Is treatment of income discriminatory?
The controversy stems from underwriting guidelines that don't allow the use of income that isn't expected to continue for at least three years when qualifying borrowers for loans. In the past, it was assumed that employees on short-term disability pay would eventually return to work at full salary, and that women on maternity leave would return to their jobs as well. However, there is no directive from Fannie or Freddie requiring mortgage lenders to make that assumption.
Mortgage lenders don't want to eat bad loans
Because a person on short-term disability pay may end up on long-term disability if he or she is unable to return to work, and because women may opt not to return to work after giving birth, lenders are leery about granting them mortgages until they are back on the job. This is happening as Fannie Mae and Freddie Mac are increasingly forcing lenders to buy back bad loans that weren't underwritten in exact accordance with guidelines. But when does prudently considering all likely outcomes morph into discrimination?
HUD evaluating guidelines and implementation
HUD's job is to enforce the Fair Housing Act, which prohibits discriminatory lending based on sex, familial status (which includes pregnancy or having children) or disability. The law also protects mortgage applicants from being "discriminated against based on a borrower's maternity leave if the borrower can demonstrate that she intends to work and can otherwise continue to meet the income requirements to qualify for the loan," according to a HUD statement.
The fifties were over a long time ago
Many would argue that the days of lifelong employment with the same company have been over for decades, and that nowadays virtually no one has a guaranteed job for the next three years. Similarly, it may be old-fashioned to assume that a woman will exit the workforce after her baby is born, or that a father will continue to work.
How should you counteract a loan denial?
You can of course register your complaint with HUD, but understand that the wheels of justice may grind slowly. Another alternative is to refinance your mortgage with mortgage brokers who can submit your application with several lenders, increasing your chance of a glitch-free approval. Finally, you may choose to shop with several lenders and don't just compare mortgage rates; quiz them about how they would treat your disability or maternity income before executing a mortgage application.