Recent HUD Enforcement Actions Highlight Risks of Loan Discrimination Against Those on Maternity/Paternity Leave

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The following appears in the Fall 2014 Edition of The Community Banker, a publication of the Virginia Association of Community Bankers.

The U. S. Department of Housing and Urban Development (“HUD”) recently entered into settlement agreements with two lenders that allegedly discriminated against mortgage loan applicants based on their maternity leave status. HUD claimed that the lenders violated the Fair Housing Act by denying or delaying mortgage loan applications because the applicants were on maternity leave. The Fair Housing Act prohibits discrimination based on sex and familial status, and this covers individuals who have or are expecting a child, according to HUD.

On June 25th, a Utah credit union agreed to pay $25,000 to settle such mortgage discrimination allegations. In defending itself, the credit union claimed that its mortgage insurer’s guidelines for calculating income for women on maternity leave allowed regular pay to be considered only if the women returned to work before the loan closed. Based on these guidelines, the credit union would deny or delay loan applications when a woman was on maternity leave.

In following these guidelines, HUD claimed that the credit union had violated the Fair Housing Act. “Refusing to approve a mortgage loan or provide mortgage insurance because a woman is pregnant or on family leave violates the Fair Housing Act’s prohibition against sex and familial status discrimination, which includes individuals who have or are expecting a child,” HUD stated in its press release announcing the settlement. Under the terms of the agreement, the credit union agreed to pay $10,000 to an affected borrower identified during HUD’s investigation, and $15,000 to an organization to help educate the public about fair lending requirements and obligations.

On July 1st, a week after the credit union settlement, a California mortgage lender agreed to pay $48,000 to settle similar charges. A married couple had filed a complaint with HUD claiming that the mortgage lender denied their application to refinance their home because the wife was on maternity leave. Once HUD investigated, it found that the mortgage lender had denied four other applicants, who were on maternity leave, or delayed their applications until the women returned to work. The mortgage lender agreed to pay all of these applicants and to provide fair lending training and education to its management and employees.

These settlements follow HUD settlements with two large national banks in the past couple of years concerning the same issue. HUD clearly views protecting the rights of women (and men) on maternity (or paternity) leave a priority.

The lesson is that banks and other mortgage lenders may not assume that someone who is on maternity or paternity leave will not return to work and fail to take into account their income during such leave. In this regard, mortgage lenders should not make any statements to any loan applicant that income received on maternity or paternity laeve will not be considered.

The potential damages are one concern. But the costs of defending any such claim, and the reputational risks, are even greater concerns. Banks should ensure that they have policies and procedures in place to avoid landing in this minefield.

Topics:  Discrimination, Fair Housing Act, HUD, Lenders, Mortgages, Non-Judicial Settlement Agreements, Pregnancy Discrimination

Published In: Civil Remedies Updates, Civil Rights Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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