Lunch & A Divorce Lawyer Live with Attorney Peter Olson and Larry LoVetere
THIS MONTH:
This month we talk with Larry LoVetere, VP of Mortgage Lending at Guaranteed Rate. And Larry's not just any old 'mortgage person', nope, he's focused and trained specifically on the divorcing individual because not all individual situations or mortgages are the same. Divorcing individuals have very unique financial pictures that need a certified professional. Check it out.
Peter: Hi! Welcome back to Third Thursday Lunch & A Divorce Lawyer. I am attorney Peter Olson, Chicago Family Law Group.Thanks again for joining us. This month I am excited to have Larry LoVetere.
Peter: Am I quoting your title correctly Larry? Vice President of Mortgage Lending at Guaranteed Rate Mortgage, correct?
Larry: Yes, correct.
Peter: What is a quick background, your history doing that. How long have you been in the mortgage business?
Larry: I have been in the industry for about 18 years now, and have been with Guaranteed Rate for quite a while. It is a wonderful company, I love it and I am not leaving it. I'm not leaving on my own. I hope to retire here.
Peter: It seems like they've really grown in the last decade? For 10-15 years, I've only done family law divorce and child custody cases, but maybe the first five years of being an attorney, I was doing a lot of real estate. I don't remember them being that prominent, but now they seem like a huge player in the Chicago market, if not national. I don't even know.
Larry: Yes, in the last decade there has been explosive growth. The company started in the 90s but within the last several years, we just skyrocketed. We are now the third-largest lender in the country. They've really grown nationwide. It's been phenomenal. They have a great platform. The company does a great job in making sure that the customer has a fantastic experience and obviously not only is that good for the client and they refer friends and family, but it's also great for the referral partners who sent us those clients; folks like yourself, attorneys, realtors, financial planners. They can see the experience that the client had and they send another client.
For example, at this point now Coast to Coast, we work with over 77,000 real estate agents. That's a lot of real estate agents who trust us with their livelihood. We did 76 billion in lending last year and that puts us in third place in terms of the largest lenders in the industry. So, I think we're doing something right.
Peter: So, Larry, what are your certifications, is something called a Certified Divorce Lending Professional that the Divorce Lending Association sponsored. Tell me about that certification?
Larry: So, I call this the designation the CDLP, (Certified Divorce Lending Professional) and it's provided through the Divorce Lending Association. You have to complete a very intensive training program and then pass a three-hour final exam in order to earn that certification. Then you have to complete ongoing training throughout each calendar year to maintain that certification. It provides a really well-rounded background for someone who wants to focus and specialize in working with divorcing clients which is what I wanted to do. It's not just about lending guidelines but there are a lot of things that could come into play that are offshoots of the financing process. There could be capital gains tax issues, title issues, or trust issues. There are a number of things that could come into play. I'm trying to recognize when there are potential landmines ahead and I tell people, I'm not an attorney and I don't play one on TV, but I know enough to recognize that you may be stepping on a landmine. I would really recommend that you speak with a family law attorney before we move forward or check with your tax accountant or your financial planner. I hate to have an unfortunate incident happen.
That training is very comprehensive and it puts me in a really good position to be an assistant to you in helping you, help your clients, to have a successful outcome as it relates to the real estate and financing goals. I pursued it because, over the years, I had a lot of folks that came to me that were going through a divorce. They would share with me what other lenders were telling them, and what some attorneys were telling them. I started thinking, “there's some bad advice being passed around here.” I think there's a need for someone in the mortgage industry that specializes in this. There are over 600,000 loan officers Coast to Coast in this country and there are only a handful of us that have the CDLP certification.
Peter: Do you have any numbers with that association or how long has the qualification been around Bell Park?
Larry: The divorce lending association has been around now for almost 10 years and it was actually founded by someone who used to work at Guaranteed Rate. She had focused on working with divorcing clients for almost three decades. She saw a need way back when she was in the industry before I was. She was actually in the same office as me, oddly enough. She saw a need so she focused on working with divorcing clients, developed a ton of expertise and connections throughout the industry. Then at one point, she decided there is a need for more than just one person in the industry, 600,000, that knows what they're doing as it relates to working with a divorcing client so she decided to start the Divorce Lending Association and offered training and certification to others. Now she does not originate loans. She is not working in the mortgage industry. She trains the loan officers full-time.
This is one of the few designations or certifications that are actually allowed by the licensing authority in the mortgage industry. Back in the day, there were different programs that you could go through and be a certified mortgage pro or certified this or certified that. After the housing crisis of 2008 and 2009, the government passed a massive amount of legislation on the real estate industry and one of the things they said is, “unless we approve a certification, you are not to claim to be certified or a pro in anything.” You used to be able to see loan officers and the other initials for this or initials for that, and all of that's been gone away. This is one of the things that's okay though. This is one of the things they signed off on and said, “this is good.”
Peter: That's interesting, certain states lawyers can be certified in different things. In Illinois, you cannot have any certification or specialization. I don't even know the exact initials or title of the financial planner designation for divorce. I run into that one semi-frequently. I think you are the first person I've run into with the Certified Divorce Lending Professional initials. I was digging through the association's website a little bit before we jumped on this call.
What would you say are the percentage deals that are divorce-related you're doing, do you have any idea on those numbers?
Larry: It's a sizable percentage of the overall clients that I worked within a given year because of the background that I have and developing a reputation in this niche. You mentioned financial planners a minute ago, the other designation is Certified Divorce Financial Analyst (CDFA). So, I work with a number of those folks, as well as family law attorneys. I'm kind of a go-to person when people have questions about various aspects of a client qualifying for a mortgage. I tried to again provide assistance to all the other divorce professionals. I put out a lot of information each month that I think will be useful to them in their practice. People appreciate that but it is not just about sending me a client, I'm trying to help them to help their clients.
Peter: I tell you, back when I was doing real estate deals, as an attorney, there were a lot of closings, that was some of those boom years 2003, 2004 and 2005. I was doing a lot of real estate. I was a mortgage general practice who is working for somebody else and it was like, “Hey Peter you can't schedule anything else on Fridays except doing your five real estate closings.” I remember one of the people I even worked for, one of my bosses. I always found that in real estate, particularly residential real estate deals, the clients or the customers didn't always necessarily know what good representation was? As an attorney, they need the same in terms of what you're talking about. My point being is, it was pretty hard to not eventually get a deal closed as an attorney, but you as an attorney, if you were like, “I thought it was a pretty good fastidious real estate closing attorney”, you know the difference between this. This was a really good representation where you were being thorough probably saving your clients some money and then this other person who frankly, a deal was still closing but you weren't doing stuff right. You weren't doing the real estate taxes right. You weren't doing different things right that probably didn't sink the deal but it probably did cost your client a few thousand dollars. I think a lot of clients couldn't discern the difference and I think the bridge to the issues we're going to talk about with, how to lend in a divorce context, isn't it a bit like that whereas a deal probably gets done eventually but there's a lot of nuance there that is a lot better if you know what you're doing versus generic mortgage broker?
Larry: I've said that for years as a consumer. It's got to be awfully difficult to determine whom they want to align themselves with. As I mentioned earlier, there are 600,000 loan officers in this country, how do you figure out who the good ones are? There are a lot of family law attorneys. Underneath the financial planning banner, you've got a lot of different segments there. You've got those that are more in line with selling stocks and investments, others that are fee-only planners that will create financial plans for someone but they're not pitching a stock or a bond. There are a lot of different segments to the financial planning industry. As a consumer, you sit back and look at it and say, “Gosh, I don't know whom to pick?” Because they all sound good and they've got expert education. I certainly understand what you're saying, this is going to be tough from a consumer's perspective. Financing on a mortgage can potentially get closed but it's all the little things along the way. It could be different from one lender and one loan officer to another in terms of how well their process goes.
Peter: Could we go down a little bit of a hypothetical and really dig into maybe tips and best practices for somebody considering divorce, maybe they're in a divorce, post-divorce, how to do some financing? Maybe just compare that a little bit to just your average person, let's say a non-divorcing person who wants to grab a mortgage. I'm more than knocking on wood, I actually worked pretty hard at building a strong marriage with my spouse. Me and my spouse, we actually just sold a house and we're in a rental, just as we figure out our next move. So, we're a non-divorcing couple. I'm calling us an average couple. What do we need to do to get a mortgage? The simple cliff notes version and then I want to track down, how does that look different as one might have sort of a divorce piece to it? What is the average? Peter Olson is a boring married man. He has some income. What are the numbers and the metrics I need to grab a mortgage and then let's talk about a more divorce scenario?
Larry: Typically, what I would do in a case like yours is collect some basic information about what you do for a living and your income from that job. Then I would normally ask you to send me certain documentation, specifically pay stubs, bank statements so that I can verify if we're talking about putting 20% down. Let's say just to pick a number that we've actually got the funds on hand to do that. Then I'll typically ask for tax returns especially if someone is self-employed because there are often a lot of write-offs and deductions that impact what the income is that's usable for mortgage qualification.
So, I collect all the basic documents upfront and then build out numbers to determine the maximum price range that the borrower qualifies for and I will show them what the estimated monthly payment is. I would explain the different loan program options that they have available to them. It could be conventional financing versus FHA. It may be a 30-year term versus a 20-year term. That's a typical approach that we use with the typical client. I haven't had a client that approached me who was not actually working and wanted to get mortgage financing. A typical scenario is a person who's employed either a W-2 employee working for an employer and receiving W-2 income or they're self-employed and own their own business.
As it relates to a potential divorcing client, there could be some significant differences there. A very common scenario is a client will be referred to me who is going through a divorce and wants to refinance the marital home that's been decided that one spouse or the other is going to keep the marital home. They've been directed to refinance the mortgage usually for a couple of purposes. One is to remove the other spouse from the title and the mortgage to that home, but then also often they're going to tap into the equity in the house. It's called cash out where they are able to take money out of the house to compensate the other spouse for their portion of the equity in the home. Some of the challenges we run into are very often when the divorcing couple purchased that home, both spouses were working at the time and we had two incomes to work with. What we often see now though is along the way one of those spouses became a stay-at-home spouse and took care of the kids in the home and they quit working. That's usually the person that's going to retain the house and wants to obtain the new mortgage. So, the challenge we have is they're not working.
Now what do we do? Typically, that person might be receiving maintenance and child support and there are very specific lending guidelines that address when we can use that and how we can use those sources of income to qualify. We have to really look very closely to make sure that those are actually usable sources. We may have to create distributions from retirement accounts to add to the income. If the divorcing client is employed of course and they've got W-2 income or they're self-employed and own their own business, then we'll take the traditional approach and get the pay stubs and tax returns and we'll use that income.
In addition to employment, they may be receiving child support and maintenance but often it's just child support maintenance that we have to work with and we have to figure out what we can do. Then we're going from potentially two incomes when they originally purchased the home. Two incomes give you typically more purchasing power and allow you to pursue a higher price range. Now we only have one income to work with and we have to find a way for that person to qualify using one income for a price range that they originally qualified for using two incomes.
Peter: How do you on the lender’s side look, the Fannie Mae and Freddie Mac crowd, how does child support maintenance need to look to me. I'm going through my hypothetical divorce and I'm receiving child support. Isn't there some magic language like you need to be receiving it consistently and blah blah blah for six months. What's the language? Because I think that's actually really important in terms of how the divorce is structured and timing on things. What is that picture that I'm inartfully explaining there?
Larry: Yes, you're bringing up an excellent point and that in itself could derail the borrower's hopes of qualifying for mortgage financing if things aren't structured correctly. With child support and maintenance within the lending industry, we have to be able to document that the borrower has been receiving those sources of income for a minimum of six months, therefore we can use that income to help them qualify for a mortgage. We call it the 636 rule. We have to show that they've been receiving it for at least six months and then we have to be able to demonstrate that they'll be receiving it after post-closing, that they'll be receiving those sources of income for at least 36 months going forward.
What often happens is the six-month rule is a backbreaker. Very often and I've seen it any number of times, a family law attorney will write the settlement agreement in such a way that they identify that the retaining spouse is going to refinance the mortgage and they have 90 days to do so and if they don't complete the refinance within 90 days, they have to put the house on the market and sell it.
Without regard for the fact that we're going to be using maintenance and child support to qualify, we can't use that for six months, so we have to have the mortgage financing done in 90 days but we don't have any income to work with for six months.
Peter: That's a great tip. I had historically done that and I think that was pretty standard practice until I've spoken to people like yourself and some other people.
Larry: 90 days was a very typical number in the settlement agreement. You touched on something a minute ago. It's very important to have the right team of professionals if someone is going to have people on your team, I call it the divorce team, who know these nuances. They can set up the divorce decree in such a manner that you can have a successful outcome as opposed to having an unfortunate outcome. The six-month issue is the first thing and then the 36 months, if people don't do the math, they don't realize specifically with child support, they have to be able to show that they're receiving it for at least 36 months post-closing.
Let's say that they have three children and their ages are 16, 17, and 18 years of age. Most of the time the spouse is only going to receive child support until the child turns 18 years old. So, someone might write up the settlement agreement and say okay they're going to receive $300 a month per child (that sounds great on the surface), $900 a month in child support. But when they go to apply for a mortgage and I look at the divorce decree, I say well, your children are 16, 17, and 18 years old and if the child support ends at 18, we can't count the $300 for the 18-year-old. The 17-year-old will be 18 in a year, but I have to be able to show three years of continuance support for the 17-year-old and the same thing with a 16-year-old. They'll be 18 in two years and I need to show 36 months. So, we actually have no child support that we can use to help the client qualify for mortgage financing.
While the intent in the divorce decree gets okay, we've got child support coming in and hopefully, this child support will help in qualifying the client for a mortgage, actually none of that child support is usable in that particular circumstance. They don't sit down and do the math, they don't realize it's not helping.
Peter: What are you functionally looking to say somebody has received six months of support. What does a lender want to see on that, I know from where I'm sitting good proof of child support payments would be a payment history from the Illinois State Disbursement Unit. What are you wanting to see?
Larry: We'll typically ask for bank statements and you touched on a good point. It's not just that the client receives the payment, it is that they receive the payment when it was supposed to be received. So, usually in the settlement agreement, it will state specifically, “must pay on the first of the month or the 15th of the month” or whatever it is. If the payment history is inconsistent, we had it on the first of the month, one month, they didn't get it till the end of the next month, if they didn't get it at all for one month, that's inconsistent income, so even though they're receiving the maintenance and it's coming in sporadically, it is potentially not usable for mortgage qualification. We will use the bank statements and we'll see a line item entry when that money went into their account. Then we can go further than that if we need to but that's typically the document that we'll use.
Peter: I see I'm just curious because when you have clients who are paying or receiving child support, they really are all different ways you see it done. We just finished up a case this morning. It's talking to one of our more junior attorneys about what it looks like post cake. We're going to send a garnishment to this guy's employer and then our client will eventually get the money from a place called, the Illinois State Disbursement Unit, which goes from employer to the Illinois State Disbursement Unit to our client, the receiver, or the parent with the kids basically.
So, if I'm doing that refinance post-divorce, paying 50% of the equity of a home to my wife, what are the terms or what am I grasping for? How can I make the terms of my refinance most favorable? Isn't there some different terminology these days, like cash out, refi, or something else? I thought that's been kind of a moving target. Could you inform me a little on that?
Larry: This is a mistake that I see made all the time. When a spouse is going to retain the marital home and they're going to refinance the mortgage and take cash out to pay off the spouse for their portion of the equity in the home, I would do that loan as what we call an “equity buyout loan.” The reason that that's important is because an equity buyout can be done as what we call a “rate and term refinance.” A rate and term are just typically when someone wants to refinance their mortgage and lower their rate and their payment. A rate and term refi have very attractive very aggressive interest rates and with the rate and term refinance, you can access up to 95% of the value of the home.
For easy math, let's say that the house is worth $100,000. The client can take out a new loan up to $95,000. We can access almost all of any equity that's there in that home. So, an equity buyout allows you to do a rate and term refinance. Most loan officers in the industry will do this as a cash out refinance. Cash out refinance comes with interest rates about a half-point higher than a rate and term refi would have and you can't access as much equity in the home with cash out refinance as you can with the rate and term. With the cash out refinance, you can only go to 80% over the house. On a $100,000 house, you can take out a loan of up to $80,000. The important reason is that may not be enough to compensate the other spouse and now we have to look at giving the other spouse other assets to make them whole so to speak.
Peter: So, the equity buyout loan, I don't need the full explanation, but is it available to the divorcing spouse (YES), whereas I wanted to redo two of my bathrooms and it's not available to me in that situation, correct?
Larry: No. If the purpose of your refinance and the reason for taking cash out is to remodel the home, pay off debt or pay for college tuition, that is truly a cash-out refi. The equity buyout is only allowed in the circumstance where a divorcing client is using it to refi an access equity to pay off the other spouse.
Now here's a key thing too. The equity buyout plan must be addressed in the settlement agreement, which I see all the time where family law attorneys think along the lines, “okay the client will do an equity buyout” but if they don't put it in writing in that document, an underwriter will not allow an equity buyout to be executed. It will revert to a cash-out refi. It's very important for the family law attorney to reference the equity buyout in the settlement agreement.
Peter: I think that's new information for me, the 636 specifically. I had learned and gone into that equity buyout loan. Have they just been updated with Fannie Mae and Freddie Mac? (what am I thinking about, that was a discussion with somebody earlier 2021, let's put it that way)
Larry: With the equity buyout, Fannie Mae and Freddie Mac are the two agencies that write the guidelines for conventional financing. Most people seem to think that they're pretty much the same, but they're not. Each of them has very unique guidelines. In some cases, they're very comparable and the same, and then there are a lot of other areas where the rules are different. You do have to be careful and that's my job as a CDLP is to know all the nuances and know which type of financing we're going to go with and which agency we're going to go with? We're a direct lender, so I can go directly to Fannie Mae or Freddie Mac but I have to make sure that their guidelines match up with my client's scenario.
You mentioned, coming back to the 636, there's one other thing that I wanted to mention and we're talking about that six-month waiting period. You have to document them having received that income. One of the things that can be done is I call it “starting the clock.” We can start the clock on that six months if we get a temporary order from the judge stating that the other spouse is required to begin making payments for maintenance and child support. While the divorce may not be final, they may have already hammered out what those numbers are going to be. The divorce just isn't final yet so the other spouse hasn't started making those payments yet, but if we can get an order from the judge for the other spouse to begin making those payments, we start the clock on that six-month window.
Peter: So, temporary child support or maintenance, particularly child support of their young children is pretty common. The case is going to take a little while. Does the temporary number and the permanent number need to be the same to start the clock or what if it's a different number?
Larry: The number could be dramatically different. Now, it really needs to be close to ….
Peter: Temporary child support is very common. I would say what's also very common though in my seat is I feel like the permanent number and the temporary number are often different, so I'll have to keep that in mind, see if I can thread that needle because if the case is going on for a while, people's incomes have moved, this and that, you're gonna rejigger the numbers, something set probably. I would say Bell Park nine months prior unless somebody is in a job with a lot of movement in that income, your income probably is going to move a little in a nine-month to a year period, so therefore child support might move a little.
Larry: I'm glad you brought that up because it does have to be very close. This is from an underwriter's perspective and this isn't just at Guaranteed Rate, this is industry-wide. The underwriter's goal is to verify the consistency, stability and continuance of that income. The numbers do need to be closed. In the past, there was more fluctuation. It is kind of a fluid situation as you mentioned where people's income can potentially change. They can change jobs before the divorce is final, folks that are in commission-based industries or the businesses where income is not always a set number every month, but that is something that can be done starting the clock so we can arrive at that six-month window sooner rather than later.
Peter: On my end, I am going to wrap pretty quick here. Today as we're talking, I am literally messing around with the terms of, are we going to sell a property in a divorce or are we going to refinance it and we're trying to like do the final divorce prove up on Friday. So think about all this ability and attempt to be proactive and then you got these clients wiggling around till the last minute. Thankfully, in this deal all of what you just said isn't relevant for the most part because nobody's getting child support or maintenance, but if they were, all of this stuff would be like, it is sometimes very difficult to get a client pinned down on some of these things where you can create that six-month window or that 6?
Larry: It could be a very challenging situation. Setting up distributions from retirement accounts as a national income source can be challenging. Depending on the nature of the clients, there could be a lot of assets in real estate that need to be divided. It could be very challenging for you as the family law attorney to try and be fair and equitable. The assets are not all the same. I have seen situations where spouse A has 500,000 in their column and spouse B has 500,000 in their column. The spouse B's are all taxable assets whereas spouse A's are not, so that is a fair division of assets. There's a lot of moving parts for you as a family law attorney, it can be very challenging.
Peter: Larry thanks again for joining me. Tell my audience this, who's kind of a typical person or a client you're working with and how can people reach you? How and where?
Larry: Yes, I appreciate that. I work with all sorts of different clients, self-employed, employed, different income levels, different walks of life. I'm there to help everybody, in fact it's very interesting for me to meet people from different backgrounds. I work with all types of different folks from high networks to first-time homebuyers.
As far as reaching me, my cell number is (630) 306-5060. My email address is (larry.lovetere@rate.com). You can also find me on LinkedIn and Facebook as well.
Peter: Thanks again for joining me Larry and I'll surely keep you in mind for referrals. I'm always yearning for good business partners whether it's a mortgage or a divorce. It usually ain't a one-man-band. I'm trying to be narrow and specialized in what I'm doing and likewise with you. It's a team right. Unless it's the simplest case that once in a while you run into but the majority, it's like you need a few people whether it be the lender, the financial planner, realtor, therapist. It's teamwork where you're doing a disservice to your client.
Larry: Absolutely right, that divorce team having the right people in your corner is so important so that you have a successful outcome. I know that a successful outcome seems like a strange term when someone's going through a divorce but you can't accomplish the goals and having a divorce decree with respect to retaining the home and other things, so having the right people in your corner is so important. I want to thank you for having me on the podcast today. I really appreciate it.
