Thursday, June 2, 2011

FYI: HUD Announces $750k+ Pregnancy Discrimination Settlement Against Lender, Other Similar Action Against Mortgage Insurer

The U.S. Department of Housing and Urban Development announced recent
enforcement activity alleging pregnancy discrimination, including a
settlement with one lender in excess of $750,000.

According to HUD, although the Federal Housing Administration requires its
approved lenders to review a borrower's income to determine whether they
can reasonably be expected to continue paying their mortgage, FHA-insured
lenders cannot inquire about future maternity leave. HUD stated that, if
a borrower is on maternity or short-term disability leave at the time of
closing, lenders must document the borrower's intent to return to work,
that the borrower has the right to return to work, and that the borrower
qualifies for the loan taking into account any reduction of income due to
their leave.

HUD also announced that it is currently reviewing Fannie Mae and Freddie
Mac's underwriting guidelines to determine if they satisfy the Fair
Housing Act, including income verification for persons taking maternity or
parental leave.

HUD reached a settlement agreement with Cornerstone Mortgage Company,
which HUD accused of engaging in discriminatory lending practices against
expectant mothers. In a separate action, HUD charged Mortgage Guaranty
Insurance Corporation (MGIC) and others with engaging in pregnancy
discrimination in issuing mortgage insurance in alleged violation of the
Fair Housing Act.

Under the terms of the Cornerstone settlement agreement, without admitting
the allegations, Cornerstone will:

- Pay $15,000 to a female claimant, based on her claims that she was
initially denied a mortgage loan even though she was on paid maternity
leave and planned to return to work; and
- Create a $750,000 settlement fund to compensate other Cornerstone
borrowers who can verify through a third-party administrator that
Cornerstone provided detrimental terms because they were on pregnancy or
maternity leave at the time they were applying for a loan, which
settlement fund will be distributed among the claimants; and
- Notify all borrowers who applied during a two-year time frame of their
right to seek compensation if they experienced treatment that was
discriminatory because a borrower or co-borrower was pregnant or on
maternity leave.
- Adopt a new policy clarifying how it will treat applicants for loans
who are on parental leave, including maternity leave, when they apply for
a loan, including as to men who are on parental leave due to the birth or
adoption of a child.

A copy of the settlement agreement is available at:

Separately, HUD charged MGIC with discriminating against a Pennsylvania
family by denying their application for mortgage insurance unless and
until the wife returned to work from maternity leave. According to HUD's
complaint, on or about July 26, 2010, MGIC wrote an email summarizing the
status of the family's loan: "rec'd updated bank statements along with
email from Borrower that states she is on maternity leave....notifying her
that we cannot proceed until borrower is back to work full-time."

HUD also noted that it launched multiple investigations into the lending
practices of certain mortgage lenders to determine if they illegally
denied families mortgages because the mother is pregnant or on
pregnancy-related leave.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

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