Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

As per ECOA, how should a lender treat questions about income from public assistance?

1. It is never acceptable to ask

2. Only if it affects loan qualification

3. Always relevant to ask

4. It can be asked on all applications

The correct answer is: Only if it affects loan qualification

In the context of the Equal Credit Opportunity Act (ECOA), the correct approach for a lender regarding questions about income from public assistance is that it should be treated as relevant if it affects loan qualification. This is because the ECOA aims to prevent discrimination based on protected classes, and while income from public assistance can be a legitimate source of income, lenders cannot rely solely on this income or discriminate against applicants who receive it. The ECOA allows lenders to consider all sources of income in the loan application process, but they must be careful not to make assumptions about the stability or reliability of that income based solely on its source. Therefore, if income from public assistance directly impacts the borrower’s ability to meet loan qualifications, it is relevant to inquire about it. However, this inquiry must be handled with care and sensitivity, ensuring it does not lead to discriminatory practices. Understanding this context is crucial because it emphasizes the balance between collecting necessary financial information for loan assessment while adhering to the principles of non-discrimination outlined in the ECOA. This ensures that all applicants, regardless of their income sources, are treated fairly during the lending process.