The Gray Divorce Podcast: Episode 55 Married to the Mortgage with Jennifer Brown, CDLP®
Andrew Hatherley: Hello everybody and welcome to The Gray Divorce Podcast. Are you married to your mortgage? What I mean is, are you thinking about divorce or in the process of divorce, but nervous about leaving or selling your primary residence if you've got a low interest rate on your current mortgage? I came across some statistics on Redfin recently showing that 86 percent of U.S. homeowners with mortgages have an interest rate below 6 percent and a substantial 57.4 percent of homeowners have a mortgage below 4%. That can be hard to give up, but if you're getting divorced, you may have no option. I get it. Who wants to trade in a 4 percent mortgage for a new mortgage at 6 or 7%?
Well, my guest today is Jennifer Brown. Jennifer is a 27-year veteran of the mortgage industry and a certified divorce lending professional. Jennifer focuses her practice on helping divorcing homeowners make a more informed decision regarding home financing solutions. And she works with divorce financial analysts like me and family law attorneys to help identify any potential conflicts between the language of the divorce settlement and the type of language mortgage lenders need to see to provide financing.
Jennifer has originated mortgages in Metro Atlanta since 1998 and is licensed in Alabama, Florida, Georgia, South Carolina, and Tennessee. That's a good Southeastern concentration there. In 2019, she became a partner and co-owner of Neighborhood Mortgage Inc, founded in 2001. And one final thing, both Jennifer and I are on the leadership team of the Amicable Divorce Network.
The Amicable Divorce Network is a group of divorce professionals dedicated to helping families navigate divorce through the amicable divorce process, a more civilized, cost-effective alternative to divorce litigation. Jennifer, welcome to The Gray Divorce Podcast.
Jennifer Brown: Thanks for having me.
Andrew Hatherley:
I know we've been trying to get this for a while and glad that we finally were able to schedule it. So, Jennifer, this concept of being married to your low-interest rate mortgage, tell me, what are you seeing out there right now with, with couples and divorcing couples, particularly with a reluctance to part with a home that may have a very low interest mortgage rate?
Jennifer Brown: Well, you, you know, it really depends on the divorcing couple and their situation. Do they have school age children where maybe they need to stay in a specific school district for a specified period of time? You know, can they afford to refinance because one person's been being out, obviously they're going to have health and expenses now.
So, everyone is different. If you want to keep your mortgage term, then you've got to keep that mortgage intact, right? So, you have two options. Either you can try to assume the mortgage, or you can just stay obligated. Both parties can stay obligated on the mortgage, and that's going to be a very high trust situation, right?
I mean, you typically are only going to see that in the most amicable of cases, you're going to have to take action by X date, but what I am seeing in those situations is a much longer period of time defined in the settlement agreement on how long they have to either refinance, assume or sell the home to release one of the parties from the obligation.
Andrew Hatherley: Yes, you mentioned if parties decide to stay on the mortgage together for a while be sure to make sure your attorney gets, gets language in the settlement agreement that protects you if you're the spouse that may be leaving the home but still on, on the mortgage.
I think we're probably seeing quite a bit of this stalling or waiting and see as you mentioned with, with issues such as children, potentially owning the home until the child leaves the house or graduates from high school.
Quite a bit of people saying, maybe we'll wait for rates to fall. And I think what we're seeing here, and I'd like your opinion on this, is a real recency bias because we've had these extremely low rates particularly culminating with a pandemic era where people were able to finance at three or four percent.
People think that's normal, but that's not normal. Is it?
Jennifer Brown: It's the furthest thing from normal. And a lot of people don't really understand how mortgage rates work. So, there's, I a lot of misconception that the fed has some control over mortgage rates.
We compete against bonds. So. A mortgage-backed security is going to be a riskier investment than a bond, right? I mean, you're the financial guy here, so I'm going to, I'm going to defer to you on that, but typically we have to pay a higher rated return than a bond to get someone to buy a mortgage-backed security, right?
So, when the Fed stopped buying mortgage-backed securities in 2022, That's when you started to see mortgage rates tick up. They were the single largest purchaser of mortgage-backed securities. That's a big number. So now we must go out and find investors to fill that void. And we've got to pay them more, right?
And so that is why rates are part of why rates are where they are today. And frankly, I do believe that rates are going to come down from where they are right now as, as we get inflation in check and maybe we get some, some more accurate jobs numbers. I do think that we're going to start to trend back down hopefully into the low sixes, maybe the high fives sometime within the next 12 months.
But you know, the average 30-year fixed rate from 1971 to 2024 is 7.72%, right? Yeah. 7.72, that's a high of 18.63% in 1981. A low of two and a half percent in 2021. Right now, we're sitting at about 6.875%. That would be, you know, 80% loan value. Excellent credit, right? No discount, no origination fee for that.
So, this idea that I'm going to sit around and wait for 4 percent to roll back around is not very realistic. I'm not going to tell you that it can't happen, but it probably will not happen without the government getting involved and starting to buy mortgage-backed securities again, and I don't know that that will happen.
Andrew Hatherley: Yeah, a couple of things there. I remember sitting around the living room or the dining room table with my parents when I was still at home. I was probably studying finance at school and talking about, sure would be nice if rates got back down to 6%. So, you know, they used to be quite a bit higher.
And of course, you know, back in the early eighties, we had double digit rates.
The prevailing opinion does seem to be that rates are going to go down. But, given the results of the last couple of days, what if these tariffs that we hear about do turn out to be inflationary. You know, and I'm not an economist and I don't expect you to offer a deep opinion on this too but be prepared for the unexpected.
Jennifer Brown: Well, you bring up an excellent point that rates can always go the other way. So, the 7 percent interest rate today might look fantastic two years from now for it they are sitting at eight and a half or 9%.
When I bought my first home in 2000, my rate, I believe, was eight and a half percent. Now things were a lot less expensive in 2000, especially real estate. But I did my own mortgage. Right. So, you know, if you were paying somebody to do it, it's probably eight, three quarters, 9%. So yes, be prepared for that.
And we hear a lot in the real estate market you know, marry the house, date the rate, and that’s not good advice in my opinion. Because you're basically getting someone into a financial obligation that they're not really prepared for, but they're doing it.
Andrew Hatherley: Can the person staying in the house, if one of the people staying in the house, assume the loan? How does that work?
Jennifer Brown: Well, the answer is maybe. And how that works is, is you, first of all, have to have your settlement agreement. It must be a legal document before you can ever even start the process.
And it's going to depend on your mortgage servicer. So, you call your mortgage servicer. You tell them I've been awarded the home incident to divorce, and I would like to apply for an assumption. You're basically applying for a new mortgage. You have, it's called a qualifying assumption, right? So, they're going to pull your credit.
They're going to review your income. They're going to make sure that you meet the guidelines as if you were getting a new mortgage. So, it's important to note that in an assumption, there is a release of liability. So, one person is being released from liability. A lot of people will say, well, conventional loans are not assumable.
Well, they are at the mortgage servicer's discretion. They do not have to approve the assumption, but they can if they choose to do so. So, there is a process, and it is kind of a unicorn because, and you may see it more because you work with older couples who may have a higher net worth, they may have some other assets they can trade to not have to finance that equity equalization, right?
So, if you have to finance an equity buyout, meaning you don't have another asset you can trade in exchange for the equity in the home, then an assumption is not an option.
Andrew Hatherley: Right.
Jennifer Brown: So, you've got to have some means to equalize the equity. outside of financing it, right? But if you do, then an assumption is an option that you should 100 percent explore.
You need to be careful. And you mentioned earlier about making sure your attorney writes the correct language in the agreement. You're going to need some time and you're going to need a backup plan because if the assumption is not granted, then you're going to need some additional time to figure out, okay, can I qualify for a refinance?
Do I want to refinance? The language in the agreement is very important.
Andrew Hatherley: I want to get to that a little bit more in a second, but I want to go back to the process because from a financial planning perspective, which is when I'm working with people going through divorce and we're trying to, with the settlement, establish a solid financial foundation for them for the next 20, 30, 40 years, we'd like to know as early in the process as possible, whether an assumption is possible.
And I've had a client call the mortgage servicer well before the ink is dry in the settlement. And they said, yes, this is an assumable loan.
Jennifer Brown: It’s not the servicer, it's the type of mortgage.
FHA, VA, those are assumable. They have an assumable component. Conventional, it says on your closing disclosure that this is not an assumable loan. However, you can apply for an assumption on a conventional loan. We are doing it. We have clients who are having success. There is a process, right? And there are, there are some limitations.
So, most servicers require that it's your primary residence. You can't have any additional liens on your home typically. So, if you have a home equity line of credit, you've got to be able to pay it off outside of this prior to being able to close on the assumption. You've got to have the means to pay for your closing costs out of pocket.
That's another thing. On a refinance, you know, we just roll everything in. So closing costs prepaid expenses, we just put that on the new loan amount. But on an assumption, you've got to have the means to bring that money to closing
Andrew Hatherley: I've been through this a couple of times where I've advised the client, I said don't call the toll-free number on your mortgage statement, because that person is not going to help you.
Now, is that accurate? I mean, that's, that's what I tell people.
Jennifer Brown: Well, you do have to call the toll-free number to get to the right person.
Andrew Hatherley: Yes. But that person who picks up the phone…
Jennifer Brown: That's probably not the right person.
Andrew Hatherley: Right.
Jennifer Brown: You need to know what to say when they answer the phone. And you say, I've been awarded my home incident to divorce.
I need to speak with someone about a mortgage assumption. Can you transfer me to that department? So that is the key is knowing how to get to the person.
Andrew Hatherley: Yeah, exactly So let's say you get to that person, and they give you hope. How long is it? How long does the process typically take?
Jennifer Brown: Well, it's going to depend on the servicer. So, Bank of America, they say it can take up to 120 days. PennyMac is 60 days.
Andrew Hatherley: I think the bottom line is that everybody's situation is, is unique and that we have a toolbox full of methods for financing. And ultimately, it's between the financial advisor and the mortgage professional to determine what would work with the individual in question.
Jennifer Brown: That's right.
And that's why it's very important to have a team. Right. You don't just need a family law attorney. You need a financial planner. You need a mortgage professional, and they need to be working in lockstep. We’re going to put our heads together and figure out what's the best way to move forward long term.
Andrew Hatherley: Exactly. Neither of us have passed the bar, but I'm sure both of us have had experience with attorneys who have some issues with simple math and I would not claim to know the ins and outs of mortgage financing, which is which is why I defer to experts like you.
Can income from alimony be used to qualify for a mortgage?
Jennifer Brown: Yes, it can. And there are time constraints. You must have received it for six months. So, this would be important for an assumption or qualifying for a new mortgage because remember the guidelines are going to mirror each other.
So if you know, I need alimony to qualify, then you need to have a timeline that allows for that. You have to receive it for six months and it has to continue for an additional 36 months. You need 42 months, and you really need a cushion, because all the stars have to align perfectly, right?
Andrew Hatherley: Great point, Jennifer. One final question, because I deal with a lot of cases where usually the wife has given up a career for a while to raise the kids and then divorce happens and they plan to go back into the workforce. How does that work in terms of qualifying for mortgage? How long does someone need to be back in the workforce before they can qualify for a mortgage?
Jennifer Brown: Great question. We do get that often in that situation you just mentioned, you may have someone who decides, whether it be the husband or the wife, to stay home, take care of the children. And Fannie and Freddie are silent on return to work, which means they don't have an actual guideline.
It's more at the underwriter's discretion and how you're compensated. So, if you're an hourly employee, they're probably going to want you to be back at work for about a year to make sure that your income is consistent and stable. Those are the two words of the day, income, qualifying income. It's got to be consistent and stable.
Well, how do we define that? If you are working variable hours, it's going to take some time to define what's consistent and stable. If you were an engineer and you go back to work, working for an engineering firm and they pay you a base salary, 99. 9%, we're going to let you close immediately. We probably won't even ask for a pay stub, just an offer letter.
It's not contingent, right? So, it depends on the situation, and it is a great question because when I get involved early enough, I can coach them.
Andrew Hatherley: Increasingly in these days, you're seeing people who've got their own businesses, and I see this with, with several women who start to ramp up the business, you know, in the later stages of divorce or, the year, the years following.
And they may not even pay themselves a salary. But the business is profitable.
Jennifer Brown: Typically, it's going to be two years of tax returns. They, there's a new guideline that if you were in the same line of work previously, they'll take a year of tax returns.
But they're going to use whichever income was less. So if you made less money working for someone as a W 2 wage earner, they're going to use that income to qualify. So, you know, the typical rule of thumb is two years, but there are exceptions to that.
Andrew Hatherley: Cool. That's good. Good to know. Look, Jennifer, a lot of valuable information here.
Really appreciate your coming on and educating our listeners and myself on some of the options out there, particularly assumptions.
Speaking of our listeners, how can they find you, Jennifer?
Jennifer Brown: Well, I do have a consulting service for assumption submissions. I can assist with an assumption submission anywhere. And you can find me at divorcemortgagehelp.com.
I originate mortgages in Alabama, Georgia, Florida, South Carolina, and Tennessee, and you can find me at JenniferBBrown.com for loan origination services. I can't help with an equity buyout refinance or purchase unless I'm licensed in the state. But the consulting arm that works with clients who are interested in pursuing an assumption, I can work with anyone.