The U.S. Department of Justice recently announced the settlement of a Fair Housing Act lawsuit against the Mortgage Guaranty Insurance Corporation (MGIC), which the DOJ described as “the department’s first involving discrimination against women and families in mortgage insurance.”

The settlement stems from a federal court lawsuit filed in July 2011 in the Western District of Pennsylvania that followed the DOJ’s investigation of a complaint filed by a woman who claimed she was discriminated against when MGIC refused to proceed on a request to insure the mortgage loan for which she had applied. The suit alleged that the woman was on paid maternity leave when the request was submitted to MGIC, and that MGIC would not proceed on the request until she had returned to work full time.

In the complaint, the DOJ alleged that MGIC’s actions violated the Fair Housing Act because they constituted discrimination on the basis of sex and familial status “in the terms, conditions or privileges of the provision of services in connection with the sale of a dwelling” and “in making available, or in the terms or conditions of, residential real estate-related transactions.” The suit was brought pursuant to both the complainant’s election under the statute to have her claims litigated in a civil action and the U.S. Attorney General’s statutory authority to seek redress for housing discrimination that raises an issue of public importance.

The consent order requires MGIC to (1) create a $511,250 settlement fund to compensate 70 individuals identified by the DOJ as aggrieved persons who suffered discriminatory conduct related to MGIC’s actions, (2) pay an additional $35,000 to the complainant for pain and suffering she incurred as a result of aggravating a pre-existing medical condition and for vacation and leave time she forfeited in response to MGIC’s requirement that she return to work, and (3) pay a civil penalty of $38,750.

Other provisions of the consent order require MGIC to:

• Follow specific underwriting policies and procedures relating to maternity and paternity leave
• Implement a monitoring program that, for a minimum of one year, requires MGIC to re‑underwrite any application that results in MGIC’s obtaining information concerning “present, past, or future maternity or paternity leave by an applicant or potential co‑applicant” if the application was not approved based on the original underwriting
• Provide fair lending training to management and employees who participate in underwriting
• Provide a specified nondiscrimination notice when MGIC provides written copies of its income underwriting policies to lenders, mortgage brokers, or other parties from which it accepts insurance applications and in certain written notices and other communications it sends to applicants or others

According to the DOJ’s announcement, court approval has been sought for a preliminary settlement of a private class action, Neals v. Mortgage Guaranty Insurance Company, filed by the complainant in the Western District of Pennsylvania. Under the settlement terms, class members who receive compensation under the DOJ consent order would remain eligible for additional compensation “for extraordinary damages” above the consent order amount.

To help consumer credit providers prepare for examinations and to prevent, manage, and defend against the increasing number of fair lending challenges, Ballard Spahr has created a Fair Lending Task Force. The task force brings together regulatory attorneys who deal with fair lending law compliance, litigators who defend against claims of fair lending violations, and labor attorneys who likewise understand the statistical analyses that underlie fair lending assessments and discrimination claims.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

The group includes the firm’s Mortgage Banking Group, which combines broad regulatory experience assisting clients in both the residential and commercial residential mortgage industry with formidable skill in litigation and depth in enforcement actions and transactions.

The Consumer Financial Services Group also produces the CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments. To subscribe, use the link provided to the right. For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com; Fair Lending Task Force Leader Christopher J. Willis at 678.420.9436 or willisc@ballardspahr.com; John L. Culhane, Jr., at 215.864.8535 or culhane@ballardspahr.com; or Richard J. Andreano, Jr., at 202.661.2271 or andreanor@ballardspahr.com.