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Freedom Mortgage Settles HUD Discrimination Complaint

AUG 13, 2014 4:08pm ET
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Freedom Mortgage in Mount Laurel, N.J., has agreed to pay $104,000 to settle claims that it discriminated against loan applicants with disabilities.

The agreement stems from a complaint filed by the Department of Housing and Urban Development, accusing the lender of violating consumer protections under the Fair Housing Act.

HUD said that Freedom Mortgage used a separate set of underwriting guidelines for loan applicants with disabilities.

"Applicants who are otherwise qualified for a home loan may not have additional requirements placed on them because of a disability," said Gustavo Velasquez, an assistant secretary at HUD, in a news release Wednesday.

Freedom Mortgage, the agency contended, required applicants with disability-related income to submit additional documentation, including doctors' notes or letters from the Social Security Administration, showing that their income would continue for three years.

In an emailed statement, Freedom Mortgage denied the charges, saying that its "underwriting processes are designed to facilitate opportunities to lend to applicants whose income consists of or includes disability income."

As part of the settlement, the lender is required to pay damages to 69 applicants, ranging from $1,000 to $5,000 each.

The lender also agreed to abolish its income verification process for disability income and provide employees with training on Fair Housing Act requirements.

Comments (3)
So.....how does a lender determine consistent income to qualify and therefore, i suppose, comply with QM loans if they can't ask for continuity of income structured from SS or other insurance companies to ascertain it will continue?
Posted by Philip L | Thursday, August 14 2014 at 12:14PM ET
I think that's a great question. I need to do a more research but there is a HUD/FHA 2012 mortgagee letter regarding documentation requirements for income from the Social Security Administration? Does that help?
Posted by Bonnie S | Thursday, August 14 2014 at 12:27PM ET
You can't ask for detailed letters from the Doctor due to HIPPA. However, it is required by all of the investors to verify if some way that the income will continue at the current level for a minimum of three years.


Continuity of Income

A key driver of successful homeownership is confidence that all income used in qualifying the borrower will continue to be received by the borrower for the foreseeable future. Unless there is knowledge to the contrary, if the income does not have a defined expiration date and the applicable history of receipt of the income is documented (per the specific income type), you may conclude that the income is stable, predictable, and likely to continue.

If the income source does have a defined expiration date or is dependent on the depletion of an asset account or other limited benefit, the likelihood of continued receipt of the income for at least three years must be documented.

The following table contains examples of income types with and without defined expiration dates. This information is provided to assist in determining whether additional income documentation may be necessary to support a three-year continuance.

Must document 3-year continuance:
-alimony or child support
-distributions from a retirement account - for example, 401(k), IRA, SEP, Keogh
-mortgage differential payments
-notes receivable
-public assistance
-royalty payment income
-Social Security (not including retirement or long-term disability)
-trust income
-VA benefits (not including retirement or long-term disability)

Do not need to document 3-year continuance:
-automobile allowance
-base salary
-bonus, overtime, commission, or tip income
-capital gains income
-corporate retirement or pension
-disability income - long-term
-foster-care income
-interest and dividend income (unless other evidence that asset will be depleted)
-military income
-mortgage credit certificates
-part-time job, second job, or seasonal income
-rental income
-self-employment income
-Social Security, VA, or other government retirement annuity
Posted by Michelle J | Thursday, August 14 2014 at 1:01PM ET
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