It doesn't get much publicity compared with other home mortgage issues, but it appears to be a persistent problem: Lenders and mortgage insurers allegedly delay or deny loan applications when a borrower is pregnant or heading for maternity leave.
Their rationale: When a borrower or co-borrower is on maternity leave or expected to be on leave, mortgage companies assume that the household income may decline for an extended period, or the woman may not return to the same employment and salary, thereby increasing the risk of delinquency or default.
But federal law on this is emphatic: Cut it out. Any denial or delay of a mortgage application, according to fair lending regulations, violates the federal Fair Housing Act, which prohibits any form of unequal treatment based on gender or familial status.
Both the Justice Department and the Department of Housing and Urban Development have settled with — and levied monetary penalties against — a variety of lenders and insurers on maternity discrimination grounds during the last several years. The list includes Bank of America, PNC Mortgage, Cornerstone Mortgage and MGIC, the giant mortgage insurer. The MGIC settlement, involving 70 women, led to the creation of a $511,250 compensation fund for the alleged discrimination victims and a $38,750 civil penalty.
The latest settlement came June 25, when HUD outlined a "conciliation agreement" it reached with Mountain America Credit Union, a $3.6-billion-asset credit union in Utah and the 35th largest in the country. Mountain America, as did the previously mentioned companies, denied any wrongdoing as part of the settlement.
According to HUD, which has a specialized staff that handles fair housing and lending complaints, a married couple who applied for a mortgage from their credit union had the application put aside because the wife told the loan officer that she was on maternity leave. Allegedly the credit union told the couple that they could reapply "only when the wife returned to work and received a paycheck."
Mountain America, which agreed to pay $25,000 to settle the charges, said it was following the underwriting requirements of the private loan insurer it uses, CMG Mortgage Insurance Co. CMG, which changed its name to Arch Mortgage Insurance this year, said it had no comment on the Mountain America agreement with HUD.
But last September, CMG, a major provider of private mortgage insurance to credit unions, settled two fair housing complaints filed by HUD and agreed to make payments of $30,000 while denying any violations of federal law.
The agreement quoted language from the company's underwriting manual: "If the applicant is on family medical leave of absence and is not expected to return to work before the loan closes, only the income the applicant is currently receiving may be used to qualify." If the person seeking the mortgage "is not currently receiving income," the underwriting guide instructed, "their regular full-time pay may not be used to qualify — even if they plan on returning to work at some future specified time."
Commenting on the latest settlement, Bryan Greene, HUD's general deputy assistant secretary for fair housing and equal opportunity, said: "The birth of a child, a joyous event for a family, should not become the basis for denying that family a home mortgage." A spokeswoman for HUD said that "there is a steady flow of complaints" on maternity-related mortgage discrimination and that the department is working on additional cases.
Why does this type of alleged breach of the law continue within the mortgage field?
Part of the problem, says Kristin Rowe-Finkbeiner, executive director of MomsRising, a Seattle-based national advocacy group with more than 1 million members, is that some lenders have "outdated notions about women in the workplace, if indeed those notions were ever valid." These include the assumption that a woman's commitment to the workplace ends or diminishes once she has a child or that a birth in the family will mean the mortgage payments will stop or be late.
"It's ridiculous," Rowe-Finkbeiner said. "Three-quarters of moms are working, many of them at more than one job," because they know the income they earn is essential for the economic support of their families, including paying the mortgage.
Whatever the attitudinal cause of the problem, though, this much is clear: Lenders legally cannot turn down an otherwise qualified applicant — or tell her to come back later — simply because she is pregnant or taking family leave.