WE’RE HEARING we need to remind the industry that denying or delaying a loan based on a borrower’s pregnancy or parental leave status is illegal.
There have been at least five settlements related to this type of discrimination claim over the past year or so. The most recent settlement and at least one other in our publication’s archives involve a large lender who should know better and says it now does. We’ll see.
Some lenders and others charged with sizing up mortgage risks such as insurers think they should blindly factor anything that appears to affect a borrower’s employment and income into the loan decision. They mistakenly assume pregnancy and parental leave belong in this category. This is one of the many reasons assumptions get a bad rap. Things need to change at any company in the business today where this is a problem.
The Fair Housing Act states clearly that borrowers’ loan decisions have to be made without regard to familial status, among other things.
Far be it from me to question the law. Some lenders clearly do, though. Pregnancy or parental leave status could make it more or less likely borrowers will make payments on their mortgages, they think. It is possible. Children generally put more financial stress on borrowers, but kids are equally likely to make people better bets when it comes to paying their loans. Borrowers rooted in communities because they, for example, have children at a local school are much more likely to keep up with their mortgage debt than other consumers.
The point here is that even if the United States lacked a law against discrimination based on family status there is little if anything to be gained by treating any borrower any differently based on it, and a lot to lose when it comes to a company’s reputation in both the business and consumer world.
Companies have had to pay larger settlements for other types of compliance infractions to date, but developing a track record as a company that is discriminatory and balks at giving loans to growing families has other costs. Expanding households are key triggers for home purchases and help keep loans flowing through lenders’ pipelines. Delaying or denying mortgages that have every right to move forward hurts business. This is particularly true now, when originations are getting harder to come by and lenders are more interested in making home purchase loans.
Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.