Maternity bias persists in home lending

Law prohibits denying mortgages on family leave status, but problems persist

It doesn’t get much publicity, but it’s a persistent problem: Lenders and mortgage insurers delay or deny loan applications when a borrower is pregnant or heading for maternity leave.

The rationale: When a borrower or co-borrower is on leave, mortgage companies assume the household income may decline for an extended period, or the woman may not return to the same job and salary, increasing the risk of delinquency or default.

Federal law is clear: denying or delaying a mortgage application violates the Fair Housing Act.

Both the Departments of Justice and Housing and Urban Development have settled with, and levied fines against, multiple lenders and insurers on maternity discrimination grounds in recent years. The list includes Bank of America, PNC Mortgage, Cornerstone Mortgage and giant mortgage insurer MGIC, whose settlement involving 70 women led to the creation of a $511,250 compensation fund for discrimination victims and a $38,750 civil penalty.

On June 25, HUD outlined a deal reached with Utah-based Mountain America Credit Union, the 35th largest credit union in the country, with $3.6 billion in assets. Mountain America, like the previously mentioned companies, denied any wrongdoing as part of the settlement.

According to HUD, a married couple who applied for a mortgage from the credit union had the application put aside because the wife told the loan officer she was on maternity leave. The complaint says that the credit union told the couple that they could reapply “only when the wife returned to work and received a paycheck.”

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Mountain America said it was following the underwriting requirements of its private loan insurer, CMG Mortgage Insurance Company. CMG (now Arch Mortgage Insurance) had no comment.

However, in September, CMG settled two complaints filed by HUD and agreed to make payments of $30,000, while denying violating the law. The agreement quoted the company’s underwriting manual, which said if the applicant is on family leave “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.”

A HUD spokesperson said “there is a steady flow of complaints” and the agency is working on more cases.

Why does this continue? Part of the problem, says Kristin Rowe-Finkbeiner, executive director of MomsRising, an advocacy group, is that some lenders have “outdated notions about women in the workplace,” including the assumption that a woman’s commitment to work ends once she has a child or that a birth means mortgage payments will stop or be late.

Whatever the cause, 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.

Kenneth Harney is a syndicated columnist.