Pregnant Women Losing Out on Home Loans

I think that we can agree that, after the devastating national sub-prime loan crisis, lenders needed to raise their guidelines for lending money. Those crazy days of easy credit ultimately didn't do anybody any favors. However, with lenders being stricter than ever, there is perhaps one segment of the population that is being affected unfairly: pregnant women and new moms.

You see, mortgage companies are now considering maternity leave to be the same as unemployment, and thus an immediate disqualification for a home loan. Even if a woman's leave is only scheduled for a couple weeks, that can still be enough to deny her application. The short-term disability insurance that new mothers can receive does not count as qualifying income, either, since it is only temporary. The irony is, of course, that many young families are looking to buy their first home because they are expecting a baby.

Part of the reason behind these new harsher guidelines is that Freddie Mac and Fannie Mae, the two mortgage behemoths that buy up most of the traditional loans from lenders, require both proof of income and verification that that income is likely to continue for at least three years. This requirement isn't new, but they way lenders are interpreting it is. Previously, maternity leave was understood to be a brief break from work (which clearly it is); now, oftentimes lenders consider it to be complete stoppage of income and will not approve the loan until the mom is back at work.

Listen, I completely understand wanting to verify an applicant's income and financial stability before doling out money. Really, I do. But I fail to see how it is hard to understand when a woman says that she makes X amount in salary, will take off a few months for maternity leave, during which time she will receive Y amount in short-term disability insurance, and then will resume making her previous salary thereafter. Certainly, if a woman left her job entirely to raise her child, then that is a different story. But when a woman and her employer have a solid plan in writing, what's so bad about that?

Lenders argue that a woman can still get a mortgage, just one that they can afford on her partner's income alone. Of course, this is problematic. First, it assumes that the partner is still in the picture, which he may not be. Secondly, if the woman has a significantly higher salary, you are asking the family to move into a much smaller house than they can afford in reality. Even if her income isn't higher, it is reasonable to assume that the quality of house two people are able to afford together is better than just one of them alone.

Tightening up guidelines for home loans is definitely a good thing. I'm the last person who would ever say that lenders should be giving money to people who can't reasonably afford it. The key word there, though, is reasonable. Using planned maternity leave to automatically disqualify a woman — especially when the woman has excellent credit, savings,  and a commitment to rejoin her workplace — is not reasonable, in my opinion. Tell Fannie Mae and Freddie Mac to make it clear to lenders that they do not consider maternity leave to be an immediate disqualification for a home loan.

Photo credit: coffeego