Final answer:
The practice described is known as 'redlining,' which is the refusal to provide loans or services to areas based on racial demographics, perpetuating segregation and economic inequality. This has led to systemic impoverishment in minority communities denied opportunities for property ownership.
Step-by-step explanation:
The practice described in the question is known as redlining, which refers to the discriminatory practice where services such as loans and insurances are withheld from potential applicants based on racial or ethnic demographics of a particular area. In the scenario presented, XYZ Mortgage Company is refusing to lend money to applicants who wish to purchase property located in specific geographic areas that may historically be associated with minority populations. This form of mortgage discrimination ensures that certain neighborhoods remain inaccessible to racial or ethnic minorities, perpetuating segregation and economic disparity.
Redlining has lasting effects and can contribute to systemic impoverishment due to the denial of opportunities to build wealth through property ownership which is often passed down generationally. Moreover, the refusal to issue loans, the practice of giving loans with less favorable terms, or charging higher insurance rates in these areas, adds to the economic struggles of these communities.
The term 'redlining' comes from the historical practice where the Federal Housing Administration (FHA) created maps with red lines around neighborhoods with high populations of ethnic minorities, effectively denying them mortgage loans. While now illegal, some argue that modern practices echo historical redlining and contribute to racial inequalities in homeownership and economic opportunity.