Redlining
Definition
Redlining is the illegal practice of a lender refusing to make home loans in certain areas, often delineated by race, ethnicity, or income levels. Its name originates from the practice where institutions used a red pencil to circle areas on a map where they would not provide lending services. This discriminatory practice can prevent residents from gaining access to necessary financial services and can deeply affect property values and the economic health of entire neighborhoods. Redlining practices were made illegal by the Community Reinvestment Act (CRA) of 1977, and further enforcement is provided by federal fair housing laws.
Examples
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Historical Redlining: In the 1930s, the Home Owners’ Loan Corporation (HOLC) engaged in redlining by color-coding maps to indicate the desirability of neighborhoods for investment. Predominantly African American neighborhoods would often be coded in red, meaning they were denied loans and insurance.
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Modern Redlining: In contemporary times, while overt redlining is outlawed, some lenders have been found to discretely engage in practices that disadvantage predominantly minority communities. For instance, charging higher interest rates or providing less favorable loan terms based on the location of the property.
Frequently Asked Questions
Q1: How Did Redlining Start?
Redlining began in the 1930s when the HOLC and other federal programs started mapping neighborhoods to determine their mortgage lending risk levels, often racially discriminating to reduce risk.
Q2: Is Redlining Illegal?
Yes, redlining is illegal under U.S. law. The Fair Housing Act of 1968 and the Community Reinvestment Act of 1977 prohibit discriminatory lending practices based on race, color, religion, sex, familial status, or national origin.
Q3: What Are the Effects of Redlining?
Redlining leads to higher rates of financial inequity, poor neighborhood conditions, devaluation of homes, reduced access to credit and banking services, and long-term socioeconomic disparities in affected areas.
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Community Reinvestment Act (CRA): A 1977 law encouraging banks to help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods.
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Fair Housing Act: A federal act intended to protect the buyer or renter of a dwelling from discrimination due to race, color, religion, sex, national origin, disability, or familial status.
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Discriminatory Lending: Any practices where lenders treat loan applicants differently based on biases towards their race, national origin, gender, or other protected characteristics.
Online Resources
- The U.S. Department of Housing and Urban Development (HUD): Information on fair housing laws and resources on reporting violations HUD Website.
- National Community Reinvestment Coalition (NCRC): Advocacy and resources aimed at ending discriminatory practices. NCRC Website
- Consumer Financial Protection Bureau (CFPB): Information on financial protection of consumers including unfair lending practices. CFPB Website
References
- “The Color of Law: A Forgotten History of How Our Government Segregated America” by Richard Rothstein.
- “Race for Profit: How Banks and the Real Estate Industry Undermined Black Homeownership” by Keeanga-Yamahtta Taylor.
- Federal Financial Institutions Examination Council (FFIEC). “Community Reinvestment Act”. Community Reinvestment Act
Suggested Books for Further Studies
- “The Color of Law: A Forgotten History of How Our Government Segregated America” by Richard Rothstein.
- “Race for Profit: How Banks and the Real Estate Industry Undermined Black Homeownership” by Keeanga-Yamahtta Taylor.
- “Evicted: Poverty and Profit in the American City” by Matthew Desmond.
- “The Wealth of Racism: The Impact of Economic Inequality in America” by Thomas M. Shapiro.
Real Estate Basics: Redlining Fundamentals Quiz
### What is the main purpose of redlining?
- [ ] To offer lower interest rates to more areas.
- [ ] To provide better housing opportunities for minorities.
- [x] To deny financial services to certain areas based on racial or economic profiles.
- [ ] To promote urban development equally across all neighborhoods.
> **Explanation:** Redlining is used to deny financial services to certain areas often based on racial, ethnic, or economic profiles, restricting residents' access to credit and worsening socio-economic conditions.
### When was redlining made illegal in the U.S.?
- [ ] 1965
- [ ] 1970
- [x] 1977
- [ ] 1980
> **Explanation:** Redlining was made illegal with the passage of the Community Reinvestment Act in 1977. The act encourages financial institutions to meet the needs of all community segments.
### Which law specifically targets redlining practices?
- [x] Community Reinvestment Act (CRA)
- [ ] Civil Rights Act
- [ ] Affordable Housing Act
- [ ] Banking Security Act
> **Explanation:** The Community Reinvestment Act (CRA) specifically targets and makes redlining practices illegal, requiring banks to serve the needs of all community parts, including underserved areas.
### What government organization is involved in monitoring compliance with fair lending laws including redlining?
- [ ] Department of Education (DOE)
- [x] Department of Housing and Urban Development (HUD)
- [ ] Internal Revenue Service (IRS)
- [ ] Department of Health and Human Services (HHS)
> **Explanation:** The Department of Housing and Urban Development (HUD) is responsible for ensuring compliance with fair lending laws and handles complaints regarding discriminatory housing practices.
### How can modern redlining occur covertly today?
- [x] By offering less favorable loan terms in minority neighborhoods.
- [ ] By offering better interest rates to all.
- [ ] By providing unlimited loans in all neighborhoods.
- [ ] By issuing loans without credit checks.
> **Explanation:** Modern redlining can occur covertly when lenders give less favorable loan terms, such as higher interest rates or additional fees, in minority neighborhoods, indirectly discriminating against borrowers.
### What is a common effect of redlining on neighborhoods?
- [x] Deterioration of neighborhood conditions.
- [ ] Dramatic increase in property values.
- [ ] Complete abandonment.
- [ ] Excessive population boom.
> **Explanation:** Redlining typically leads to the steady deterioration of neighborhood conditions as access to credit is restricted, making reinvestment difficult and causing property values to decline.
### Which legislation complements the Fair Housing Act in fighting against redlining?
- [ ] Tax Reform Act
- [x] Community Reinvestment Act (CRA)
- [ ] Healthcare Reform Act
- [ ] Securities Act
> **Explanation:** The Community Reinvestment Act (CRA) works in conjunction with the Fair Housing Act to fight against redlining by promoting fair lending to underserved and minority communities.
### What does the term "reverse redlining" mean?
- [x] Targeting minority communities to offer them subprime loans and exploit discrepancies.
- [ ] Reducing interest rates for minority communities.
- [ ] Expanding opportunities in affluent neighborhoods.
- [ ] Eliminating loans for all except minorities.
> **Explanation:** Reverse redlining refers to the practice of targeting minority communities with subprime loans and exploitative financial products, taking advantage of their restricted lender options and aggrieving economic discrepancies.
### Which of the following correctly describes historical redlining?
- [ ] Assigning premium loans regardless of neighborhood.
- [ ] Mathematically determining lending based on income alone.
- [x] Color-coded maps denoted undesirable areas primarily affected by racial composition.
- [ ] Utilizing economic forecasts for lending decisions.
> **Explanation:** Historical redlining involved using color-coded maps to denote “undesirable” areas that were often populated by minorities, systematically denying them access to lending.
### What is one major way communities have fought back against redlining?
- [x] Through litigation and advocacy.
- [ ] By avoiding banks.
- [ ] By building no houses.
- [ ] By relocating frequently.
> **Explanation:** Communities have often fought back against redlining through litigation and advocacy, using legal measures and activism to call attention to and challenge discriminatory practices.
