Question

Prior to the CRA, lenders tended to avoid lending in high-risk communities and neighborhoods in a practice known as:

A. blockbusting.
B. redlining.
C. red flagging.
D. flipping.

Answer 1

Redlining is the discriminatory practice by lenders of avoiding investments in specific geographic areas, often minority neighborhoods, which had detrimental effects on property values and generational wealth transfer for minorities.

Step-by-step explanation:

Prior to the Community Reinvestment Act (CRA), lenders avoided lending in certain communities characterized by higher financial risk in a practice known as redlining. Redlining is the discriminatory practice where banks and insurance companies would deny or limit loans, mortgages, or insurance within specific geographic areas, especially in minority neighborhoods.

These areas were often outlined in red on maps used by financial institutions, signifying that they were high-risk and thus, not desirable for investment. Despite an individual's financial stability or creditworthiness, if they resided in a redlined area, they faced significantly higher barriers to securing loans or insurance, or were subjected to more costly terms. This practice had a profoundly negative impact on property values and contributed to systemic impoverishment among minorities, particularly African-Americans, affecting generational wealth transfer.