Fair Housing

A West Virginia lender who imposes stricter loan terms (higher down payment, higher rate) on borrowers in neighborhoods with predominantly minority populations is engaged in:

ASound risk management based on neighborhood statistics

BReverse redlining (predatory targeting)✓ Correct

CLegitimate risk-based pricing

DAn illegal practice only if the individual borrower's credit is good

Explanation

Reverse redlining (or predatory targeting) involves targeting minority neighborhoods or borrowers with unfavorable, high-cost, or predatory loan products. It is a form of illegal discrimination under the Fair Housing Act and ECOA.

People Also Study

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.

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.

Steering

An 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.

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.