Fair Housing
A Mississippi lender uses a credit scoring model that was validated for the general population but disproportionately screens out minority applicants. HUD's position is that this may constitute:
ALegal and appropriate use of objective financial criteria
BDisparate impact discrimination if the scoring model has not been validated to predict creditworthiness for all groups without a less discriminatory alternative✓ Correct
CIntentional disparate treatment discrimination
DPermissible redlining
Explanation
Under the Fair Housing Act's disparate impact standard, even facially neutral criteria like credit scoring models can be challenged if they disproportionately harm a protected class without sufficient justification and no less discriminatory alternative exists.
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Key Terms to Know
Fair Housing Act
Federal law prohibiting discrimination in the sale, rental, or financing of housing based on race, color, national origin, religion, sex, disability, and familial status.
RedliningAn 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.
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.
BlockbustingAn illegal practice of inducing homeowners to sell by claiming that the entry of minority groups will lower property values.
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