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Mortgage denial for maternity leave is discrimination, not sound underwriting


The recent spate of cases where lenders allegedly delayed or denied mortgages to women on maternity leave may seem to correlate with stricter lending standards, but officials who enforce fair-housing laws and industry representatives say the practice is plain gender discrimination.

So far this year, the U.S. Department of Housing and Urban Development (HUD) has reached settlements over pregnancy discrimination with at least three institutions — with more expected to come soon — and are investigating another 16 incidents. Since 2010, there have been more than 170 cases. On Thursday, HUD settled with Wells Fargo for $5 million — the largest settlement of its kind — over allegations that it denied or delayed homes to potentially hundreds of woman and families. 

mortgage pregnancy discrimination

In some cases, the lenders allegedly either denied a loan outright or stopped working on it when they found out about the maternity leave because, perceiving it as negative income. Some lenders have been seemingly ruthless, denying loans even when the borrowers’ household finances — minus the wages a woman might miss on leave — were good enough to qualify them for a loan, HUD assistant secretary for Fair Housing Bryan Greene said.  

“Maternity leave is not unemployment. Women on maternity leave have jobs, they have coworkers who expect them back, they have desks and inboxes waiting for them,” Greene told Scotsman Guide News. “In many instances, the borrowers qualified financially without that income in the short term, and sometimes in the long term.

“[Lenders] deny the loan or require the woman to return to work before they close … We’ve seen cases where lenders begin asking family-planning questions — if the [woman plans] to have more children.”

So far, HUD has not seen any cases of denials based on paternity leave — that is, when a man takes off from work to care for a new child.

“I thought at one point we had a paternity case, but no, we haven’t seen anything comparable as far as a man’s gap in employment where they were refused,” Greene said.

Lack of education

Several federal laws pertaining to families and discrimination are relevant to these cases, and postcrash compliance regulations play a role.

Under the Family and Medical Leave Act (FMLA), parents can take as long as three months off work to care for a newborn. An employer cannot terminate for taking the leave. Unlike many other countries, the U.S. government does not require employers to compensate parents who take FMLA leave, but some employers do.

In most cases, the Fair Housing Act prohibits mortgage lenders from using sex, race, religion and other factors as a reason to deny a mortgage, or even set conditions for a loan — like withholding a mortgage until a woman returns from maternity leave.

HUD alleged Mountain America Credit Union did that, telling a couple, “they could reapply for the home mortgage loan only when the wife returned to work and received a paycheck.” Mountain America settled the matter this past June for $25,000, admitting no wrongdoing. The institution said that it was following underwriting guidelines set forth by its insurer, CMG Mortgage Insurance.


 

HUD has seen evidence of violations among all types of people involved in the loan process, from originators to underwriters. Many settlements have required institutions to provide extra fair-housing training for employees.


In response to questions about Mountain America’s underwriting standards surrounding the settlement, the credit union’s media contact Rachel Langlois said, “I was able to confirm that the loan was never denied. Due to the strict privacy policies we adhere to, I am unable to legally provide more specific information relative to this application.”

HUD did not specify in the settlement whether the loan was denied or delayed.

Tyna-Minet Anderson, vice president at Mortgage Educators and Compliance, said that because of the 2008 Secure and Fair Enforcement for Mortgage Licensing Act (SAFE), originators should be very familiar with housing anti-discrimination laws. Under the act, originators must take eight hours of continuing education per year, with one hour devoted to fair-lending practices.

Underwriters and mortgage insurers do not take the same training, she said, which may lead to a knowledge gap and fair lending.

“[Underwriters and insurers] are not going through continuing education, and so they’re not getting regular fair-lending training,” she said. “The one area we see the most violations [in general] is usually someone who is not a loan officer, or is a loan officer, but works for a bank or credit union that doesn’t have a compliance department in place.”

Greene said that HUD has seen evidence of violations among all types of people involved in the loan process, from originators to underwriters. Many settlements have required institutions to provide extra fair-housing training for employees.

Separate from the Mountain America matter, HUD reached a settlement with CMG for $30,000, in part, for “[maintaining] a written policy of refusing to consider the regular pay of women on maternity leave as income.”

Growing problem

Greene, who has worked in HUD’s fair-housing office for 20 years, said that 2010 was the year the “floodgates opened” on complaints about loan denials because of maternity leave.

In that year, HUD had 30 cases, then 40 in 2011, 50 in 2012, and 40 in 2013.

“2010 was the threshold year, that was when this specific issue came to light for us,” he said. “It seems that it really has been wave after wave.”

Real estate broker Desiree Patno, president of the group National Association of Women in Real Estate Businesses, wondered if institutions would deny someone a loan if this person had to take time off for surgery or to undergo cancer treatment.

“Are you going to tell me if I’m out in the hospital for two months that I’m no longer employed?” she said. “There’s no way a bank has the right to come in and say that you can’t take off time to have a baby.”

Patno also hypothesized that lenders probably think they are being cautious, not discriminatory. Fear of loan putbacks might cause over strenuous — or even outrageous — personal finance overlays.

Kristin Rowe-Finkbeiner is the executive director of MomsRising.org, an organization she cofounded in 2006 to help fight discrimination against mothers. Rowe-Finkbeiner said she began hearing more and more reports of discrimination against women several years ago.

One question lenders should keep in mind, she said, is whether they would make the same lending decision were they dealing with a father.  

MomsRising collects stories of discrimination from mothers. One thread in the mortgage discrimination cases, Rowe-Finkbeiner said, seems to be that denials or delays are caused less by underwriting than clear discrimination.

“From the stories we’ve heard, it doesn’t appear to be a bank procedural issue, it appears to be flat-out discrimination,” she said. “We’ve heard of couples being asked what type of birth control they use, if they’re newly married, among other inappropriate questions. I’m positive those are not bank protocols.”

More settlements

Despite lots of publicity around the settlements, they keep coming, and Greene said more are on the way. This past July, HUD settled with Greenlight Financial Services (now called GFS Capital Holdings) for $48,000 for allegedly delaying or denying loans to five couples. In September, HUD settled for $35,000 with FirstBank Mortgage Partners for allegedly denying a loan to a couple because one applicant was on maternity leave.

Although tight postcrash lending standards coincided with the growth in maternity-leave denials, Greene said the evidence shows that outdated thoughts about gender and pregnancy were probably a bigger factor. One of the first settlements, he said, involved a medical doctor with more than adequate income to qualify for a mortgage. All that made her different from other well-qualified buyers was that she was pregnant and planning to go on maternity leave.

“Obviously, women have been having children since forever. Women have been obtaining loans for a long time,” Greene said. “While this may be correlated to the tightening of credit [after the housing crash], it’s certainly not justified.”


 

Questions? Contact Neal McNamara at (425) 984-6017 or nealm@scotsmanguide.com.

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