Actions involve settlement with compensation for victims, and enforcement action
WASHINGTON, DC – June 1, 2011 – (RealEstateRama) — The U.S. Department of Housing and Urban Development today announced a settlement agreement with Cornerstone Mortgage Company (Cornerstone), a national mortgage lender based in Houston, which HUD accused of engaging in discriminatory lending practices against expectant mothers. In a separate action, HUD is charging Mortgage Guaranty Insurance Corporation (MGIC) of Milwaukee, Wisconsin and others with engaging in pregnancy discrimination in issuing mortgage insurance in violation of the Fair Housing Act.
During a news conference, John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity, announced the settlement with Cornerstone and laid out the Department’s charge against MGIC. The Fair Housing Act prohibits housing discrimination in sales, rental, and lending based on a person’s sex or familial status.
“Pregnancy is not a basis to deny or delay a loan. It’s just that simple,” said Trasviña. “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 announced today, Cornerstone (doing business as Cornerstone Home Lending) agrees to:
- Compensate Dr. Elizabeth Budde $15,000 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;
- Create a $750,000 victims’ fund to compensate other Cornerstone borrowers who experienced discrimination because they were on pregnancy or maternity leave at the time they were applying for a loan;
- 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; and
- Pay as many as 100 successful claimants a lump sum payment of $7,500 each.
If there are more than 100 successful claimants, each will receive a prorated share of the compensation fund which will be administered by an independent third party administrator agency. Cornerstone has also adopted 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. (The policy would also apply to men who are on parental leave due to the birth or adoption of a child.) Read HUD’s settlement agreement with Cornerstone.
Meanwhile, HUD is charging 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.” Read HUD’s determination and charge against MGIC.
Last July, HUD 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. HUD enforces the Fair Housing Act which prohibits discrimination in lending based on sex or familial status (pregnancy or children in the family). The Act protects consumers from being discriminated against because a borrower is on maternity leave if she can demonstrate that she intends to return to work and can otherwise continue to meet the income requirements to qualify for the loan.
HUD’s Federal Housing Administration (FHA) 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, however, inquire about future maternity leave. 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. Meanwhile, HUD 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’s mission is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD is working to strengthen the housing market to bolster the economy and protect consumers; meet the need for quality affordable rental homes: utilize housing as a platform for improving quality of life; build inclusive and sustainable communities free from discrimination; and transform the way HUD does business. More information about HUD and its programs is available on the Internet at www.hud.gov and espanol.hud.gov.