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Mortgage Lenders Avoid Risk, Invite Discrimination Claims From Expectant Homebuyers

Posted by  on Sep 20, 2010
 

A series of articles and blog posts on the New York Times website has generated debate about the distinction between risk management and unfair discrimination among mortgage lenders. In July 2010, Tara Siegel Bernard wrote an article for the Times' print edition warning prospective borrowers to avoid planning a pregnancy leave while considering a refinance or a new home loan.

Most of us would agree on practical grounds that having a baby and buying a house are two stressful events that you normally wouldn't want to stack up. However, the article revealed a more ominous relationship between the two events. As mortgage lenders have grown more conservative when looking at prospective borrowers' income, a potential drop in that income could scare some loan underwriters away from deals.

Correspondence to the Times included comments praising mortgage lenders for making risk-averse decisions based on the hard numbers. A follow-up article by Daniel Indiviglio in The Atlantic asserted that banks could avoid future meltdowns by focusing solely on whether applicants had the cash flow and the earning potential to repay their home loan obligations, regardless of their ethnic heritage or family status.

However, many Times readers pointed out that denying a mortgage application on the grounds that income would temporarily drop due to a pregnancy could be considered unfairly discriminatory. The debate brought out pointed criticism from Vice President Joe Biden, who called decisions to avoid making loans to expectant parents "flat wrong." Representatives from the Department of Housing and Urban Development released a statement to the Times, inviting readers to submit potential discrimination complaints for investigation.

Although lenders may be booking fewer deals now than at the start of the financial crisis, brokers and banks still want to do business with working families. Mortgage lenders tend to back away from deals when circumstances change overnight, even though some of these decisions may appear arbitrary. Disclose your short term and your long term goals to your mortgage broker at the start of your negotiation to avoid a "gotcha" moment at the closing table. Requesting mortgage quotes from a variety of brokers and lenders can also give you plenty of backup resources if your original deal falls through.

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