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Maternity Leave & Fair Lending: 3 Lessons from Wells Fargo Settlement

Maternity Leave & Fair Lending: 3 Lessons from Wells Fargo Settlement

Posted by Andy Barksdale on Oct 14, 2014 10:08:21 AM
Andy Barksdale

Wells Fargo recently settled with HUD over allegations that their policies discriminated against applicants who were pregnant or on maternity leave. That settlement provides three key lessons you need to know, as well as specific language for underwriting guidelines worthy of your consideration.

maternity-leave-fair-lending-complianceWells Fargo made national headlines with a recent HUD settlement, which was in response to complaints of discrimination against women on maternity leave or pregnant. This settlement provides three key lessons about Fair Lending compliance and maternity leave policies, training, and secondary reviews.

The lessons provided within the settlement are not new; however, this is a good reminder of the importance of Fair Lending and the details associated with managing this particular risk. Here are the three key lessons:

1. Importance of Policies

The settlement highlights the importance of written policies. Here are some of the approved underwriting policy guidelines that Wells Fargo agreed to implement:

  • Do not require applicant on temporary leave to return to active work status as a condition of mortgage approval;
  • Allow applicants to use their pre-leave income if the applicant’s work date precedes the date of the first mortgage payment AND the institution is not made aware that the applicant’s post-leave income will be less than the pre-leave income;
  • Applicants who will not return from temporary leave before the first mortgage payment due date may use any income received during the leave period to meet generally applicable underwriting standards;
  • In the event that the income received during the temporary leave period is insufficient to meet generally applicable underwriting standards, the institution will permit applicants to use verified liquid assets not otherwise required to close, in order to bridge any period in which applicant receives less than his or her full employment income while on temporary leave beyond the due date of the first mortgage payment.

2. Importance of Training

This settlement (and other settlements) highlight the importance of personnel training. We recommend that policies are written, regularly reviewed, and widely shared and trained upon. Otherwise, you are vulnerable to individual interpretations from lenders, underwriters, managers, and more. 

approved-loan-stampThis settlement provides a reminder to review your institution’s Temporary Leave Underwriting Guideline, as well as update and send out a training reminder. We have seen this repeated over and over: one individual's biased or unaware opinions and actions can lead to a claim of discrimination. Train. Reinforce. Test. Repeat.

Not surprisingly, Wells Fargo was given 30 days to distribute the new guideline to all mortgage consultants, underwriters, processors, and their supervisors. In addition, Wells Fargo agreed to maintain a training plan in regards to Fair Lending, including attendance rosters.

3. Importance of Second Reviews 

The settlement also highlights the importance of consistency that may be achieved by employing second reviews for any potential denial. Second reviews and the associated process of having a second set of eyes to evaluate denials may help bring fair and consistent perspectives to the underwriting process.

Above and beyond the financial settlement, publicity likes this reminds us of the “reputational risk” that may arise from the popular press - Washington Post, Huffington Post, etc. - calling attention to the settlement. For example, ABC News’ headline trumpeted “Wells Fargo Settles Inquiry Bias Against Moms.”

It is important to note that Wells Fargo denied the allegations in the complaint, and denies discriminating against loan applicants because of sex and/or familial status. For perspective, Wells Fargo said in a statement “that the agreement resolves claims related to only five applications from a period when Wells Fargo processed a total of approximately 3 million applications from female customers.”

Under the terms of the settlement, Wells Fargo will distribute a total of $165,000 among the six families and create a fund with at least $3.5 million, and pay up to an aggregated amount of $5 million, to compensate other Wells Fargo applicants who experienced similar discrimination. 

Ncontracts Viewpoint: There really is nothing new discovered with this settlement, but it helps reinforce critical Fair Lending lessons. Clear guidelines are required to ensure consistent treatment when it comes to sex and/or familial status. The details of the Underwriting Guidelines detailed above provide the industry more clarity than we have seem from some previous maternity leave-related settlements.

As you look to review/update your policies, we recommend you consider adopting some of this language to help mitigate Fair Lending risk. Ncontracts reviews these types of consumer compliance settlements to gain knowledge and insight into how to help our clients proactively manage Fair Lending and related risks.

 

Related: How to Build a Strong Fair Lending & Redlining Compliance Management System

 

 

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Topics: Fair Lending, Banks, Nrisk, Lending Compliance, Risk, Nfairlending, Product Insight, Lending Compliance Management,

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