Finance

The Community Reinvestment Act (CRA) requires depository institutions to:

AOffer the same interest rates to all borrowers regardless of credit score

BMeet the credit needs of the communities they serve, including low- and moderate-income neighborhoods✓ Correct

CDecline loans in high-risk flood zones

DProvide down payment assistance to all first-time homebuyers

Explanation

The Community Reinvestment Act requires FDIC-insured depository institutions to meet the credit needs of the communities they are chartered to serve, including low- and moderate-income (LMI) neighborhoods. It was enacted to combat redlining.

People Also Study

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.

Private Mortgage Insurance (PMI)

Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

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.