The Impact of Racist “Redlining”

*****Disclaimer: This is not legal advice and is for educational purposes only. This does not create an attorney-client privilege.

Redlining is the term for a discriminatory, and now (technically) illegal practice of certain financial and insurance institutions to adjust and assign policies and the services and rates available to a prospective client based on the community that they come from. The way rates and policies, etc. are adjusted from community to community has been shown not only to correlate with, but often be unabashedly based upon, the racial makeup of that community.

The name itself comes from way loan companies would demarcate predominantly black or mixed-race communities with a red outline on their service maps as a warning to mortgage providers. Meanwhile, more affluent and predominantly white neighborhoods were outlined, usually in blue or green, to indicate them being more worthy of loans. This redlining practice contributes to systemic racism that disadvantages black Americans, as well as other people of color.

Some of the common entities to have used this practice are mortgage lenders and insurance companies. Lenders might deny loan applications and offer less premium rates, or insurance providers might limit the services they offer or otherwise discriminate against an individual based on guidelines set for that community. Some of the other ways these redlined communities are targeted are with unfair loan terms for the borrowing parties, penalties for prepaying debts, and even by being directly misled about the terms of their loans.

This practice of redlining first rose in popularity with the creation of the Home Owners Loan Coalition (HOLC) and the Federal Housing Administration (FHA) during the New Deal under FDR in 1934. These entities created our modern mortgage lending system, which helps to incentivize homeownership and otherwise boost the economy, but it was designed to perform this function for white Americans while BIPOC (brown indigenous people of color) were excluded, and directly harmed, by racist redlining.

Though redlining based on race is technically illegal now, it used to be very explicit. The HOLC had four levels for categorizing neighborhoods, and would often specifically denote the reason for red neighborhoods as “Infiltration of: Negroes”. The impact of this was that black people were systematically denied eligibility to FHA support. This was also while segregation was still legal, and what neighbors were subsidized by the FHA for construction and improvements often had the requirement of residents needing to be white. This contributed greatly to the disenfranchisement of African Americans and pushing them in large numbers to urban housing projects, which bear their own fiscal and environmental injustices.

In 1968, the Federal Fair Housing Act forbade minority discrimination by landlords, property owners and real estate brokers. Then in 1975 the Home Mortage Disclosure Act (HMDA) required that loan-granting institutions to put loan data on the public record. In 1977 the Community Reinvestment Act was passed with the intended purpose of encouraging banks, and other financial institutions, to help meet the needs for credit in all communities they operate in.

All of these policies in theory outlawed redlining, but the reality is that it continues, just in less explicit terms. The historical damage of past policies also remains and continues to impact many black Americans to this day. Even if the neighborhoods can't be labeled “Definitely Declining” or “Hazardous” based on their racial makeup, they continue to be underserved by the government and private institutions alike. These previously ‘redlined districts’ have less access to banking and healthcare yes, but also less options for careers, transportation, green and clean spaces, and even fresh grocery markets and have lower incomes and pay higher rent to income ratios. Even now, black applicants are denied loans at much greater rates than white applicants. We can see clear evidence that policy remnants and the historical damage from “redlining” remains to this day.