Jeff McGinnis

MetLife Home Loans

1100 Olive Way, Suite 1001
Seattle, WA 98101
206-283-LOAN (5626)
jmcginnis@metlifehomeloans.com
www.mcginnismortgage.com

Family Law Questions: November 2008

Thank you to those who have participated in providing questions for the group. These have been excellent
questions. I hope to dispel some myths and provide you with accurate working information.

I see this document as a reference guide for your practice with regards to mortgage lending. It will change and
grow as additional questions come to light. Please send me questions or requests for clarity and I will add the
answers to this document on a regular basis.

I must preface these answers by saying I will use standard and acceptable Fannie Mae, FHA, and “investor”
guidelines known today. Using experience and actual cases I will bring to light as many exceptions to
underwriting manuals for your knowledge.

Also, every lending and divorce situation is unique. There is a very great likelihood that one of these situations
may come up and the answer may be totally different given the specific loan file.

1. Can I refinance using maintenance as a source of income?

Answer: Yes, you can. The rules for Fannie Mae state that if there is 12 months of history of
payment of the spousal support AND there is proof in the decree stating three years of continuance,
the spousal support may be used as income to qualify.
Exception: I have a case right now where the underwriting findings from Fannie Mae allowed for
THREE months of historical proof AND three years of continuance. In December we will have the
historical proof, but may or may not have three years of continuance depending upon how the
proceedings pan out.
Advisory Note: A consultation with a mortgage advisor can help a client determine the exact
underwriting standards that they would be subject to given their credit, employment, and equity
position. Many family law professionals appreciate having this knowledge prior to mediation,
collaboration, or trial.

Example: Bob & Jane are going through a divorce. Jane will want to purchase a home after the
divorce is final. Her attorney, knowing she will need three years of continuing spousal support in
order for her to qualify for a home loan, negotiates three years and six months of support. The
additional six months will give Jane time to qualify for a mortgage and find a home.

2. Can I buy a new house if I am still on the note to the marital home?
Answer: Yes you can. Fannie Mae guidelines state the mortgage debt that is awarded to the ex-
spouse in the decree does not need to be counted in debt to income calculations as soon as the
divorce is final.
A client may also qualify for a loan prior to the final decree if the client qualifies for both payments.
Exception: If the loan is a Jumbo Loan (loan amounts over $417,000) ALL bets are off right now.
While there are good jumbo loans with good interest rates, they come with different rules. One
lender may allow for standard Fannie Mae rules another may not.
Advisory Note: It is not advisable for a spouse to remain on the marital home mortgage for too
long as it has a potential for damage to credit. In this season we may see it necessary for the ex-
spouse to remain on the marital mortgage until such time as values return. A best effort to remove
the spouse from the marital mortgage is ideal. Consulting with a mortgage and real estate
professional can help the client determine the best course of action.
3. How will my spouse’s spending habits (usually bad) affect my credit rating?
Answer: The spouse’s spending habits will affect the credit rating to the degree that the accounts
or collections are joint accounts. If the accounts are joint, they will positively or negatively affect
both parties.
Exception: None to my knowledge.
Advisory Note: Having a client speak with a mortgage professional early in the process will
determine their credit situation. If the credit is poor and they are early on in the process, a referral
to an excellent credit specialist to help them improve their score while they are going through the
divorce proceedings. In addition, there are excellent handouts on the five areas that affect credit
scores if the client is more inclined for self-help.
4. What are the ramifications of having the ex-spouse still on the mortgage, even though the
house has been quitclaimed to the ex and/or how can the ex avoid having his/her credit
impacted if the spouse with the house defaults?
Answer: The scenario: Jane stays in the house, Bob quit claims interests of the property, but
chooses to remain on the mortgage and the mortgage is a joint account.

Jane stops paying the mortgage. Both Bob and Jane’s credit will be adversely affected by this.
Jane will not be able to refinance the mortgage for 12 months from the date of the last late
payment. Bob will not be able to purchase a home for 12 months from the date of the last late
payment even if the courts determine the liability doesn’t belong.

Bob may have gone out and purchased a home under the Fannie Mae guidelines mentioned above
and may not have enough cash to spare to keep Jane’s mortgage current if Jane is unable or
unwilling to pay the mortgage.

If the home ends up in a foreclosure, both Bob ( if Bob has not purchased a home yet) and Jane will
be renting a home for four years after the date of the foreclosure or until a “right sized” sub-prime
mortgage market comes back to the US.

Exception: None to my knowledge at this time.

Advisory Note: Determining the best position for the client with regards to mortgage options are
best handled early on in the divorce proceedings. I’ve had a case recently where the collective
decision to sell the marital house was decided early on due to severe credit issues with one of the
spouses.

5. In a situation where one of the spouses wants to buy a new house prior to finalizing the
dissolution, lenders used to accept a signed quit claim deed from the other spouse on the new
house and did not require that the divorce be final (or that a Property Settlement Agreement be
signed) in order to lend to the buying spouse. Is this still the case?
Answer: This is still the case. Bob can still go out and buy a house as a “Married, Separate Estate”
title holder. He would need to qualify for both marital home house payment and new house
payment (unless Jane had refinanced the property). Jane would be required to sign a Quit Claim
Deed at closing for the property Bob is purchasing.
Exception: None that I’m aware of at this time.
Advisory Note: Lenders are concerned about which home is the primary residence. There cannot
be two. So in Bob’s case, we would need to make sure that an underwriter knows of the divorce
and that he is buying the home on his own. This could raise red flags at underwriting and be
additional concerns for approval, but most times this can be worked through provided the numbers
are “right sized.”

6. What impact does a debt consolidation plan have on a refinance?

(Let's say the consolidation plan runs 5 years and they're just a year or two into it)
Answer: If the debt consolidation program is reported on a credit report as Consumer Credit
Counseling, the credit damage is as if the event is a bankruptcy. For an FHA loan they would
need to have been out of the CCC program for 24 months and have 12 months of clean credit.
 For a Fannie Mae loan or conventional loan, the client would need to have four years out of the
CCC program prior to be eligible for this type of a loan.

Exception: If the client is in a credit remediation program, where they have hired a company to
help them clean up their credit, there would be no affect either way on credit qualifying.

Advisory Note: Clients considering CCC may want to consider other alternatives due to the
long term adverse nature of the program with regards to qualifying for a mortgage.

7. What differences, if any, are there in a refinance in a meretricious relationship as opposed to a

marriage? (A client hopes to refinance and remove his girlfriend from the loan and title.)
Answer: The basics remain the same as a marriage relationship as a meretricious relationship.
The same risks exist to the credit if girlfriend is in the house and boyfriend is out of the house
and girlfriend is responsible for paying the mortgage. If she stops paying, both parties credit will
be damaged and mortgage program eligibility will suffer.

The meretricious relationship will have additional costs of removing the girlfriend from the
account. Since they are not married, the State of Washington will want their excise tax at close
of escrow for the refinance. The calculation for the excise tax is 1.78% times the underlying
mortgage debt divided by two.

Exception: Same-sex couples who are registered partners in the State of Washington may be
exempt from paying excise tax in this situation.

Advisory Note: The removal or addition of a non-married party to a title or loan has a cost. It is
a good idea for a client to be aware of these costs early on.

8. How should clients handle getting an appraisal to set value of a house, when they plan to then
refinance to pay off the other party's equity? (Can you use the same appraisal for both
purposes? Do you need to alert the appraiser to that issue? How are fees for the appraisal
handled?)
Answer: Prior to additional lending restrictions (within the last 6-12 months) regarding
appraisals, lenders would be able to accept any appraisal provided the appraiser was approved
with that lender.

In this mortgage season most lenders have a specific way of ordering appraisals. They will
have a rotating pool of appraisers to whom each loan will be assigned on a rotating basis.

Depending on the appraiser and lender the client may be paying for two appraisals. Typically
the appraiser will charge $450 for a standard appraisal due at the time of the inspection for a
private party or billed to a lender net 30 days.

Exception: I’m not aware of too many lenders that don’t have some form of rotational appraisal
system. They may exists, but I am unaware of them at this time.

Advisory Note: It might be a good idea to have one to three appraisers that you have an
ongoing referral relationship. If you have a lender that you like to work closely with, they would
be happy to provide you a list. The list of appraisers from your lender could possibly save the
client some money.

A suggestion is to set client expectations that they will be paying for two appraisals: One for
determining value for the courts and one for determining value for the bank. Also, each
appraiser is different so they may experience different values for each appraisal.
9. Can I afford to keep the residence?
Answer: Possibly. The three main things that will determine the ability to keep the residence
are:
Credit: See Advisory Note on Question Number 3 regarding credit discovery and
remediation
Employment (Income): See Question 1 regarding spousal and child support.
Debt-to-income ratios are under this category. This is a measure of household debt as
compared to income. Typically the maximum ratio for a household will be 45%. This
means that no greater than 45% of the client’s gross income (prior to taxes being taken
out) would go to service a mortgage payment, car payment(s), student loan(s), and or
credit cards.
Funds to Close (Equity/Appraised Value): What we are seeing in lending right now
are appraised value issues. Meaning the appraisals are coming in lower and the equity
required to qualify for a refinance is increasing for cashing out spouses.

When the cash out is a requirement of a divorce decree, the equity requirement may be
reduced. The decree has to be recorded in order to meet this requirement.
Exception: Case by case. Investor by Investor.

Advisory Note: Building a loan that is right sized and correctly underwritten is harder in 2008 as
compared to 2006 or 2007. As the result of this change, it is highly suggested that the client
speak with a loan professional early into the process.

10. How can I buy out the interest of the other spouse?
Answer: Using a mortgage tool to cash out the other spouse can and still does work. The
basics are the similar to the answers under Question 9.

11. How much can I afford with a new residence and what would my monthly payments be?
Answer: See question 9 under employment and Debt to Income Ratios. 45% of the gross
monthly income for the household is a maximum.
Exception: There are cases that will accept higher debt to income ratios. They are case by
case and investor to investor.
Advisory Note: I’ve attached Table 1 to this document as a way to calculate payments. The
factors are for every $1,000 financed.

Example: Loan amount: $400,000 Interest rate of 6.000%

$400,000 divided by $1,000 = $400
$400 times factor of 6 = $2,400 per month for principal & interest
$400 times factor of 7.692 = $3,076.80 per month for principal, interest, taxes
(est.) and insurance (est.)
 Table 1
Rate PI PITI Rate PI PITI

3.000 % 4.22 5.410 7.125 % 6.74 8.641

3.125 % 4.28 5.487 7.250 % 6.83 8.756
3.250 % 4.35 5.577 7.375 % 6.91 8.859
3.375 % 4.42 5.667 7.500 % 7.00 8.974
3.500 % 4.49 5.756 7.625 % 7.08 9.077
3.625 % 4.56 5.846 7.750 % 7.17 9.192
3.750 % 4.63 5.936 7.875 % 7.26 9.308
3.875 % 4.70 6.026 8.000 % 7.34 9.410
4.000 % 4.77 6.115 8.125 % 7.43 9.526
4.125 % 4.85 6.218 8.250 % 7.52 9.641
4.250 % 4.92 6.308 8.375 % 7.61 9.756
4.375 % 4.99 6.397 8.500 % 7.69 9.859
4.500 % 5.07 6.500 8.625 % 7.78 9.974
4.625 % 5.14 6.590 8.750 % 7.87 10.090
4.750 % 5.22 6.692 8.875 % 7.96 10.205
4.875 % 5.29 6.782 9.000 % 8.05 10.321
5.000 % 5.37 6.885 9.125 % 8.14 10.436
5.125 % 5.45 6.987 9.250 % 8.23 10.551
5.250 % 5.53 7.090 9.375 % 8.32 10.667
5.375 % 5.60 7.179 9.500 % 8.41 10.782
5.500 % 5.68 7.282 9.625 % 8.50 10.897
5.625 % 5.76 7.385 9.750 % 8.60 11.026
5.750 % 5.84 7.487 9.875 % 8.69 11.141
5.875 % 5.92 7.590 10.000 % 8.78 11.256
6.000 % 6.00 7.692 10.125 % 8.87 11.372
6.125 % 6.08 7.795 10.250 % 8.97 11.500
6.250 % 6.16 7.897 10.375 % 9.06 11.615
6.375 % 6.24 8.000 10.500 % 9.15 11.731
6.500 % 6.33 8.115 10.625 % 9.25 11.859
6.625 % 6.41 8.218 10.750 % 9.34 11.974
6.750 % 6.49 8.321 10.875 % 9.43 12.090
6.875 % 6.57 8.423 11.000 % 9.53 12.218
7.000 % 6.66 8.538 11.125 % 9.62 12.333

Jeff McGinnis | MetLife Home Loans | 1100 Olive Way Suite 1001 | Seattle, WA 98101
Phone: 206.625.1500 | Fax: 206.382.0269 | E-mail: jmcginnis@metlifehomeloans.com