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MORTGAGE REFINANCE

Lenders Must Base Mortgage Refinance Rejections on Credit-Worthiness

Written By:
March 06, 2013 at 10:18 PM


Nationstar Mortgage Logo

Mortgage lenders receive lots of publicity about foreclosures and lending practices related to faulty paperwork and other business processes. One problem that has not received as much attention is mortgage discrimination.

This situation occurs when mortgage companies reject home mortgage or mortgage refinance applications for inappropriate reasons, which violates state and federal laws.

Some Mortgage Refinance Rejections Illegal

In New Jersey, the Attorney General announced that Nationstar Mortgage agreed to pay high school teacher Taryn Benacquista $30,000 to settle charges that the firm discriminated against her back in March 2011. Texas-based Nationstar services about 1.8 million mortgages across the nation and operates as a mortgage lender.

Benacquista obtained a first mortgage from Nationstar in 2005 to purchase a condominium. Nationstar Mortgage invited her to apply for a mortgage refinance to lower her interest rate. After giving her a preliminary approval, the mortgage company reject Benacquista mortgage refinance application because it later found out she was on maternity leave.

Lenders can evaluate the “credit worthiness” borrower’s, but “illegal assumptions are another thing altogether,” according to a state released by Division on Civil Rights Director Craig T. Sashihara.

In this case, the mortgage lender illegally assumed that “because the borrower was on maternity leave, she would have a decrease in income when she returns to work, or that she will not return to work altogether.”

Furthermore, according to the statement, “We want the people making lending decisions to understand what factors can, and cannot, be considered when assessing a loan application. This is not just a women's issue. It's a family issue. So many lives are impacted by these decisions."

Understand Federal Discrimination Laws

As the housing market continues its recovery, more buyers are entering the market for a home. As home prices appreciate and interest rates remain extremely law, more homeowners have enough equity to qualify for a mortgage refinance.

Borrowers who plan to seek a mortgage or complete a mortgage refinance need to understand federal laws that protect their rights. The Equal Credit Opportunity Act and The Fair Housing Act prohibit discriminating against any person as it relates to residential real estate related transactions, which includes:

  • Originating or refinancing mortgages for buying, repairing or improving a home
  • Renting or selling a dwelling
  • Selling, brokerage or appraisal services

Borrowers should understand that creditors can deny credit based on legitimate credit or income underwriting requirements.

Income Lenders Must Consider

Mortgage lenders routinely rejected mortgage refinance applications because of insufficient income or high debt-to-income ratios. Home buyers intending to secure a mortgage to buy a home or seeking to complete a mortgage refinance of their existing loan need to know what income sources mortgage lenders must accept from borrowers.

Acceptable sources include:

  • Verifiable public assistance
  • Part-time employment
  • Social security
  • Pensions
  • Annuities
  • Alimony

Mortgage lenders must also accept other types of maintenance payments. Borrowers have the responsibility to provide the necessary documentation for proof of income and meet other underwriting requirements.

Mortgage-related complaints

Approximately 43 percent of complaints received by the Consumer Financial Protection Bureau (CFPB) concerns issues related to mortgage products. This federal agency has the responsible for ensuring a transparency, fairness, and safeguarding U.S. consumers when it comes to financial products—mortgages, credit cards, mortgages and car and student loans.

Between December 2011 and June 2012, the CFPB recorded 23,500 about mortgage lenders, based on the agency’s latest semi-annual report to Congress. More than 50% of grievances centered on issues borrowers experienced when they could not make their mortgage payments. About 8 percent pertain to mortgage applications.

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