Final answer:
The discriminatory practice by a lending institution to deny loans based on the racial makeup of a neighborhood is called redlining. It has resulted in persistent socioeconomic disparities and has long been illegal in the United States.
Step-by-step explanation:
The refusal of a lending institution to make a residential real estate loan strictly because of the racial or ethnic composition of the neighborhood is known as redlining. This practice involved banks and other lenders withholding mortgages or loans from people in neighborhoods predominantly inhabited by racial or ethnic minorities, designating these areas as hazardous to investment based on racial demographics. Redlining has contributed to long-term educational and financial disparities, as it effectively denied many individuals the opportunity to build wealth through homeownership, which is traditionally passed down through generations. Notably, such practices are illegal and have been officially prohibited, yet the lasting impacts are still evident in affected communities.