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Unfortunately, according to Marcy Berg of Mortgages for Women, these clients are often subject to outdated requirements when trying to attain a mortgage.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