QUESTION
Can a lender refuse to close a loan on the basis
that an applicant is pregnant or on maternity leave?
ANSWER
Bottom Line Up Front: No, not if the applicant qualifies for
the loan and demonstrates the ability to repay.
Lenders who refuse to consider income or employment just because a woman
is pregnant or on maternity leave may be in violation of the Fair Housing Act’s
prohibitions against discrimination on the basis of gender and familial status,
and the Equal Credit Opportunity Act (ECOA) prohibitions against discrimination
on the basis of gender.
A mortgage veteran with over 35 years in
the industry informed me that she was once required to confirm whether women
were on birth control as a prerequisite to applying for a mortgage – she called
it the “pill disclosure”. Thankfully, those days are over and fair lending laws
are increasingly addressing the remaining vestiges.
In its Single Family Selling Guide,
published on January 24, 2014, Fannie Mae clarified that maternity leave is defined
as “temporary leave” analogous to short-term medical disability, parental
leave, or other temporary leave types that are acceptable by law or the
borrower's employer. Generally, lenders should be aware that:
·
It is a Fair Lending violation to assume that a woman will not return
to work after child-birth. Under
Fannie Mae guidelines, the applicant on maternity leave must provide written
notice of her intent to return to work, and the employer, or a third party
representative may verify the return date and whether the borrower has the
right to return to work after the temporary leave period is over. Confirmation
requires no particular formality and does not need to comply with Fannie Mae’s
“Age of Allowable Credit Documents” policy – in other words, lenders should not
impose expiration date standards applicable to other credit documents.
·
Temporary Leave means “employed”. Once
the lender confirms that the borrower is on “temporary leave” the lender must
consider the borrower as “employed”. The lender is prohibited from requiring a
qualified applicant who is pregnant or on maternity leave to return to work,
and thereafter earn a specified number of paychecks before her loan may be approved
or closed. If the borrower will return to work by the date the first mortgage
payment is due, the lender can consider the borrower's regular employment
income for qualification purposes.
“If the
borrower will not return to work as of the first mortgage payment date, the
lender must use the lesser of the borrower's temporary leave income (if any) or
regular employment income. If the borrower's temporary leave income is less
than her regular employment income, the lender may supplement the temporary
leave income with available liquid financial reserves.”
[Fannie
Mae Seller Guide, B3-3.1-09, 5/27/14]
·
Lenders must establish underwriting policies that similarly
consider employment and income for pregnant women and women on maternity leave,
as it does other mortgage applicants. Temporary
leave income that falls below the borrower’s regular income may be supplemented
by the borrower’s available liquid financial reserves, subject to Fannie Mae’s
underwriting guidelines. If the lender is aware that a borrower will be on
maternity leave at the time of closing, and if the loan cannot be approved
without the income of the borrower who will be on maternity leave, the lender
must confirm employment and qualify income under standard eligibility
requirements.
Lenders should understand Fair Lending risks
and take the necessary steps to ensure compliance.
Wendy Bernard
Director/Legal & Regulatory Compliance
Lenders Compliance Group
