During a fair lending examination, regulators discover that a lender's automated underwriting system approves white applicants at an 85% rate but approves similarly qualified Black applicants at only a 65% rate. The lender's best defense would be to:
Correct Answer
C) Demonstrate that the disparate outcomes are justified by legitimate credit factors and business necessity
Under disparate impact analysis, statistical disparities in lending outcomes create a presumption of discrimination. The lender must then prove that the practice causing the disparity serves a legitimate business purpose and that no less discriminatory alternative exists that would accomplish the same objective.
Why This Is the Correct Answer
Under disparate impact analysis, statistical disparities in lending outcomes create a presumption of discrimination. The lender must then prove that the practice causing the disparity serves a legitimate business purpose and that no less discriminatory alternative exists that would accomplish the same objective.
More Ethics & Fraud Questions
A lender's mobile app prominently displays a 'pre-qualification' feature that asks for minimal information but generates loan amount estimates that are consistently 20-30% higher than what borrowers actually qualify for when they complete full applications. The app includes a disclaimer that estimates are 'subject to full underwriting.' This practice is most likely:
An MLO discovers that multiple loan applications from different borrowers contain identical handwriting in the signature sections, despite different purported signers. The applications were submitted by different real estate agents. What is the most appropriate immediate action?
A mortgage loan originator receives a lead from a real estate agent about a potential borrower. Before calling this consumer, the MLO must:
An MLO tells Asian applicants that they need larger down payments 'because that's what investors prefer for your type of loan,' while telling similarly qualified white applicants that standard down payments are acceptable. This practice represents:
A mortgage company advertises 'Guaranteed approval for all credit types!' but internally has minimum credit score requirements of 580. This advertisement is problematic because it:
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Previous Question
A mortgage company's policy requires borrowers with credit scores below 620 to provide additional documentation that borrowers with higher scores don't need. During testing, this policy is found to disproportionately affect African American applicants. The company can defend this practice if:
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Which of the following scenarios would most likely constitute loan flipping under federal predatory lending guidelines?