April 20, 2024

Mortgage Company Settles U.S. Discrimination Case Involving Maternity Leave

The complaint, brought by the Department of Housing and Urban Development, says Cornerstone Mortgage, a Houston-based lender that has offices in 14 states, may have violated the Fair Housing Act, which prohibits discriminatory lending based on sex, disability and family status, including pregnancy or simply having children, among other things.

The department said it was investigating similar complaints from prospective borrowers involving other lenders.

Cornerstone Mortgage initially approved a mortgage for Elizabeth Budde, a 34-year-old oncologist in Kenmore, Wash., while she was pregnant. But soon after she had the baby and the lender learned she was on maternity leave, Dr. Budde said, it rescinded the approval via e-mail.

Since “maternity leave is classified as paid via short-term or temporary disability income,” the e-mail said, that income could not be considered. With the help of her real estate firm, she eventually requalified after proving that she was receiving her full salary during her time off.

While Cornerstone has agreed to pay Dr. Budde $15,000 in damages and set aside $750,000 for other female borrowers treated similarly, it denied the accusations and maintains that all its actions have been “legally and prudentially sound.” If no other women file claims, the money will be returned to Cornerstone.

The department said it would investigate after learning about Dr. Budde’s situation last July in an article in The New York Times, which reported that lenders were taking a harder look at prospective borrowers, like parents of new babies, whose income had temporarily fallen.

John D. Trasviña, the department’s assistant secretary for Fair Housing and Equal Opportunity, said that 25 to 30 women had come forward since then, and that the department was investigating nearly a dozen of those cases from other lenders.

“While lenders must determine their customers’ income and other resources, some may go overboard in order to make it a safe loan or to make sure they meet all government requirements,” he said. “Here, pregnant women were singled out and going overboard may violate the Fair Housing Act.”

The Fair Housing Act protects borrowers from being discriminated against based on 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 a loan.

But the problems have arisen because of lenders’ skittishness after the housing crisis that can be traced, at least in part, to new quality-control measures that went into effect last year. Fannie Mae and Freddie Mac, the two government-sponsored agencies that buy the bulk of conventional loans from lenders, have tightened their system of checks and balances. Both agencies require lenders to recheck a borrower’s financial situation right before a loan closes if that borrower’s situation has changed.

And while both Fannie and Freddie have always required that borrowers have enough income to pay for the loan on closing day, some lenders had begun to interpret the rules in a way that disqualified new mothers on maternity leave. Lenders have become increasingly conservative in their interpretation of the rules, in part because they could be required to repurchase loans that do not meet Fannie and Freddie’s underwriting requirements. And the number of those repurchase requests has risen sharply in recent years.

Mr. Trasviña said the agency was providing additional information through Fannie and Freddie to help clarify for lenders when those interpretations become discriminatory. Both Freddie and Fannie said if the mother was planning to return to work and her regular income qualified for the loan, a short leave should not be an issue.

Article source: http://feeds.nytimes.com/click.phdo?i=7c38d9c615a7bb9bab19d06bfd1abb07

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