When building your lending policies, evaluating your underwriting guidelines and training your staff, make sure you include some of the newer rulings, or often overlooked rulings as it relates to the Fair Housing Act. There are three prominent regulations that are missing from many lenders’ policies and staff training. They are LGBT (Lesbian, Gay, Bisexual or Transgender) discrimination, Disability discrimination and Temporary Leave discrimination. As with all of these rulings, I recommend that you go to the section referenced, and ensure that your lending policy and staff training contain the components necessary to be compliant.
The LGBT Discrimination prohibits lenders from basing eligibility determinations for FHA-insured loans on actual or perceived sexual orientation or gender identity. As a side note, you might want to include all loans versus just FHA specific loans. The reference for this is 24 CRF Section 203.33 of the Federal Register. Now many of you may wonder why this was even an issue. Unfortunately, HUD was receiving many complaints of discrimination in this area. One such case involved two women who received a loan denial, because same-sex marriage was not recognized in the state they lived in.
Disability Discrimination prohibits discrimination on the basis of disability housing, which includes mortgages. The reference for this is 42 U.S.C. 3604. A lender cannot request unnecessary and unduly burdensome disability income documentation. This prohibition includes letters from doctors that address duration of disability, nature of disability, or severity of disability. Essentially, if the client is on disability the only thing you need to be concerned about is that you verify the income. Lest you think this issue was caused by a small lender, think again. Bank of America requested doctor’s letters to verify a disability’s severity and medical condition. They also imposed different terms and conditions on mortgage applicants using disability related income. The penalty for B of A was to pay $25,000 to $50,000 to each complainant for monetary relief, destroy all medical information contained in the loan files, change their disability related underwriting policies, hire an administrator to search through 25,000 files for disability-related income issues and pay up to $5000 to each additional victim found. Yikes, that’s going to take a lot of time and money so you might want to get this into your policy, check your underwriting guidelines and train your staff!
Temporary Leave Discrimination includes maternity, paternity or short-term disability leave. When an employee is on temporary leave, they are considered employed and their income is to be considered. This issue stemmed from multiple complaints from women on maternity leave that were told that they needed to start back at their job, before their income would be considered. Once again, the settlements involved big money and lots of additional staff time from those lenders who violated this policy.
As recommended by the CFPB, it is not enough to have the policy. You must also train your staff, document the training and test their proficiency on the subject matter. After all, they have said repeatedly that they will question your employees, on the employees’ understanding of the policies they are expected to adhere to.