A report in the New York Times that suggested mortgage lenders had discriminated against women taking maternity leave has resulted in a settlement with Houston-based Cornerstone Mortgage Co. and charges against mortgage insurer Mortgage Guaranty Insurance Corp. (MGIC) for alleged violations of the Fair Housing Act.

The Department of Housing and Urban Development (HUD) announced last year that it was launching "multiple investigations" following a July 20, 2010, report in the New York Times that some lenders had refused to count disability payments new mothers receive while on maternity leave as income.

Lenders claimed the payments weren’t considered a stable source of income by Fannie Mae, Freddie Mac and the Federal Housing Administration.

HUD announced a settlement with Cornerstone in June that created a $750,000 victims’ fund to pay lump-sum payments of $7,500 apiece to as many as 100 claimants. Cornerstone agreed to notify all borrowers who applied during a two-year time frame of their right to seek compensation if they experienced treatment that was discriminatory because a borrower or co-borrower was pregnant or on maternity leave.

The settlement also provided $15,000 in compensation for Dr. Elizabeth Budde, based on her claims that Cornerstone initially denied her a mortgage loan when she was on paid maternity leave and planning to return to work.

Under the terms of the settlement, Cornerstone — which is a partner with Realtor.com operator Move Inc. in the loan origination website MortgageMatch.com — adopted a new policy clarifying how it will treat applicants for loans who are on parental leave, including maternity leave, when they apply for a loan. The policy also applies to men who are on parental leave due to the birth or adoption of a child.

In announcing the settlement with Cornerstone, HUD said it was charging Milwaukee, Wis.-based MGIC with discriminating against a Pennsylvania family by denying their application for mortgage insurance unless and until the wife returned to work from maternity leave.

According to HUD’s complaint, on or about July 26, 2010, MGIC wrote an email summarizing the status of the family’s loan that stated: "(received) updated bank statements along with email from borrower that states she is on maternity leave … notifying her that we cannot proceed until borrower is back to work full time."

John Trasviña, HUD assistant secretary for fair housing and equal opportunity, said in a statement that pregnancy is not a basis to deny or delay a loan.

"Mortgage professionals may verify income and other resources and have eligibility standards, but they may not single out women on maternity leave to deny or delay loans that they are otherwise eligible for," Trasviña said.

After issuing a charge of discrimination, HUD referred the case to the Department of Justice, which announced Tuesday that it had filed suit against MGIC in the U.S. District Court for the Western District of Pennsylvania.

The lawsuit alleges that MGIC’s conduct constitutes discrimination based on sex and familial status, and seeks a court order prohibiting future discrimination by the defendants, monetary damages for those harmed by the defendants’ actions, and a civil penalty.

A spokeswoman for MGIC said the company does not comment on pending litigation.

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