Fair Housing
A lender in Iowa charges higher interest rates to borrowers in certain ZIP codes regardless of creditworthiness. This may constitute:
ALegitimate risk-based pricing
BRedlining, a violation of fair housing and community reinvestment laws✓ Correct
CA permissible market practice
DA form of rate arbitrage
Explanation
Charging higher rates in certain geographic areas regardless of borrower creditworthiness may constitute redlining—discriminatory lending practices that violate the Fair Housing Act and Community Reinvestment Act.
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Key Terms to Know
Redlining
An illegal practice where lenders or insurers deny services or charge higher rates in certain neighborhoods based on the racial or ethnic composition of those areas.
Fair Housing ActFederal law prohibiting discrimination in the sale, rental, or financing of housing based on race, color, national origin, religion, sex, disability, and familial status.
SteeringAn illegal practice where a real estate agent directs buyers toward or away from certain neighborhoods based on the buyer's race, religion, national origin, or other protected characteristics.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
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