The Justice Department and the Department of Housing and Urban Development (HUD) have issued several monetary penalties this year to lenders for alleged maternity discrimination against loan applicants. Investigators found that lender’s underwriting criteria stated 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.
The lenders rationale is a borrower or co-borrower on maternity leave reduces the household income for an extended period. Many also posit that if the woman chooses not to return to work, that could increase the risk of default or delinquency. The majority of lenders I’ve used when submitting loans that had maternity involved required a full paycheck stub “after” the new mother returned to work, before they would fund the loan, if the mother’s full income is needed to qualify.
This isn’t the first time HUD’s interpretation of Fair Housing laws conflicts with the new Dodd Frank Regulations Qualified Mortgage and Ability to Repay . In a nutshell the new regulations dictate to lenders they have to verify that the borrowers current and expected income, employment status, and debt to income ratios.
If you think about it, it’s very difficult to originate loans in today’s regulatory environment, and not have regulatory risk. Unfortunately, instead of the various agencies that regulate mortgages working together and defining the regulation so there are no conflicts, they want the courts to figure it out. The problem is it takes a big lender’s deep pocket to sue the agencies, but they normally determine it’s easier to settle. This doesn’t help the intermediate and smaller lenders. Ultimately lenders are getting out of the business making certain loans, or they have to increase the fees to the borrower to cover the regulatory compliance and risks. A typical question: Do you want to fight the Consumer Financial Protection Bureau or HUD?
It is also true that many women that go on extended maternity leave don’t go back to their job. What happens when a lender approves those loans and then the loan enters on default? The same regulators and judges that claim discrimination now, afterwards are going to say that the lender was irresponsible by approving the loan.
If you are in the Los Angeles region, have any questions or real estate sales or financing needs, feel free in contacting me.
Ron Henderson GRI, RECS, CIAS
Multi Real Estate Services, Inc
Gov’t Affairs Chair – California Association of Mortgage Professionals
Real Estate market, Mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley