I have gone through all the steps of a home refinance process, including an appraisal, and am waiting for a final decision. Just a few days ago, the loan officer processing my application asked me about employment gaps within the last two years and for a signed statement to explain my sources of income during those times. It's been several days and I haven't heard back from them since.
I have been employed full time for a year now and my income is plenty to support the monthly payment. During my unemployed time, I never missed a timely credit payment, mortgage, CCs, etc. My credit score is decent although not perfect because of some high CC balances, which I hope to pay if the refinance goes through. I have also received a preliminary conditional approval (before she asked me about unemployment) and a GFE. The home appraised really well and the LTV is only about 66%, so there is lots of room for the bank not to lose money.
I am curious whether it is legal for them to reject my loan application based on previous unemployment. Also, if they do reject based on a heuristic or a subjective "gut feeling" and not as a result of a firmly determined and regulated requirement, do I have any legal recourse?