In the aftermath of the excess lending and de-regulation of the Millennium Boom, in some respects lenders have become a bit too cautious.
The issue:
- An expecting, working parent on maternity or paternity leave applies for a mortgage.
- For various reasons, the lender refuses to consider the individual’s paid maternity/paternity leave or disability pay when qualifying the homebuyer for a mortgage.
- The homebuyer is given a choice between:
- excluding the income of the parent on leave towards mortgage qualification (which often means being denied for the mortgage amount sought);
- or waiting to re-apply after they return to work once the parent’s leave is over.
This scenario occurs fairly often, but it’s a violation of the Fair Housing Act of 1968. The Fair Housing Act prohibits lenders from refusing to grant a mortgage based on an applicant’s:
- race;
- color;
- national origin;
- religion;
- sex;
- handicap; or
- familial status (covering pregnancy and parents on maternity or paternity leave). [42 United States Code 3604]
The Department of Housing and Urban Development (HUD) reports steady complaints of lender discrimination against working parents on maternity/paternity leave since 2010.
The likely reason for the uptick in 2010 is tightened credit access following the 2008 recession, as Fannie Mae and Freddie Mac became more likely to force the bank to “buy back” any mortgages that don’t comply with their strict underwriting criteria. As a consequence, lenders have refrained from qualifying buyers with less than stellar finances and buyers are forced to jump through extra hoops to qualify.
Editor’s note — Neither Fannie Mae nor Freddie Mac direct a lender to treat an applicant on maternity/paternity leave pay differently, but some lenders choose to avoid the perceived risk of new or soon-to-be parents or simply don’t expect the parent to return to work after their leave is up.
Due to the less certain financials of new parents, lenders don’t want the increased risk of having to buy back a loan they did not underwrite properly. Therefore, they seek to only consider guaranteed income for qualifying purposes. But these lenders are unaware that refusing to consider an applicant on maternity/paternity paid leave or disability pay is a violation of the Fair Housing Act.
Lenders who violate the Act risk having to pay their victims of discrimination thousands of dollars in relief.
Agents: has your client been a victim of lender discrimination? Send them to HUD’s website to file their complaint online. Or, if you are in California, call the San Francisco HUD office at: 800-347-3739.
