A 2008 video of Democratic presidential candidate Michael Bloomberg attributing the housing crash largely to "redlining" has thrust the term into the national conversation. Although redlining — a form of lending discrimination — has been outlawed for decades, its scars remain visible in many communities across the U.S., experts say. Read on to learn more about redlining and its impact.
What is redlining?
For decades, many banks in the U.S. denied mortgages to people, mostly people of color in urban areas, preventing them from buying a home in certain neighborhoods or getting a loan to renovate their house. The practice — once backed by the U.S. government — started in the 1930s and took place across the country. That includes in many of the nation's largest cities, such as Atlanta, Chicago, Detroit, Tampa and others with large minority populations.
As a result, banks and other mortgage lenders commonly rejected loans for creditworthy borrowers based strictly on their race or where they lived. As part of that practice, financial firms, real estate agents and other parties demarcated geographic areas that were effectively off limits for issuing loans.
Scholars who study housing discrimination point to redlining as one factor behind the gulf in wealth between blacks and whites in the U.S. today. Black families have lost out on at least $212,000 in personal wealth over the last 40 years because their home was redlined, said real estate app Redfin.
Where does the word come from?
The term redlining is a nod to how lenders identified and referenced neighborhoods with a greater share of people deemed more likely to default on mortgage. Using red ink, lenders outlined on paper maps the parts of a city that were considered at high risk of default, as well as more desirable neighborhoods for approving a loan. Riskier neighborhoods were predominantly black and Latino.
Physical copies of such maps are stored in the National Archives. The University of Richmond has digital versions of about 200 maps once used for redlining, including the one below.
Robert K. Nelson, who oversees the University of Richmond's mapping inequality project, said the maps were created in cities with 40,000 residents or more. The federal government, through a now-defunct agency called the Home Owners' Loan Corporation, worked with local real estate agents and banks to create the maps.
"The federal government, at the time, called this best practices for responsible lending," he said.
Is redlining still legal?
No. Federal law prohibit home lending discrimination, notably the 1968 Fair Housing Act and the 1977 Community Reinvestment Act (CRA). The first of these laws bans discrimination based on someone's race when the person is trying to rent or buy a home, as well as apply for a mortgage. The act also makes it illegal to impose predatory interest rates or fees.
Under the CRA, lenders must track how often they approve and deny loans to people in low-income households. Based on their records, lenders are assigned a rating on their compliance with the law: "outstanding," "satisfactory," "needs to improve" or "substantial noncompliance."
Does redlining still happen?
The answer depends on who you ask. Although banks deny engaging in redlining, some housing advocates and lawyers say the practice continues, though in different form.
"You're not going to see someone with a map on a wall with red lines around it," said Stuart Rossman, director of litigation for the National Consumer Law Center. "Although we rarely see redlining, what we do see is a lot of reverse redlining."
In reverse redlining, banks may engage in predatory lending in the same neighborhoods that were once marked as off limits for borrowers, Rossman said. For example, in the years leading up to the 2008 housing crash, mortgage lenders peddled hundreds of thousands of risky subprime loans, including "no doc" and balloon-payment loans, on low-income borrowers. Many communities in cities like Detroit and Newark have yet to recover.
The National Consumer Law Center in 2018 joined the Connecticut Fair Housing Center in a lawsuit against Liberty Bank, alleging the company was redlining black and Latino neighborhoods in Hartford and New Haven.
There are many other cases of applicants being denied a home loan because of their race, said Nikitra Bailey, executive vice president at the Center for Responsible Lending. Bailey pointed to a 2018 investigation by the advocacy group finding that black, Latino and Asian applicants were turned away for loans at a higher rate than whites in many U.S. cities.