Are mortgage lenders defying federal fair housing laws by denying home loans to pregnant women, new moms and their partners or spouses?
In a recent story, the New York Times wrote about how mortgage lenders had tightened loan requirements so much that new mothers who were at home on short-term disability were denied a loan because their disability income was less than their full-time income.
The story was astonishing, as federal law prohibits sex discrimination. The action also seemed to run afoul of fair housing laws.
The Department of Housing and Urban Development (HUD) took note and on July 21, 2010 announced that HUD would investigate mortgage lenders who were discriminating against pregnant women and new parents.
“Denying a mortgage to people just because they’re having a baby is flat wrong,” said Vice President Biden, Chair of the White House Task Force on Middle Class Families, in the HUD press release. “Mothers on maternity leave have jobs, they have income, and they shouldn’t have to lose their deal to close on a house because they had a baby. I applaud HUD for taking action on this practice that could potentially affect untold numbers of families.”
“Lenders have every right to ascertain the incomes of families to determine whether they are eligible for a mortgage loan but they have no right to use a pregnancy or a short-term disability as a cause to deny that family a mortgage they would otherwise qualify for. Having a child should be a time for a family to celebrate and must not be a cause for unfair lending practices,” added HUD Secretary Shaun Donovan.
It falls within HUD’s responsibility to enforce the Fair Housing Act. The Fair Housing Act prohibits discrimination in lending based on sex, familial status (pregnancy or children in the family), or disability.
The Fair Housing Act also protects consumers from being discriminated against based on a borrower’s maternity leave if the borrower can demonstrate that she intends to return to work and can otherwise continue to meet the income requirements to qualify for the loan.
The New York Times reported that some lenders may have sidestepped the Fair Housing Act by telling new moms that they didn’t qualify for a mortgage while on short-term disability, and that they should reapply for their mortgage once they were back at work full-time.
“This report is profoundly disturbing and requires immediate action,” said John Trasviña, HUD’s Assistant Secretary for Fair Housing and Equal Opportunity, the office that will be directing these investigations. “Lenders must not carry out due diligence responsibilities in ways that have the practical effect of discriminating against recent or expectant mothers.”
Both Fannie Mae and Freddie Mac accept documentation proving that the borrower has a full-time job and will return to full-time pay on a certain date. This is supposed to be enough to qualify a borrower’s income.
It’s no secret that lenders have begun to verify every piece of data that is provided on a loan application. But the verifications in some cases have gone to extremes, with borrowers who have otherwise excellent credit, plenty of cash and a property that appraises out in value, being turned down for seemingly questionable reasons.
According to HUD’s release, the Federal Housing Administration (FHA) “requires its approved lenders to review a borrower’s income to determine whether they can reasonably be expected to continue paying their mortgage for the first three years of the loan. FHA-insured lenders cannot, however, inquire about future maternity leave. If a borrower is on maternity or short-term disability leave at the time of closing, lenders must document the borrower’s intent to return to work, that the borrower has the right to return to work, and that the borrower qualifies for the loan taking into account any reduction of income due to their leave.”
A spokesperson says HUD is currently reviewing Fannie Mae and Freddie Mac’s underwriting guidelines to determine if they satisfy the Fair Housing Act, including income verification of persons taking parental or disability leave.
For basic information about the Fair Housing Act, along with instructions on how to file a claim if you believe your rights have been violated, go to HUD’s website: http://www.hud.gov/offices/fheo/FHLaws/yourrights.cfm