Mortgage Loan Originator (MLO) Licensing Practice Test

What does disparate impact demonstrate in relation to discrimination?

1. It focuses on the intent behind discriminatory actions

2. It shows discrimination based on the effects of a policy

3. It establishes discrimination through direct evidence

4. It excludes consideration of demographic factors

The correct answer is: It shows discrimination based on the effects of a policy

Disparate impact is a concept that illustrates how certain policies or practices may lead to discriminatory effects, even if they are not intentionally discriminatory. This means that the focus is on analyzing the outcomes of these policies rather than the intent behind them. For example, if a lending policy inadvertently results in a higher rejection rate for loans among a specific demographic group, this demonstrates disparate impact. This principle is essential in ensuring that all individuals have equal access to opportunities and that unintentional barriers are identified and addressed. The understanding of disparate impact is crucial for mortgage loan originators because it emphasizes the importance of evaluating policies critically to ensure they do not perpetuate inequality, regardless of the intent behind them. This approach advocates for fairness and equality in lending practices, aligning with regulatory standards aimed at preventing discrimination in housing and finance.