National Real Estate Practice Exam

In real estate, what is redlining?

1. Encouraging residents to abandon properties in declining neighborhoods

2. Denying loans in certain areas based on demographic factors

3. Pricing homes in high-demand areas significantly lower

4. Providing loans with excessively high interest rates

The correct answer is: Denying loans in certain areas based on demographic factors

Redlining is a term that refers to the practice of denying loans or insurance to residents in certain areas based on demographic factors, particularly those related to race and ethnicity. This discriminatory practice emerged in the 1930s when federal policies categorized neighborhoods as high-risk based on the racial composition of their residents, leading lenders to refuse financing to those areas. This effectively created barriers for individuals and families trying to purchase homes or secure loans, perpetuating cycles of poverty and limiting access to housing in communities of color. Understanding the historical context of redlining is crucial, as it has been widely recognized as a form of systemic racism that has contributed to ongoing disparities in wealth and property ownership in the United States. The consequences of this practice were profound, resulting in disinvestment in certain neighborhoods and a lack of economic opportunities for their residents. The other options relate to different aspects of real estate and lending practices, but they do not accurately represent the specific definition of redlining. Encouraging abandonment in declining neighborhoods, pricing homes lower in high-demand areas, and offering loans with excessively high interest rates address separate issues in the real estate market and do not specifically describe the discriminatory lending practice that redlining encompasses.