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WASHINGTON -- Two new legal actions by federal fair-lending regulators suggest that the mortgage in dustry may need to address whether pregnancy or maternity leave should ever constitute reasons for turning down a home mortgage or postponing a closing.
In one case, a Seattle-area physician settled a discrimination complaint with Cornerstone Mortgage Co., a national mortgage banking firm based in Houston.
The Housing and Urban Development department alleged that it initially approved the applicant for a mortgage but later said that her income while on maternity leave could not be considered in qualifying for the loan.
Regulators said that violated the Fair Housing Act because it limited, based on her "sex and/or familial status," her ability to obtain financing.
Cornerstone's settlement agreement denied any wrongdoing and said the issue arose because the applicant "failed to disclose ... that she would be on leave from her employment."
In the second, HUD accused MGIC, one of the country's highest-volume mortgage insurers, of discrimination against a Pennsylvania homeowner, alleging that the company denied a Pennsylvania couple's application for insurance "unless and until the wife returned to work from maternity leave." An MGIC spokesman said the company's policy is not to comment on pending litigation. Lenders and loan officers say they have not received specific-enough instructions from the giants of the mortgage arena -- Fannie Mae and Freddie Mac -- on how to handle maternity leave situations.
John Trasvina, HUD assistant secretary for fair housing and equal opportunity, said federal law on the issue of maternity leave is clear: "Pregnancy is not a basis to deny or delay a loan. Mortgage professionals may verify income and other resources and have eligibility standards, but they may not single out women on maternity leave to deny or delay loans that they are otherwise eligible for."
Kristin Rowe-Finkbeiner, executive director of MomsRising, a group that advocates for equitable treatment of mothers, said her group has received 200 reports of alleged discrimination from credit applicants because they were on or scheduled to begin maternity leave.
HUD says it is reviewing both companies' guidance to lenders "to determine if they satisfy the Fair Housing Act, including income verifications for persons taking maternity or parental leave."
Borrowers or spouses of borrowers who have experienced discrimination on a mortgage application because of being on maternity leave or planning to be should file a complaint with HUD at (800) 669-9777 or online in the fair lending area at hud.gov.