A mortgage lender in Los Angeles denies a loan application for a condominium in a neighborhood where 60% of residents are Asian American. The denial letter states the reason as 'unfavorable neighborhood trends.' The borrower has a 780 credit score and 20% down payment. Under the Holden Act, which element of this denial is most problematic?
Correct Answer
B) The lender used vague neighborhood characteristics rather than the borrower's individual creditworthiness to deny the loan
The Holden Act (Health & Safety Code §35800) specifically prohibits basing lending decisions on neighborhood characteristics such as demographics, racial composition, or subjective 'neighborhood trends.' Denying a well-qualified borrower based on neighborhood factors rather than individual creditworthiness is classic redlining.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A comparison of the major mortgage loan types—conventional, FHA, VA, and USDA—covering their eligibility requirements, down payment amounts, mortgage insurance rules, and best use cases.
Predatory lending refers to unfair, deceptive, or abusive lending practices that impose unjustified terms on borrowers, often targeting vulnerable populations. It includes practices like excessive fees, inflated appraisals, and unnecessary refinancing.
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
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