T. wrote to me:
Hi Rona, ... I have a general question about mortgage approvals in these tight economic times... 1. How does pregnancy effect a family's pre-approval, and later when buyer how does it affect the mortgage? 2. Can a bank discriminate against pregnancy? It seems as though this is a very unfair business practice. How can a buyer address these issues?
... I am pregnant and currently am the head bread-winner in our family. I am due this winter and my husband and I have been trying to buy a home for over a year and half with little to no luck. We are hopeful that we might have some luck with the slower winter market, but we have been told by a mortgage broker that my being pregnant will negatively effect our pre-approval and we might get denied a mortgage as well. This doesn't seem fair, or legal. Can you provide some insight? [emphasis mine]
My first thought was discrimination! My second was about income. Lenders look for steady employment. If she has been steadily employed and will be through closing, the lender should look favorably on the loan.
My lender-colleagues agree:
T’s qualifications may be compromised if the closing on the home occurs during maternity leave. It will depend on whether T’s pay continues at the same level, is suspended, or reduced during maternity leave. A lender may also want a statement of intent, verifying that T plans to return to her full time hours. This is allowed because the lender has the responsibility to evaluate T based on the correct amount of income. If T has already returned to work before the closing, the lender may just ask for a recent pay stub.
The other wrote:
In this case, part of the ability to repay the loan is demonstrated by the borrowers’ income and employment... If a borrower is unemployed at the time of closing, the borrower does not have an acceptable source of income to justify repayment of the loan... If the borrower is employed, and receiving a paycheck at the time of closing, this is not an issue. If the borrower goes on maternity leave before closing, but the employer is still paying the borrower and will confirm with the lender that the borrower is actively employed, this should not be an issue.
It is standard practice amongst lenders now, big and small, local or national, to verbally re-verify the borrowers’ employment status before closing. This is usually done within the last 3-5 business days before closing.
He goes on:
The Family and Medical Leave Act allows for people to take a leave of absence to raise a family, and have the option of starting back at their job after a period of time ... The difficulty with underwriting is that even though the borrower has the right to return to work, they may not. Medical leave or short term disability income can’t be used as regular income for the purposes of loan approval.
yet another added this:
If T’s application states she is and has been self employed in the same line of work or profession for the prior 2 years, her income would be determined by averaging business income from her most recent 2 years tax returns – regardless of pregnancy/maternity.
The lenders I asked resoundingly said it is wholly illegal to be told that pregnancy negatively effects a pre-approval. The Federal Trade Commission is clear that “a lender cannot... ask about your plans for having a family.”
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