Looks as though lenders are getting caught in the ability to repay squeeze (Wells Article). TILA requires a lender to ensure the consumer has the ability to repay the new mortgage debt. To do so, a lender, among other things, must determine that the consumer makes sufficient income to afford the loan, the recurring monthly expense, the estimated upkeep on the home leaving some left over “residual income”. Problem is the law doesn’t define what would be considered an acceptable amount of residual income.
With a woman out on maternity leave the question gets raised as to the likelihood of her return to work. Further, with a new child the monthly expenses may increase. Depending on other household income, and how close the consumer is for qualification, these factors may contribute to the lenders determination on the consumer’s repayment ability, especially if the woman does not immediately return to work, by choice, or if other complications arise.
In the event of a default, could the consumer claim they had every intention to return to work however after the child’s birth things changed? Should the lender have anticipated this possibility? Can the lender ask the woman of her intentions or assume that the she might not return? Help! Is there a lawyer in the house?
I agree with a level playing field and that all qualified applicants should have equal access to credit. However, this puts the lender in a no win situation; make the loan and run the risk of an ability to repay claim. Don’t make the loan and end up on the wrong end of a discrimination claim. Can the lender have the women sign a notarized affidavit indicating her intention to return to work, earning the same income used to qualify? Would that protect the lender in the event she did not return to work and subsequently defaulted?
So many questions…