Moms Losing Mortgages: The Government Investigates

Friday, August 6, 2010

A Washington State woman was featured in a recent news story that has triggered important government investigations into discrimination against pregnant women.

Federal law prohibits mortgage lenders from discriminating against borrowers based on pregnancy, as long as the borrowers can demonstrate that they intend to return to work and will be able to continue meeting the income requirements for the loan. And, although lenders may ask about borrowers’ incomes to determine loan eligibility, they may not use pregnancy or maternity leave as grounds to deny mortgages.

Last month, the Department of Housing and Urban Development (HUD) launched multiple investigations into lending practices alleged to discriminate against pregnant women. HUD’s investigations were sparked by a New York Times article that told the story of Dr. Elizabeth Budde, a resident of Kenmore, Washington. Dr. Budde initially had her mortgage loan revoked after a loan officer learned that she was on maternity leave. A mortgage company president was quoted as saying: “Maternity leave or any other leave of absence often prevents a person from obtaining a mortgage.”

The Times article described lending practices that result in discrimination against pregnant women. Here’s how:  

(1) Although lenders may not ask borrowers if they are pregnant, lenders may ask whether they expect their employment or income situation to change.

(2) Certain lenders require borrowers to prove – in addition to having enough income to pay for the loan on closing day – that their income is likely to continue for three years.

(3) Because short-term disability payments will not continue for three years, lenders do not count them as qualifying income and require borrowers receiving such payments to reapply for the mortgage once they return to work.

(4) Many pregnant women expect to – and many new mothers actually do – receive short-term disability benefits while on maternity leave. So, requiring income to continue for three years and refusing to count short-term disability payments as qualifying income has a disparate impact on expectant and new mothers.

When news of the investigations broke, HUD’s Assistant Secretary for Fair Housing and Equal Opportunity released a statement making clear that “[l]enders must not carry out due diligence responsibilities in ways that have the practical effect of discriminating against recent or expectant mothers.” HUD has also indicated that, if its investigations uncover violations of federal law, it will pursue them in court in hopes of having judges order an end to the discriminatory practices and the payment of damages to the victims of discrimination, with monetary penalties imposed for each violation.

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