Finance
A Minnesota lender's written policy is to charge a higher interest rate for loans on properties in areas with high crime statistics. Under ECOA and the Fair Housing Act, this policy:
AIs permissible risk-based pricing since crime statistics are objective data
BMay be illegal if the high-crime areas correspond to protected class concentrations✓ Correct
CIs required by federal bank regulators for proper risk management
DOnly applies to commercial loans, not residential mortgages
Explanation
Geographic lending criteria that correlate with protected class concentrations can constitute illegal redlining under the Fair Housing Act and ECOA. Federal regulators examine lending patterns to identify policies that effectively exclude or disadvantage protected classes, even when the stated criteria appear objective.
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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.
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.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Math Concepts
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