Archives for July 2010

Recently the New York Times published an article stating that expectant mothers were being denied mortgages partially due to guidelines such as Fannie Mae's Lender's Quality Initiative.  I'm not sure if this was a case of bad reporting or a bit of fear from the lenders part of LQI, where loans may possibly be denied at closing if the loan application changes.   HUD has announced they are investigating this as discrimination against expectant mothers and new parents.

From HUD's Press Release:

"…FHA requires its approved lenders to review a borrower's income to determine whether they can reasonably be expected to continue paying their mortgage for the first three years of the loan.  FHA-insured lenders cannot, however, inquire about the future maternity leave.  If a borrower is on maternity 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 of persons taking parental or disability leave…"

The New York Times article references a mother from Washington State who's mortgage was almost denied due to her maternity leave:

Elizabeth Budde, a 33-year-old oncologist who lives in Kenmore, Wash. She nearly lost her mortgage after a loan officer learned she was home with her newborn.

With stellar credit and a solid job, Dr. Budde said she had been notified via e-mail that she was approved for a loan on June 15. But that note prompted an automatic, “out of the office” e-mail reply from Dr. Budde’s work account, which said she was out on maternity leave.

The next day, Dr. Budde received a second e-mail message from the lender, this time denying her loan approval. Since “maternity leave is classified as paid via short-term or temporary disability income,” the e-mail message said, it could not be used because it would not continue for three years.

The message also said the lender could not consider her regular, salaried income because she was not on the job. “I was really shocked,” Dr. Budde said. “At the time, they didn’t know how I was getting paid for my leave.”

In the case of this new mom, her base salary would have sufficed for her loan approval to not be in jeopardy had she disclosed this to the mortgage originator assuming this mortgage originator knew their underwriting guidelines.  (Sounds like this mortgage originator either didn't know her guidelines or her lender has very strict underwriting overlays, in my opinion).

It's assumed there are no changes to your loan application between the time of application and closing.  If you have changes to your employment, income, assets or credit during your transaction, you need to let your mortgage originator know as soon as possible.  Verification of employment (VOE's) are performed prior to closing (funding) and in some cases, credit may be re-verified.   LQI (Loan Quality Initiative) requires that lenders do pre-funding reviews to make sure that the loan application is accurate prior to funding.  Per Fannie Mae:

The pre-funding review process should include controls or checks that test the accuracy of the loan data to ensure the information obtained is correct (e.g. borrower identity, employment, financial information, property information).

Anyone, man or woman, planning on taking any leave from their employment during their loan transaction should let their mortgage originator know. 

Photo: My brand new Mom (with me).