Tif fany Hughes

D IVORCING YOUR MORTGAGE

September 2016 Issue

Kit Crowne

D I D Y O U K N O W ?

Boomerang Buyers—Less

than Half Return even 16

Years after Foreclosure.

Next year marks seven years

since the foreclosure crisis

peaked in 2010, during which

enough time would have

passed for the black mark of

foreclosure to be erased from

millions of consumer credit

reports. In total, 1.9 million

homeowners who faced own-

er-occupied foreclosures be-

tween the start of the housing

crisis in 2007 through 2010

will have met the seven-year

period after which the FCRA

requires derogatory infor-

mation to be removed. By the

end of 2020, another 1.2

million homeowners who lost

their homes to foreclosure

between 2011 and 2013 will

become eligible. While mil-

lions of former homeowners

reentering the buying market

would have a significant im-

pact on home sales, historical

data shows a more gradual

return rate for these so-called

boomerang buyers showing

less than half returning to

homeownership even 16

years after the foreclosures

were completed.

Kristine Yao—CoreLogic

Many times during a divorce settlement the main goal is to help the

divorcing couple get out of their current situations and we forget to

realize how the divorce settlement will affect their ability to secure

financing in the future. In order for the divorcing clients to be successful

post decree and have the ability to execute any divorce settlement agree-

ment requirements, i.e., refinancing one spouse off of current mortgage,

qualifying for a new home purchase using maintenance as qualifying

income, etc.

It is imperative to involve your mortgage team member during the early

stages of the divorce and not just refer your divorcing clients to them

post decree. There are so many more moving parts during a divorce loan

process when you have support as income, division of assets, joint liabil-

ities, and more that require the expertise of a CDLP—Certified Divorce

Lending Professional.

Let’s look at some of the moving pieces of mortgage planning and the

divorce settlement process are related and gain a better understanding of

how important it is to begin the mortgage planning process during the

settlement process rather than once the marital settlement agreement is

finalized and all parties must deal with the cards that are dealt.

Kit Crowne,

Loan Of f icer

Right T rac F inancial Group, Inc

Direct : 860.647.7701 x125 k i t@r ight t racfg.com NMLS ID 49595

Page 2 Andy Sikora , Cert i f ied Liabi l i ty Advisor Page 2 Andy Sikora , Cert i f ied Liabi l i ty Advisor Page 2

www.KitCrowne.com

Kit Crowne, Loan Off icer

Timing of Filing Divorce.

Probably the most common question I am asked from my divorcing clients and

partners is ‘when can the refinance be done – do I have to wait to purchase a new

home – and more’ – all relating to the timing of actually filing for the divorce. It is

important to understand that once the petition for divorce has been filed, any mort-

gage financing will need to wait to close/finalize until the final divorce judgment

has been entered and signed by the judge or temporary orders are in place that

meet mortgage guidelines.

Income vs. Qualifying Income

Often times in a divorce and mortgage situation there are various types of

income to consider: Employment Income; Alimony/Maintenance Income;

Unallocated Maintenance Income; Child Support Income; Property Set-

tlement Note Income; and more. Although all sources of income are con-

sidered “income” by the recipient, it is important to understand that from

a mortgage financing perspective, not all sources of income are considered “Qualifying Income.”

In order to be considered as “Qualifying Income” certain requirements of each income source must be met.

For divorcing clients who will need mortgage financing once the divorce is final, involving a mortgage profes-

sional who specializes in Divorce Mortgage Lending during the divorce process rather than post decree can

potentially help avoid common pitfalls when “Income” is not considered as “Qualifying Income.”

Alimony/Maintenance, whether unallocated or allocated, along with child support must meet specific require-

ments to be considered as “Qualifying Income” for mortgage financing purposes by meeting both continuance

and stability tests.

Continuance: A key dr iver of successful homeownership is confidence that all income used in qualifying

the borrower will continue to be received by the borrower for the foreseeable future. Must be able to document

that income will continue to be paid for at least three years AFTER the date of the mortgage application.

Check for limitations on the continuance of the payments, such as the age of the children for whom the support

is being paid or the duration over which alimony is required to be paid.

Stability: A review of the payment history is required to determine its suitability as stable qualifying in-

come. To be considered stable income, full, regular, and timely payments must have been received for six

months or longer

Page 3 Kit Crowne, Loan Off icer

www.KitCrowne.com

Contingent Liabilities. One of the main concerns when one party is

retaining the marital home is that the vacating spouse will not be able to

qualify for future mortgage financing while their name remains on the

current mortgage. While many investors have their own guidelines or

‘overlays’ to Fannie/Freddie underwriting guidelines, a divorce mortgage

professional will know how to handle Court-Ordered Assignment of Debt.

When a borrower has outstanding debt that was assigned to another party by court order (such as under a

divorce decree or separation agreement) and the creditor does not release the borrower from liability, the

borrower has a contingent liability. The lender is not required to count this contingent liability as part of the

borrower’s recurring monthly debt obligations.

One of the two most common loan scenarios divorce lending professionals will handle is the refinance of the

marital home – either to simply refinance one spouse off of the existing mortgage or in order to pull equity

from the home awarded to the departing spouse through the divorce settlement agreement. When pulling

equity from the existing home, the number one lender error in divorce lending is the lack of knowledge that an

equity buy out is NOT a cash out refinance transaction. Both Fannie Mae and Freddie Mac acknowledge it is

already a detriment to divorcing clients going through a divorce and there is no need to penalize them any

further with a cash out hit to the interest rate.

There are a few guidelines that must be met in order for the equity buyout to be classified as a Limited

Cash-Out Refinance Transaction.

Acceptable Use – buying out a co-owner pursuant to an agreement. The divorce settlement agreement must

specifically state the marital home is to be refinanced in order to transfer cash value equity to the departing

spouse. The property must have been jointly owned per title vesting for at least 12 months preceding the date

of the mortgage application.

Cash Back to the Borrower. There can be zero cash back to the refinancing borrower who is retaining

the marital home. The Divorce Settlement Agreement must state the specific amount of equity to be pulled

from the marital home and all of this cash equity must transfer directly to the departing spouse. Any dollar

amount taken in excess of the equity buy out will shift the transaction to a cash out refinance.

The #1 lender error in divorce lending is the basic fundamental understanding of the

Limited Cash Out Refinance guidelines for divorcing clients.

W h y y o u N e e d a C e r t i f i e d D i v o r c e L e n d i n g P r o f e s s i o n a l ( C D L P ) o n Y o u r P r o f e s s i o n a l D i v o r c e T e a m .

A professional divorce team has a range of team players including the attorney, financial planner, accountant, appraiser, mediator and yes, a divorce lending professional. Every team member has a significant role ensuring the divorcing client is set to succeed post decree.

A Certified Divorce Lending Professional brings the financial knowledge and expertise of a solid understanding of the connection between Divorce and Family Law, IRS Tax Rules and mortgage financing strategies as they all relate to real estate and divorce. Having a CDLP on your professional divorce team can provide you the benefit of:

A CDLP is trained to recognize potential legal and tax implications with regards to mortgage

financing in divorce situations.

A CDLP is skilled in specific mortgage guidelines as they pertain to divorcing

clients.

A CDLP is able to identify potential concerns with support/maintenance

structures that may conflict with mortgage financing opportunities.

A CDLP is able to recommend financing strategies helping divorcing clients identify

mortgage financing opportunities for retaining the marital home while helping to ensure the ability to achieve future financing for the departing spouse.

A CDLP is qualified to work with divorce professionals in a collaborative setting.

A CDLP can provide opportunities in restructuring a real estate portfolio to increase available

cash flow when needed.

A CDLP maintains a commitment to remaining educated and up to date in the ever changing

industry guidelines and tax rules as they pertain to divorce situations.

A CDLP is committed to providing a higher level of service to you and your

divorcing clients.

The role of the CDLP is to help not only the divorcing client but the attorney and financial planner

understand the opportunities available as well as the challenges divorce can bring to mortgage

financing during and after the divorce. When the CDLP is involved during the divorce process and

not after the fact, many potential financing struggles can be avoided with valuable and educated

input from the Certified Divorce Lending Professional.

“Nothing matters more in winning than getting the right people on the field. All the clever strategies and

advanced technologies in the world are nowhere near as effective without great people to put them to

work.” - Jack Welch, Winning

This is for informational purposes only and not for the purpose of providing legal or tax advice. You

should contact an attorney or tax professional to obtain legal and tax advice. Interest rates and fees are

estimates provided for informational purposes only, and are subject to market changes. This is not a commitment to

lend. Rates change daily - call for current quotations.

Copyright 2016 All Rights Divorce Lending & Real Estate Association, LLC

The information contained in this newsletter has been prepared by, or purchased from, an independent third party and is distributed for consumer education purposes. This Newsletter is not to be reproduced or edited in any format without the written consent of the Divorce Lending & Real estate

Association, LLC.

Kit Crowne, Loan Officer

Right Trac Financial Group, Inc 110 Main Street,

Manchester, CT 06042

Direct 860.647.7701 x125

Kit@RightTracFG.com

www.KitCrowne.com

NMLS ID Personal 49595

NMLS ID Corporate 796583