What constitutes the illegal fair housing practice of redlining?
Redlining is the discriminatory practice by lenders of refusing to make loans in specific geographic areas based on demographics rather than qualifications.
Outlawed by the Community Reinvestment Act and Fair Housing Act, redlining occurs when a financial institution draws a line on a map around a neighborhood and refuses mortgages there.
Texas Property Code §301.026 & TREC Rule §531.19— Texas Fair Housing Act & Discriminatory Practices
Select Your Answer Choice
Exam Explanation
What is Redlining in Real Estate?
Redlining is a critical systemic fair housing concept that is regularly tested on both the state and national portions of the real estate exam.
Why the Correct Option is Right
Option B is correct because redlining is specifically a lending or insurance practice. It involves drawing a line around neighborhoods with high minority populations and refusing to issue mortgages, home improvement loans, or home insurance policies in that area, regardless of the individual applicant’s financial qualifications.
Why the Other Options are Traps
- Option A is a trap because brokers have the right to refuse listings based on business choices (such as price disputes).
- Option C is a trap because title companies have a duty to ensure clean titles; refusing to close due to a lien is a proper and legal action.
- Option D is a trap because requiring pre-approval letters is a standard, non-discriminatory business practice.
The Exam Trap
Watch out for the difference between agent behavior and lender behavior. Steering and blockbusting are typically agent violations. Redlining is specifically a lender, bank, or insurance company violation.
Worked Texas Example
Scenario: Apex Lending Corp reviews a loan application for a highly qualified borrower buying a home in a historically Black neighborhood in Houston. The underwriter rejects the loan because “our company doesn’t finance properties in that ZIP code due to high localized default risk forecasts.” Outcome: Apex Lending has engaged in illegal redlining. Refusing to finance based on geographic zip codes linked to demographic profiles is a major fair housing violation.