Wells Fargo will pay up to $5 million to resolve allegations it discriminated against mothers on maternity leave, the largest settlement of such claims ever reached by the Department of Housing and Urban Development.

Women on maternity leave were denied Federal Housing Administration-insured mortgages, and the nation's largest mortgage lender made "discriminatory statements to and against women who were pregnant or who had recently given birth," in violation of the Fair Housing Act, complaints filed by six mortgage applicants, along with a broader complaint filed by HUD, allege.

Wells Fargo is also accused of "forcing women applicants to sacrifice their maternity leave and return to work prior to closing on their loan," according to HUD.

"Women applicants who sacrificed their maternity leave in order to ensure that their loan closed reported emotional distress at the loss of time with their infants and complications that arose in finding emergency child care and establishing the ability to nurse," HUD said in an Oct. 9 statement.

In its settlement, Wells Fargo will pay a total of $165,000 to the six individual complainants and create a $3.5 million fund to pay $20,000 each to up to 175 mortgage applicants who experienced similar discrimination. If there are more than 175 claimants, Wells will add an additional $1.5 million to the fund to pay up to 250 claims. If the total number of claims exceeds 250, the $5 million fund will be prorated among the recipients.

"I'm committed to leveling the playing field for all families when it comes to mortgage lending," HUD Secretary Julian Castro said in a statement. "These types of settlements get us closer to ensuring that no qualified family will be singled out for discrimination."

Wells Fargo also agreed to update its mortgage underwriting guidelines and retrain underwriters on how they must evaluate borrowers on parental leave when they apply for a mortgage. The Fair Housing Act prohibits consideration of familial status in consideration of a mortgage application.

Eligibility for settlement money will be determined by a search of Home Mortgage Disclosure Act data between January 2011 and the settlement date for any mention of maternity, paternity, short-term disability, and infants in consideration of loan applications. Applicants whose familial or short-term disability status related to parenthood came into consideration for an application will be eligible for a claim. Claimants will have 120 days from the date notices are sent to file a claim.

Wells Fargo did not admit to any wrongdoing in the settlement.

"Our underwriting is consistent with longstanding fair and responsible lending practices and our policies do not require that applicants on temporary leave return to work before being approved," a Wells Fargo spokesperson wrote in an email response to a request for comment.

The settlement is the largest ever for a HUD maternity leave discrimination case. HUD has reached 40 similar settlements with lenders for a combined total of $1.5 million since 2010.

Maternity discrimination has been a focal point of HUD enforcement action, but the issue has raised confusion among lenders, particularly in light of the ability-to-repay rules that took effect in January. Last month, Tennessee-based FirstBank Mortgage Partners paid $35,000 to an applicant who claimed she was denied a mortgage because she was on maternity leave. In July, GFS Capital Holdings agreed to pay $48,000 to settle similar claims. Last year, Bank of America reached a $45,000 settlement over maternity leave discrimination allegations. Larger settlements include more than $750,000 paid by Cornerstone Mortgage in 2011, and a $550,000 settlement with MGIC Investment Corp. in 2012.

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