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Watch Your Underwriting Guidelines!

As many of you are aware, there have been strong penalties for discrimination against women who are on paid maternity leave.  Lenders who are not counting their income, or denying the loan until they go back to work, are paying heavy penalties for this policy.

Additionally, Wells Fargo is making it clear to their lender clients that they need to be compliant with the Fair Housing Act, regarding disability income.  The Act states that a lender may not discriminate against a borrower on long-term Social Security disability.  Effective immediately, for any government or conventional loan, an award letter disclosing the benefit amount is all that is needed.  A lender should not request a benefit’s continuance letter or a doctor’s note outlining the disability.  Additionally, borrowers on Social Security disability who  are seeking a government loan, do not need to provide you with Social Security 1099s, or tax returns to support this benefit.  The award letter is sufficient to satisfy the three-year income continuance expectation.

As part of your risk management program it is prudent to review your policies, for guidelines that may set you up for discrimination scrutiny. Document how you reviewed your underwriting policies, how you changed any policy to be compliant based on legal opinion, how you trained your staff, and how you monitor their compliance.

1.  Age discrimination:  Do you have any age policies, other than being old enough to sign a contract?  How do you handle pension and retirement income, and is that in line with the industry policy makers and your legal counsel opinion?

2.  Disability, public assistance, section 8 assistance.  HUD states that you must consider this income for the repayment of the loan, and you must consider it fairly.  Unfortunately, I’ve heard loan officers tell clients that if they are on public assistance or section 8 assistance, they will not qualify for a home loan.  As their employer, you are responsible for their actions, which is why strong policy, training and monitoring are important.

3.  Gender discrimination.  By now, you have policies that are in place for discriminatory behavior against women.  New legislation prohibits discrimination based on sexual orientation.  The complex part of this legislation is that there is no real way to monitor this, because it is not a question we would or should ever ask a client.  You also cannot discriminate against those who choose not to identify a gender.  Or, if they say they are a woman, even though they appear to be a man, it is not up to you to argue that point.   So, once again training and policy building is your friend.

Managing your company risk is tough in today’s environment!  Yet proactively addressing these potential minefields, allow you to document how seriously your company takes compliance issues.  And at the very least the examiner will see that you are trying to comply, which is much better than complacency.


Tammy Butler, Master CMB

Author Tammy Butler, Master CMB

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