Is there a place for the mortgage broker to help resolve ensuing financial disputes?
The disintegration of a marriage or de facto relationship brings myriad problems and distress for those involved, but there is a place for the mortgage broker to help resolve ensuing financial disputes, as Judith Tydd reports
Whichever way you look at it, divorce is an ugly term, and despite a marked rise in the number of couples calling in the lawyers, the stigma associated with divorce can be damaging.
Gone are the days when that most sacred of vows reigns true for many.
The statistics are heavily stacked against newlyweds, and in the age of soaring property, petrol and private health premiums, they look set to escalate further.
Research conducted by the Australian Institute of Family Studies shows that on average divorced people are less likely to own their home, have lower levels of per capita assets, have less superannuation and are more reliant on income support than married people.
Data obtained by the Australian Bureau of Statistics (ABS) reveals that approximately 8.8% of marriages break down in the first five years.
This comes despite a drop in the number of divorces across Australia, which decreased by 1,024 (2.0%), from 52,399 in 2005 to 51,375 in 2006.
Of all Australian states and territories, the highest number of divorces in 2006 was granted in NSW (14,482), followed by Queensland (12,175) and Victoria (12,110).
Lack of reliable default data
According to Peter Hall, country executive for Genworth Financial in Australia and New Zealand, capturing data on loan defaults to stem specifically from divorce is difficult, as it is absorbed into a broader category incorporating other factors such as illness and unemployment.
In the event that a loan does fall over, or default, 10 separate categories or items can be recorded, and according to Genworth Financial's Hardship Program data, 4% of defaults are attributed to marriage or relationship breakdowns, which can include de facto relationships.
"There's been a relationship breakdown but you don't know what caused the relationship breakdown. Nobody collects any data on that to categorically prove or disprove," Hall explains.
He concedes that there may come a time where capturing this information could prove useful to both insurers and lenders, and not simply for the sake of having the information. If there was a more consistent way of collecting and using the data it could be very beneficial.
Hall believes the onus is on the lender to provide that information to the likes of Genworth, if they do know the reason but, unfortunately, in most cases the lender does not know the reason why the default has occurred.
The interaction between the lender and the consumer is paramount to collecting this type of data for future use; however, given the sensitive nature of divorce, the borrower often feels too embarrassed to part with this information.
"They won't contact the lender. They'll go all through the loss mitigation phase until the sheriff turns up and there'll be still no contact between the consumer and the lender," he says.
Genworth Financial, who has only recently resolved its 1,000th hardship application, encourages lenders to proactively work to identify what the problem is and why the borrower is having difficulty making repayments. The lender, together with the insurer, can then work toward a resolution and potentially prevent the loan from going into default.
Originally launched in the US and Canada before Genworth Financial brought the development to Australia, the hardship program sees the insurer working directly with approximately 250 Australian institutions in educating and seeking solutions for potential default situations, including those derived from relationship breakdowns. Month on month, more lenders are coming on board, and Hall says all major lenders have joined the program.
"The interesting thing is, even with some of the solutions that were put in place going back a year and a half ago, they haven't re-offended. Ninety five per cent of the solutions that we've put in place were in fact the appropriate solution for them. Some of those banks do tend to do a better job in handling the consumer's needs in times of stress," he says.
From an insurer's perspective, Hall says it is less to do with the individual cause and more to do with the fact that a default is imminent or has occurred.
"With certain borrowers, they do feel, for whatever reason, embarrassment. There's a stigma and they could potentially lose their property and leads through to a sale by the mortgagee," he says.
In the 16 months since the inception of the hardship program, Hall says that despite instances where a solution cannot be reached, it has given borrowers the confidence and pride to know they have had a choice in selling their property and, in some cases, walk away with equity from the sale.
The resolution process itself can involve a number of parties, including the lender, insurer and borrower, and in some cases, a family law firm or counselling service.
Genworth Financial does not formally have any direct alliances or affiliations with any firms, but concedes that a consumer welfare body or legal representative can help in acting in the interest of the consumer.
"We don't have a problem with that. Sometimes when you get something like that you need someone impartial to look at the issue and try to find a solution. The borrower isn't our customer, it's the lending institution. We can sit back and analyse the situation and look to find a solution," he says.
A sensitive matter
Marco Meloni, principal of Choice Home Loans, has come across his fair share of divorces and separation, and says it is often a complicated, emotional affair. "It's a difficult time with many decisions to be made - not the least about finances."
Meloni says he takes an empathetic and careful view and tries to make the process as simple and stress-free as possible.
"Many times these people are emotionally and financially hurting. They tend to dig their heels in and get very caught up in unnecessary, expensive, stressful and drawn-out legal litigation and fighting between themselves. This is on top of the emotional family tension," he says.
Meloni advises, if possible, to come to an arrangement that is somewhat close to what both parties would like to achieve.
"Most times, this is what their solicitors are recommending and can save them thousands. Not only in dollar terms, but in time, stress and getting on with life and family. Once it hits the courts, it's long, expensive and you never know how the judge is going to make the call. Usually, the better the lawyer, the better the result."
Due to the sensitive and emotional nature of divorce, Meloni says that as a rule, he tries to empathise and take the time and care to assess each individual and their financial situation.
"I've had clients who are bordering on suicidal and feel the world is about to collapse. I tread carefully and may recommend counselling or sometimes simply listen," he says.
"Even though the wind appears totally against them, it will change and fill their sails and life starts again. This is the analogy I sometimes use with these clients."
As to the types of deals he has had to arrange, Meloni says about 50% involve one partner seeking to buy out the other (or refinance), with 45% being where one partner sells and may start again or downgrade.
"The remaining 5% just want someone to talk to."
As to the size of the market, Meloni says it is difficult to place a percentage on the divorce or separation within his client base. "I'd estimate around one in 20 of my personal data base separate or divorce."
As to generating leads in this market, Meloni says his brokerage has alliances with family law firms: "To date, we appear to be doing the referring, predominantly dealing with past clients and getting to see at least one of the parties separating, sometimes both.
"This alliance is something we need to continually work on, as there are certainly opportunities to pick or work on this type of business. My wife is an insurance lawyer and has been my best referrer."
Older and less agitated
Craig Swan, managing director of Seniors Equity Direct, says he does not interact or behave any differently with divorcing clients as he would any other.
In deliberately targeting seniors, he has seen fewer cases of divorce than perhaps other brokers, however, he says those he has dealt with are more pragmatic, more realistic and less emotional.
"It's not as acrimonious as younger age groups - they're far more measured about what they need to do. It's not super-sensitive. They'll remain friends and the whole things is more civilised," he says.
Swan has had aged couples who are going through a property settlement matter approach him. They are getting a divorce and typically, one party wants to stay in the family home.
According to Swan, on the majority of occasions, it is the male who wants to stay in the house, and as a broker, he is needed to unlock equity in the property and pay the sum to the partner.
"In one instance, a gentleman was in his late 70s and his wife was younger than him, but over the age of 60, and they had been struggling with how on earth they could meet the court orders for her property payout but not sell the home. They decided to unlock the required amount with a reverse mortgage and let 'Mrs X' move on and have 'Mr Y' stay in there," he says.
Swan believes identifying a reliable source for this type of business can be difficult, particularly considering the consumers in his targeted demographic are less likely to want a divorce (and property settlement) in later years.
Despite this, he agrees Australia's aging population will see increased demand for this service in coming years.
"I'm definitely going to come across it more. The real Baby Boomers, those in their late 50s early 60s ... no question there's been a rising level of separation much later in life so there's going to be more use of the products in this vein. Not a shadow of a doubt," he says.
CASE STUDY: THE WIGNALL FAMILY
Consider the predicament facing the Wignall family from Drummoyne in Sydney's inner-west. Being one of the early adopters of reverse mortgages, Barry and Alice mirrored the typical perception of reverse mortgage borrowers. Aged in their mid-60s, they were making ends meet, but wanted to get the monkey off their back.
They decided to take a lump sum payment on settlement of their reverse mortgage, which allowed them to pay off the bank loan that was crippling their household income position.
But for the vicissitudes of their daughter's life, this might have been the extent of Barry and Alice's involvement in the equity release market.
However, their daughter Sarah had recently separated from her husband, and as part of the property settlement linked to a particularly acrimonious ongoing divorce proceeding, had received a court endorsed demand for the sum of $70,000 to be paid to her soon-to-be ex-husband, payable within a short period.
Already servicing a mortgage, Sarah was not able to convince her existing lender to increase her loan in order to raise the required funds. Turning to her parents, Barry and Alice were unable to raise any additional funds via their existing reverse mortgage lender - since at the time they took out their reverse mortgage, they borrowed at the upper limit of their age-entitled LVR in order to pay out their existing debt at the time.
All efforts by Barry and Alice to raise even part of the required additional funds came to no avail.
Undaunted by the brick walls they encountered, Barry, Alice and Sarah came up with a plan that had every chance of success. The lack of acceptable options for Sarah in terms of a 'traditional mortgage', and for Barry and Alice in terms of a reverse mortgage, meant that they each needed to explore 'alternative' equity release products to achieve the outcome.
To this end, Sarah approached a shared appreciation mortgage (SAM) lender in an effort to refinance her existing standard mortgage with a SAM-combination loan that will allow her to borrow an additional $40,000 over and above her existing mortgage debt (mindful that her existing limiting factor is loan servicing, rather than insufficient equity). Barry and Alice are actively exploring the option of refinancing their reverse mortgage with funding from a Reversionary Home Scheme product.
Source: Craig Swan, managing director, Seniors Equity Direct
