Lenders Penalized for Maternity Discrimination

July 7, 2014

Federal regulators have settled with several lenders and mortgage insurers recently over alleged allegations of pregnant borrowers who were delayed or denied a loan application due to a pending maternity leave.

"The birth of a child, a joyous event for a family, should not become the basis for denying that family a home mortgage," says Bryan Greene, HUD’s general deputy assistant secretary for fair housing and equal opportunity.

HUD says it is investigating a “steady flow of complaints" centered on maternity-related mortgage discrimination.

The Justice Department and the Department of Housing and Urban Development have issued several monetary penalties this year to lenders and insurers for alleged maternity discrimination against loan applicants. On June 25, HUD reached a “conciliation agreement” with Mountain America Credit Union, with the credit union agreeing to pay $25,000 while denying any wrongdoing. Also, earlier this year, MGIC, a giant mortgage insurer, settled with HUD over cases involving 70 women, which led to a $511,250 compensation fund being established for alleged discrimination victims, alongside a $38,750 civil penalty. Last September, CMG, a private mortgage insurance provider to credit unions, settled two fair housing complaints filed by HUD and agreed to payments of $30,000. The company also denied any wrongdoing but investigators found that the company’s underwriting manual instructed insurers that "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."

Some lenders and insurers use the rationale that 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 Fair Housing Act, however, prevents any denial or delay of a mortgage application on unequal treatment based on gender or familial status.

Source: “U.S. Penalizes Lenders Over Maternity-Related Mortgage Discrimination,” The Los Angeles Times (July 6, 2014)