The U.S. Department of Housing and Urban Affairs (HUD) issued a press release yesterday stating "that it will launch multiple investigations into the lending practices of certain mortgage lenders to determine if they illegally denied families mortgages because the mother is pregnant or a family member is experiencing a short-term disability." HUD Secretary Shaun Donovan said, "Lenders have every right to ascertain the incomes of families to determine whether they are eligible for a mortgage loan but they have no right to use a pregnancy or a short-term disability as a cause to deny that family a mortgage they would otherwise qualify for. Having a child should be a time for a family to celebrate and must not be a cause for unfair lending practices."
On its surface, this issue appears to be a no-brainer. Everyone loves children, they are the future of our society and therefore should not be part of the loan underwriting process. Or should they?
In this post subprime mortgage meltdown era, loan underwriters are damned if they do and damned if they don't. On the one hand they are obligated to perform a mathematical analysis based upon very strict rules which are designed to lead to a clear determination of a borrower's credit worthiness. On the other hand, these poor souls are instructed to ignore facts which obviously have an economic impact upon a borrower's ability to repay a loan.
Given the situation where two borrowers are borderline cases in the underwriting process, and one has one child and the other has six, who is the more credit worthy? We all know that children are not free.
The Fair Housing Act, which prohibits discrimination in lending based on familial status (pregnancy or children in the family) is the law and must be obeyed. The question is – who should assume the risk? Congress has already decided that social policy in support of children trumps underwriting, but has the government assumed the risk of that policy or unfairly passed it off to the lenders?
If we are determined to prevent another housing mortgage meltdown, let's give the underwriters tools that fit the mathematical process. State and federal programs abound that help with down payments, closing costs and other underwriting issues. Surely, there can be relief for new parents and large families which take the issue entirely out of the hands of the mortgage lenders.
- - - - - - - - -
The opinions expressed in this blog are solely the opinions of the author and not those of MultifamilyBiz.com, L.L.C., its members, officers, employees, representatives or affiliates.