Can You Be Denied a Mortgage Because You Got Pregnant?
Hematologist Elizabeth Budde was far along in her pregnancy while also house-shopping, looking for the perfect place in Kenmore, Washington to raise her first child. She knew that once the baby was born, she’d have very little spare time to look for a house, so now was the time.
Budde, then 32, determined how much house she could afford, and after searching around, finally found her perfect home and scheduled a closing on the place. But two weeks before the house was hers, she went into labor and her baby boy arrived. She and her employer arranged for her to take two months off from work to bond with her new baby, and she set her office email auto responder to tell people she was on maternity leave for three months (from June to September 2010).
But a couple days after she gave birth, she received an email that would cut her precious bonding time short. The mortgage company she was working with — Cornerstone Mortgage Company — notified her that they had tried to reach her at work but received her out of office response, and were now contacting her to let her know they couldn’t close on the house.
“They said, ‘You’re on short-term disability, so we cannot approve your loan,’” Budde said. “They didn’t know anything. They just made the assumption.”
The email from Cornerstone she shared with Credit.com said:
Maternity leave is classified as paid via short-term or temporary disability income. We are unable to use short-term/temporary disability income for qualifying because it won’t continue for three years and we can’t use the borrower’s salaried income for qualifying because maternity leave is not considered to be currently ‘on the job’.
Budde was horrified by this news, as she was already prepared for her move.
“I was really in a panic,” she said. “So many potential consequences were just floating.”
In the initial email, a representative from Cornerstone encouraged her to get another person to co-sign the loan, or to “add a non-occupying co-borrower for better debt-to-income qualifying ratios.”
Budde contacted the human resources department at the Fred Hutchinson Cancer Research Center, where she worked as a physician, and switched her time off classification from short-term disability to sick time and vacation time. The adjustment cut her maternity leave in half, but she felt she had no other option if she wanted to get the mortgage. She got it, but instead of being a purely joyful time in her life with a new house and a new baby, she said it it was bittersweet.
“I definitely wished I could have spent that time with my son,” she said. “It impacted the joy.”
Is this legal?
According to The Department of Housing and Urban Development (HUD), denying a pregnant woman a mortgage because she is on maternity leave or pregnant is a violation of the federal Fair Housing Law, enacted in 1968, which forbids discrimination in real estate transactions, including mortgage lending, on the basis of race, color, national origin, religion, sex, disability, or familial status.
Under the law, if a woman has good credit and her finances qualify her for a mortgage, penalizing her for being pregnant is akin to sexual discrimination, according to Morgan Williams, general counsel for the National Fair Housing Alliance (NFHA).
“Essentially, it is limiting housing services in regards to a practice that would more significantly impact women,” Williams said. “And so it would be discriminatory on the basis of sex under the federal Fair Housing Act.”
Budde felt she had been treated unfairly and, after she got her loan, she contacted a reporter at The New York Times because she “Wanted to raise the awareness of this unjust discrimination practice adopted by the loan officers” and HUD launched an investigation.
In June 2011, John Trasviña, HUD assistant secretary for fair housing and equal opportunity, announced a high-priced settlement with Cornerstone Mortgage company.
“Pregnancy is not a basis to deny or delay a loan. It’s just that simple,” Trasviña said in a press release. “Mortgage professionals may verify income and other resources and have eligibility standards but they may not single out women on maternity leave to deny or delay loans that they are otherwise eligible for.”
Under the terms of the agreement, Cornerstone (doing business as Cornerstone Home Lending) agreed to pay Budde $15,000, create a $750,000 fund for other victims, pay as many as 100 successful claimants $7,500 each, and notify borrowers who applied during a two-year timeframe of their right to seek compensation if they experienced discrimination because a borrower or co-borrower was pregnant or on maternity leave.
Cornerstone Home Lending’s president and CEO Judith Belanger told Credit.com the company sent out 14,000 letters and only got a “very small handful” of responses.
In the conciliation agreement, Cornerstone denied discriminating against Budde or violating the Fair Housing Act, and said it followed prudent loan underwriting practices. The mortgage company claimed it never denied the application, and never told Budde she’d have to return to work for the loan to be approved. Cornerstone’s position stated that the lender entered the conciliation agreement with HUD to avoid “the additional expense of investigation, while contending that all of its actions have been legally and prudentially sound.”
“I want to make sure you understand that Ms. Budde’s loan closed on time with no change in terms,” Belanger said. “We just never, ever, on purpose, would discriminate against a pregnant person.”
In Budde’s case, Belanger said, the man handling the mortgage closing “was not our most experienced person.”
Belanger added, “I think he got blindsided, because he didn’t know [Budde was] going out on maternity leave. And you know, you don’t want to fund a loan for somebody if they’re not going to be able to make payments; that’s horrible for everybody.”
According to the conciliation agreement, Cornerstone argued, “The incident cited by HUD arose because a loan applicant failed to disclose during the course of her loan application that she would be on leave from her employment.”
Not an isolated incident
After six complaints were filed in October 2014, HUD reached a large settlement of $5 million with Wells Fargo Home Mortgage, resolving allegations that the lender discriminated against women who were pregnant, or had recently given birth, and were on maternity leave.
“Wells Fargo resolved HUD’s claims back in 2014 to avoid a lengthy legal dispute and HUD made no findings of any violations of any applicable laws,” Tom Goyda, senior vice president, of Consumer Lending Communications for Wells Fargo said in an email. “We believe that our underwriting policies and practices regarding applicants on temporary employment leave were consistent with our longstanding fair and responsible lending practices and, importantly, the claims related to only five loan applications from a period during which Wells Fargo processed a total of approximately 3 million applications from female customers.” (While six complaints were filed, two were pertaining to the same loan application, Wells said.)
Another case involving a single female applicant was settled in July 2016, this time with Citizens Bank.
“We follow fair lending practices and are committed to ensuring equal access and consideration for all customers, as well as providing ongoing training for colleagues. We are pleased to have resolved this matter,” Lauren DiGeronimo from Citizens Financial Group said in an email.
The problem persists. The NFHA just finished a sting operation where an assumed-to-be pregnant woman shopped around at mortgage lenders and told them she was on maternity leave. During the investigation, one company in Arkansas allegedly violated the Fair Housing law, according to Williams, but the lending institution was not named, as the case is still pending at HUD.
“In this case, the loan originator told an applicant that even though she was on paid maternity leave, she would have to be back at work for the loan to close,” Williams said.
“I can’t believe this is still happening. I’m disappointed,” Budde said, after learning about the other HUD cases.
Since 2010, HUD has received more than 140 complaints alleging maternity-leave discrimination and has obtained more than $8 million in compensation for victims, according to an email from Bryan Greene, HUD’s general deputy assistant secretary for fair housing. HUD has also fielded more than 200 cases alleging pregnancy-related discrimination.
“Fortunately, we’re seeing fewer of these complaints today,” Greene said. “For example, by the end of this fiscal year, we expect we will have received 12 complaints for the year (we’ve received eight so far). This compares favorably with the 30 complaints we received in 2013.”
He added, “Each case of this type of discrimination is serious because it creates an unstable housing situation for a family at the very moment they need to create a foundation for their future. We hope our ongoing enforcement in this area, our work to change industry practices, and our public education efforts will soon eliminate this practice.”
Lenders’ point of view
According to the U.S. Department of Labor, only 12% of U.S. private sector workers have access to paid family leave through their employer. And, as of 2014 Bureau of Labor Statistics data, the percentage of women who have a child younger than 3 years old and are working or actively seeking work has almost doubled since 1975 (when it was 34.3%), but is still only 61.8%. So that means almost 38% of women do not work, and aren’t looking for work if they have a child younger than 3 years old.
“It’s true that sometimes pregnant women don’t go back to work. It’s also true that sometimes employed individuals don’t always stay employed,” Williams said. “But to apply a policy that singles out folks on leave — most often women on maternity leave — without some other basis for doing so, there’s no real basis.”
The lender, however, cannot verify if the woman plans to go back to work after maternity leave. “We cannot ask that question. We would never, ever ask that question,” Belanger said.
Yet the lender must prove, with paperwork, that it is not recklessly lending to people who cannot repay a loan.
“Keep in mind that we never make any money if we don’t close loans,” Belanger said. “So, we have no incentive whatsoever to not close a loan for someone. But, you know, there’s that fine balance: you have to make sure you’ve documented that people have the ability to repay.”
What to do if you feel discriminated against
Before applying for a mortgage, and choosing your lender, consider paying down as much of your debt as possible. Doing so can help improve your credit scores, which play a role in the terms and conditions you’ll qualify for. A higher interest rate could ultimately cost you thousands of extra dollars in the long run. You can take a look at two of your credit scores for free, updated every two weeks, on Credit.com. (You can also use this tool to help you figure out how much house you can afford.)
“If you feel you’ve been treated differently in your efforts to secure a loan because you’re on maternity leave, you can contact the advocates at these fair housing centers and they can be a resource in helping you to investigate the matter further and seek redress for any discriminatory harm that you’ve been subject to,” Williams said.
Budde has since moved, and looked for a mortgage again when she was pregnant with her second child. This time, the process went without a hitch. But, as Budde noted, the savvy loan officer said he knew her name. And, throughout it all, she learned a lot and wants to pass it on to others who may be in the situation she was in — “Don’t panic and get help from your friends.”
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- Tips for Improving Your Credit: The Types of Accounts in Your Credit Report
This article originally appeared on Credit.com.