Most of our readers probably have heard of the case involving a couple, who had just had twins, whose world was turned upside down when their loan was denied after the creditor learned that the wife was on maternity leave. The application had been approved and the closing was scheduled. After the denial the wife and infant twins had to move in with her parents. The husband moved to an apartment with their 3-year-old. The creditor agreed to pay the couple $35,000 to settle allegations that it denied them a mortgage because the woman was on maternity leave, even though she planned to go back to work.
We first reported details of a maternity leave case back in August 2011. When a second case came along in November 2011 we reported, “This action coupled with a recent case involving a Houston-based lender puts the spotlight on the issue of familial status discrimination. One case is an aberration, two cases is the start of a trend, more cases may justify panic. ”
We have reported a number of similar cases over the past three years, so maybe it is time to panic. The government has now investigated more than 170 allegations of maternity leave discrimination. Both the Department of Housing and Urban Development (HUD) and the Department of Justice (DOJ) have settled cases with lenders. Settlement generally involves paying penalties and revising policies and procedures to assure proper handling of applicants on maternity leave.
This three-part article explores the issue of maternity leave discrimination, the typical cure imposed by the regulators, and a review of acceptable underwriting guidelines.
Statistics show that three-quarters of mothers are working moms. All moms, including working moms want homes for their children. The creditors handling the loan applications want good loans. There are standards that explain how to evaluate applications from those on maternity or parental leave.
Some lenders freeze at the word “pregnancy” or “maternity leave.” One bank’s underwriting manual says that if an applicant “is not currently receiving income…their regular full-time pay may not be used to qualify — even if they plan on returning to work at some future specified time.” In many instances, women plan to return to work, but lenders don’t ask about those plans. They assume that women won’t return to work. Banks have denied wrongdoing in the settlements, saying they act out of concern that there will be a loss of income during maternity leave and women often don’t go back to work.
Loss of income during maternity leave is a reality in many cases, but the assumption that women don’t go back to work is a false assumption in most cases. Six months after a first birth, nearly 60 per cent of women will be back at work.
One couple was trying to build a house while the wife was on maternity leave. But even after giving the bank letters from her employer saying she was going to go back to work after the leave, a loan officer told her, “moms often don’t return to work after the birth of their little ones.” She ended up going back to work early during the final month of her leave.
Another couple was denied because the wife said she was on maternity leave. They were allegedly told they could reapply for it “only when the wife returned to work and received a paycheck.”
All of these actions violate the Fair Housing Act, which prohibits unequal treatment based on gender or familial status. Creditors have paid millions of dollars in damages; typically in the range of $20,000 to $30,000 per incident. In additional to paying damages, creditors are often required to implement revised policies and procedures and to conduct training.
The next part of this article explores the typical cure imposed by regulators.