Michelle Frericks, Realtor®

Archive for July 22nd, 2010

HUD investigation: Pregnancy discrimination WASHINGTON – July 22, 2010 – The U.S. Department of Housing and Urban Development announced yesterday that it will launch multiple investigations into the lending practices of some mortgage lenders to determine if they illegally denied mortgages because the mother was pregnant or a family member had a short-term disability. The action follows a report published this week in the New York Times outlining lending practices that possibly violate the Fair Housing Act.

“Denying a mortgage to people just because they’re having a baby is flat wrong,” says Vice President Joe Biden, chair of the White House Task Force on Middle Class Families. “Mothers on maternity leave have jobs, they have income, and they shouldn’t have to lose their deal to close on a house because they had a baby.”

“Lenders have every right to ascertain the incomes of families to determine whether they are eligible for a mortgage loan, but they have no right to use a pregnancy or a short-term disability as a cause to deny that family a mortgage they would otherwise qualify for,” says HUD Secretary Shaun Donovan. “Having a child should be a time for a family to celebrate and must not be a cause for unfair lending practices.”

HUD enforces the Fair Housing Act that prohibits discrimination in lending based on sex, familial status (pregnancy or children in the family), or disability. The Act protects consumers from discrimination based on a borrower’s maternity leave if the borrower can demonstrate that she intends to return to work and otherwise continues to meet the income requirements to qualify for the loan.

However, a published report in the New York Times indicated that some mortgage lenders may be denying credit to borrowers because of a pregnancy or maternity leave.

“This report is profoundly disturbing and requires immediate action,” says John Trasviña, HUD’s Assistant Secretary for Fair Housing and Equal Opportunity, the office that will direct the investigations. “Lenders must not carry out due diligence responsibilities in ways that have the practical effect of discriminating against recent or expectant mothers.”

HUD’s Federal Housing Administration (FHA) requires its approved lenders to review a borrower’s income to determine whether they can reasonably be expected to continue paying their mortgage for the first three years of the loan. FHA-insured lenders cannot, however, inquire about future maternity leave.

If a borrower is on maternity or short-term disability leave at the time of closing, lenders must document the borrower’s intent to return to work, that the borrower has the right to return to work, and that the borrower qualifies for the loan taking into account any reduction of income due to their leave.

Meanwhile, HUD is also reviewing Fannie Mae and Freddie Mac’s underwriting guidelines to determine if they satisfy the Fair Housing Act, including income verification of persons taking parental or disability leave.

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