A caller asks about a loan on a $180,000 house in a neighborhood the originator privately considers declining. He says: "We are not really doing much over there at the moment." If the geographic discouragement is based on the neighborhood's racial composition rather than a legitimate neutral credit criterion, what fair-lending concern does it raise?
Correct Answer
C) Discouragement, and a redlining risk on the neighborhood named
C. The stated racial neighborhood exclusion raises a redlining concern. The hypothetical expressly identifies race, not a neutral credit factor, as the reason for discouraging lending in the area. A vague reference to business volume does not turn that stated discriminatory basis into a legitimate underwriting criterion. Scope and exceptions: This explanation identifies a fair-housing redlining risk, not a complete adjudication or a claim that every geographic limit is illegal. Do not rely solely on a generic Regulation B citation for neighborhood-based facts. Source: HUD Associated Bank redlining settlement, May 26, 2015 — https://archives.hud.gov/news/2015/pr15-064b.cfm
Why This Is the Correct Answer
C. The stated racial neighborhood exclusion raises a redlining concern. The hypothetical expressly identifies race, not a neutral credit factor, as the reason for discouraging lending in the area. A vague reference to business volume does not turn that stated discriminatory basis into a legitimate underwriting criterion. Scope and exceptions: This explanation identifies a fair-housing redlining risk, not a complete adjudication or a claim that every geographic limit is illegal. Do not rely solely on a generic Regulation B citation for neighborhood-based facts.
Why the Other Options Are Wrong
Option A: Permitted, since he described current volume rather than refusing
An indirect message can discourage applicants; formal refusal is not the only concern.
Option B: Discouragement only if the caller belongs to a protected class
The neighborhood-based racial exclusion remains a fair-housing concern without establishing the caller’s race.
Option D: Permitted: a lender may choose the areas it wishes to lend in
Lending-area choices do not authorize racial discrimination.
Exam Tip
Investigate the basis for an area restriction, not only its phrasing.
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