A 2008 video by Democratic presidential candidate Michael Bloomberg in which the real estate crash was largely attributed to "redlining" has introduced the term into the national conversation. Although redlining – a form of lending discrimination – has been banned for decades, its scars remain visible in many U.S. communities, experts say. Read on to learn more about redlining and its effects.
What is redlining?
Many banks in the United States have denied mortgages to people, mostly black people in urban areas, for decades, preventing them from buying a home or getting a home renovation loan in certain areas of the city. The practice – once supported by the United States government – started in the 1930s and took place across the country. This includes in many of the country's largest cities, such as Atlanta, Chicago, Detroit, Tampa and others with large minorities.
As a result, banks and other mortgage lenders often refused credit to creditworthy borrowers solely based on their race or place of residence. As part of this practice, financial firms, real estate agents, and other parties have delineated geographic areas that have been virtually blocked for lending.
Scientists who deal with discrimination based on housing conditions point out that redlining is now a factor in the wealth gap between blacks and whites in the United States.
Where does the word come from?
The term redlining is an allusion to how lenders have identified and referenced neighborhoods with a larger proportion of people who are more likely to default. On paper, lenders use red ink to map out the parts of a city that are considered to be at high risk of default and more desirable parts of the city for credit approval. Riskier quarters were mostly black and Latin American.
Physical copies of such cards are kept in the National Archives. The University of Richmond has digital versions of about 200 maps that were once used for redlining, including the following.
Robert K. Nelson, who oversees the Richmond University mapping inequality project, said the maps were created in cities of 40,000 or more. The federal government worked with local real estate agents and banks through a now-defunct agency called Home Owners & # 39; Loan Corporation to create the maps.
"The then federal government called these best practices for responsible lending," he said.
Is redlining still legal?
No. Federal law prohibits discrimination in home lending, particularly the Fair Housing Act of 1968 and the Community Reinvestment Act (CRA) of 1977. The first of these laws prohibits discrimination based on a person's race when that person tries to rent a house or buy and apply for a mortgage. The law also makes it illegal to charge predatory interest rates or fees.
The credit rating agency needs to keep track of how often they approve and deny loans to people in low-income households. Based on their records, lenders are assigned a compliance rating: "pending", "satisfactory", "in need of improvement", or "significant non-compliance".
Does redlining still occur?
The answer depends on who you ask. Although banks reject redlining, some lawyers and attorneys say the practice will continue, albeit in a different form.
"You won't see anyone with a map on a wall with red lines," said Stuart Rossman, litigator of the National Consumer Law Center. "Although we rarely see redlining, we see a lot of reverse redlining."
In reverse redlining, banks in the same neighborhoods that were once banned from borrowers could grant predatory loans, Rossman said. For example, in the years before the real estate crash in 2008, mortgage lenders sold hundreds of thousands of risky subprime loans, including "no doc" and balloon payment loans, to low-income borrowers. Many communities in cities like Detroit and Newark still need to recover.
The National Consumer Law Center joined the Connecticut Fair Housing Center in a lawsuit against Liberty Bank in 2018, claiming the company had redesigned the black and Latin American neighborhoods in Hartford and New Haven.
There are many other cases where applicants are denied a home loan based on their race, said Nikitra Bailey, executive vice president of the Center for Responsible Lending. Bailey pointed to a 2018 advocacy study that found black, Latin American, and Asian applicants were rejected in many U.S. cities at a higher rate than whites.