Redlining | Definition/ˈredˌlīnING/
Redlining is a discriminatory practice commonly used by banks, other types of lending institutions, and housing agencies in the United States during the 20th century.
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The Fair Housing Act of 1968 put an end to legally sanctioned redlining policies like those used by the Federal Housing Administration (FHA). However, redlining is still prevalent in many communities throughout the United States.
Redlining is a term used to describe a discriminatory practice that has been prevalent in the United States for decades. It has had an adverse impact on many communities across the country, especially those that have been historically marginalized.
In this article, we will discuss the history of redlining in the U.S., why it is important to understand when it was outlawed, and what to do if you think you or someone you know are a victim of redlining. Read on to learn more.
Redlining is a discriminatory practice commonly used by banks, other types of lending institutions, and housing agencies in the United States during the 20th century. The term "redlining" comes from housing agencies and lenders drawing a solid red line on a map around Black and Brown neighborhoods, indicating that these areas were considered ‘high-risk’ for lending purposes.
As a result of these policies, residents in these neighborhoods were often denied access to loans and homeowner’s insurance or provided these products at terms significantly less attractive than non-redlined neighborhoods.
Redlining was particularly prevalent in urban areas, where banks and other lending institutions often refused to lend money to individuals or businesses in predominantly African American or Hispanic communities. This practice made it difficult for residents of these areas to buy homes, start or expand businesses, or make other investments that would have allowed them to build wealth over time.
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The History of Redlining
Redlining’s roots began with the establishment of the Home Owner’s Loan Corporation, a federally-sponsored corporation that was created as part of the New Deal, a program created to lift the country out of the Great Depression. The purpose of the Home Owner’s Loan Corporation, or HOLC, was to expand homeownership and buy back mortgages that were in default as a result of the economic collapse. In addition, HOLC developed so-called “residential security” maps as part of its mission.
Neighborhoods that received the highest grade of A, colored green on these maps, were labeled “Best,” while those that received the lowest grade of D, colored red, were deemed “hazardous.” Neighborhoods coded red were often communities of color or with high numbers of African American, Hispanic, or Asian residents, as well as low-income white communities.
These neighborhoods were designated risky investments, and banks were discouraged from lending money to people and businesses in these communities. Conversely, in greenlined areas, lenders provided favorable lending terms to residents in predominantly white neighborhoods.
The U.S. Department of Housing and Urban Development (HUD), the Veteran’s Administration (VA), the Federal Housing Administration (FHA), and private lenders continued the practice of using the color-coded maps developed by HOLC to guide mortgage and lending decisions well into the 1960s. Redlined-based lending resulted in the denial of financial services and other resources and limited economic growth for residents of these communities.
HUD and other federal agencies involved in redlining have since acknowledged and apologized for their role in this practice and have taken steps to address the harm caused by these policies. Likewise, numerous state-level realtor associations have apologized for their role in advocating for policies that drove racial segregation at the state level. However, the legacy of redlining continues to have lasting impacts on communities of color today, including disparities in housing, education, and economic opportunities.
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Economic Impacts of Redlining
The echoes of redlining continue to reverberate in impacted communities. For example, the National Community Reinvestment Coalition (NCRC) released a report analyzing data on the racial makeup of homeowners in formerly redlined and greenlined neighborhoods across 100 U.S. metropolitan areas. It found that Black homeowners are nearly five times more likely to own a home in a formerly redlined neighborhood than in a formerly greenlined neighborhood.
The NCRC also found that the typical homeowner in a redlined neighborhood has gained 52% less in home equity than a typical homeowner in a greenlined neighborhood over the last 40 years. This translates to a difference of $212,023 in wealth accumulation from property value increases between the two types of neighborhoods.
Redlining has also had adverse economic impacts on affected communities, including concentrating poverty in these communities, perpetuating a cycle of disinvestment in certain neighborhoods, and widening the wealth gap between white and non-white neighborhoods. In this regard, understanding the history and impact of redlining is crucial for anyone seeking to advance social justice and address systemic racism.
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When was Redlining Outlawed?
Redlining was officially outlawed with the passage of the Fair Housing Act in 1968. The Fair Housing Act prohibited discrimination in the sale, rental, and financing of housing based on race, religion, national origin, or sex. This law was a significant step toward ending discriminatory practices in the real estate industry, but it did not eliminate the effects of redlining altogether.
In 1977, the Community Reinvestment Act (CRA) was passed, which required banks to meet the credit needs of the communities they serve, including low- and moderate-income neighborhoods. The CRA was designed to encourage investment in underserved communities and to prevent redlining. However, the CRA has been criticized for not doing enough to address the effects of redlining and for being poorly enforced.
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Next Steps for Redlining Victims
If you believe that you have been a victim of redlining, there are steps that you can take to address the issue. The first step is to document any evidence of discrimination. This may include records of conversations with lenders or real estate agents or any written communication that suggests discriminatory practices. You should also gather information about the neighborhoods that you are interested in and any relevant lending practices.
Once you have documented evidence of discrimination, you can file a complaint with HUD. HUD investigates complaints of housing discrimination and takes legal action against individuals or organizations that are engaging in discriminatory practices. Consult with an attorney specializing in fair housing law.
How Can You Address Redlining?
Addressing redlining requires changes on the policy, educational, and community investment fronts. That said, there are some actions that you can take in your community to address redlining:
- Spend Mindfully: Supporting Black and Brown-owned businesses to seed a legacy of wealth-building.
- Learn More: Seek out education and training on the history of redlining and its impact on communities of color.
- Advocate: Engaging with local government officials and advocacy groups to raise awareness about redlining and advocate for policies that address its legacy.
The Money Wrap-Up
Redlining is a discriminatory practice that has had a significant impact on many communities in the U.S. While redlining was officially outlawed more than 50 years ago, its effects reverberate today. Understanding the history and impact of redlining is crucial for anyone who wants to buy a home, work in the real estate industry or build generational wealth through real estate investment.
If you believe you have been a victim of redlining, document any evidence of discrimination and file a complaint with HUD. Consulting with an attorney specializing in fair housing law can also be helpful. By taking these steps, you can help address the redlining issue and work towards a more equitable and inclusive society.
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