Final answer:
A savings and loan would infringe the Federal Fair Housing Act by denying the Happy Buyers a loan based on discriminatory factors, an action forbidden by a range of consumer protection laws which are enforced by the Fed to ensure fair lending practices.
Step-by-step explanation:
A savings and loan would be violating the Federal Fair Housing Act by denying a loan to Mr. and Mrs. Happy Buyer because this act prohibits discrimination in the financing of housing based on race, color, religion, sex, handicap, familial status, or national origin. The Federal Reserve (the Fed) ensures that banks adhere to a variety of consumer protection laws, including the prohibition of discrimination based on factors such as age, race, sex, or marital status. Additionally, banks must publicly disclose information about the house buying loans they make, including how those loans are distributed geographically and by sex and race of the loan applicants.
Historically, discriminatory practices such as redlining meant minority neighborhoods were unjustly labeled as credit risks, leading to racially segregated housing patterns. The FHA's underwriting manual suggested that property values could deteriorate if black families moved into a neighborhood, a belief that fueled discriminatory lending practices. Thus, denying a loan to the Happy Buyers on such a discriminatory basis would not only be morally wrong but also illegal under the Federal Fair Housing Act and various consumer protection laws enforced by the Fed.