions a lot of the time because they still have some common sense when it comes to lending...and CMHC will look at spousal buyout as a "purchase" and provide up to 95% financing, and tsf tax doesn't apply as she was already on title...different province/different rules?

  • OkanganBroker on 2014-04-11 11:42:41 AM

    Or..Just use another lender...I do a fair number of divorces, I use my local Credit Unions a lot of the time because they still have some common sense when it comes to lending...and CMHC will look at spousal buyout as a "purchase" and provide up to 95% financing, and tsf tax doesn't apply as she was already on title...different province/different rules?

  • Debra Owen on 2014-04-11 12:07:08 PM

    Know your insurer products - we can do 95% ltv on spousal buyouts, in BC exemption 15 is for PTT exemption but you have to have a separation agreement in place to attach to the exemption submission. I have successfully had clients write up their own agreements (get the kit for content) and have the signatures witnessed by a lawyer that attests they are not providing comment on the agreement contents just witnessing the signing. Many lenders now recognize that many couples can't afford or don't need a lawyer to prepare a separation agreement (not withstanding the need for legal advice on property division if in dispute or spousal/child support, which I do recommend) Purchase agreement is necessary to show the one party buying out the other - check with the lender to see what their requirements are. If you are using support income as qualifying income don't you think this should come under the burden of proof of the income being paid as any other? If an amicable split the parties should be on board to get their documents and banking organized with you so that they have everything in place to make it a smooth takeover and payout. Go the extra mile with these couples in transition and you have 2 clients long term...

  • Lance on 2014-04-11 12:16:48 PM

    Of course we should have everything in place before proceeding - it's our job!!

    I sent a splitting couple a separation agrmt I found online, which they tweaked. I found them a Notary of the Public - whom witnessed it, and voila - done!! Like most feminists, Marcy sees minor imperfections in life as Gross Indecencies all "aimed a women"!! A bogey man behind every rock. The new rules surrounding divorce DO address societal changes.

  • Mark Balcar on 2014-04-12 12:46:40 PM

    Yes OkanganBroker, the same 95% LTV applies here in Quebec as well. Fortunately most of the separation and divorce cases that I worked on here in Montreal have deep equity so fortunately more options available.

    The one trend that I am seeing here and there is some women don't have independent credit from their x-husbands hence when they want to qualify for a mortgage on their own that's where it can get a bit challenging.

  • Ottawa Broker on 2014-04-14 6:16:29 PM

    If you have educated your clients, and you know what you7 are doing as a broker, there is no problem getting divorced clients a mortgage to buy the existing home, up to 95% ltv. I see it way to often on this forum, agents that do NOT know their products or guidelines. It is some what sickening to see some of the comments made, including the ones made by the agent interviewed for this article. and we wonder why brokers can't get the respect we deserve, there are to many agents out there that haven't a clue what to do if it isn't a simple cookie cutter deal. I am sometimes embarrassed to say I am a mortgage broker due to the reputation less qualified agents have caused us. Learn your products, insurers and lenders. There does not have to be a 3 mth history of support payments as long as there is a court approved divorce agreement. The agent interviewed for this article is highly unqualified as she doesn't know her products well enough to be making comments in a national forum.

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