Redlining

The term redlining refers to the exclusion of access to capital or services in a certain area, usually an urban neighborhood. In the case of redlining, insurance companies, mortgage lenders, and banks have refused to offer, have limited the availability, or increased the costs of products or services based on location. This is a form of discrimination, and because of the nature of housing, the impacts are often severe and long lasting. Minorities and lower income residents, as well as the neighborhoods they reside in, suffer due to unequal access to mortgage financing that may lead to a myriad of housing related issues including residential segregation, reduced homeownership rates, depressed property values, reductions in housing quality, and decreased mobility.

The expression redlining emerged from community organizers as a way to describe the red lines drawn on maps by banks to identify areas to withhold investment in the late 1960s and early 1970s. In many older cities, particularly those with restructuring economic bases, residents and organizers witnessed a pattern in the lending decisions of banks. People wishing to purchase a home in a redlined area were unable to secure financing due to location rather than to their income and ability to repay the loan. Homeowners were unable to find financing for repairs since these areas were deemed risky investments. The lack of mortgage capital for purchases and home repairs led to a self-fulfilling prophecy of an area with limited demand for homeownership and declining housing quality. At this time, suburban areas comprised almost exclusively White, middle-class residents while urban areas were increasingly minority and lower income.

The role of the federal government in redlining has been long researched and hotly contested. It is often cited that federal agencies themselves participated in the practice and condoned differential access to mortgage lending capital. In the 1930s, President Franklin D. Roosevelt's New Deal policies changed the design of mortgages and stimulated construction, leading to increased homeownership rates across the nation. Research has contended that the redlining of urban areas during that time, particularly post–World War II, increased racial and economic segregation, reducing the mobility of residents in urban areas, while allowing White and middle-class residents to move into suburban neighborhoods. Minority and lower income residents living in redlined areas were unable to finance home purchases or repairs, leading to decreases in building quality and occupancy over time as areas were starving for credit. The Federal Housing Administration (FHA) and the Home Owners’ Loan Corporation (HOLC) are two of the most cited federal agencies held responsible for condoning redlining practices.

The FHA's underwriting manuals were written in the late 1930s for private lenders who were granting federally insured loans and incorporated neighborhood life cycle theories that associated age of housing and race with investment risk. The manuals strongly preferred new construction, typically found in suburban areas, and explicitly forbade lending to home buyers who would upset the racial character of a neighborhood. These policies were [Page 587]overtly racist and significantly limited the flow of mortgage capital into older and non-White neighborhoods. As a result, the minority population in urban areas increased in size and proportion, while housing values decreased without a viable market for homeowners and new residents. The FHA programs, in effect, not only encouraged but also helped finance suburbanization and homeownership rates for Whites. Gaps continue to exist not only in the homeownership rate between Whites and others, but also they exist in the economic benefits of home-ownership, such as net worth and appreciation.

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