Redlining is a discriminatory lending practice that has been outlawed for centuries, but unfortunately, a few remnants of the prejudice protocol continue to haunt Black and Brown homeowners today. What is redlining and how did it become so deeply ingrained in our society?
According to the New York Times, the term derives from government homeownership programs that were created during the 1930’s New Deal. The programs offered “government-insured mortgages,” to new and struggling homeowners as a way to push back against foreclosures during the Depression.
Later on, the government implemented new protocols for homeowners seeking to receive assistance. Organizations like the Home Owners Loan Corp and The Federal Housing Administration FHA), used “color-coded maps” that essentially ranked what neighborhoods were eligible to receive the government back mortgages. The questionable practice occurred “in more than 200 cities and towns across the United States,” The New York Times notes.
The loan worthiness of neighborhoods was ranked from “A” through “D,” with “D” areas, being the least likely to receive additional aid. Why? The federal government claimed that the property value in those areas would decrease over time. Coincidentally, many of those “D” areas happened to be where a large concentration of Black people lived.
Around that same time, the FHA, which was established in 1934, provided financial support to builders to mass-produce entire subdivisions for White communities, but on one condition. None of the newly built homes were to be sold to African Americans.
Richard Rothstein notes in his book The Color of Law, that Black folks were pushed out of the areas surrounding the new suburban communities and forced to live in housing projects.
“The segregation of our metropolitan areas today leads … to stagnant inequality because families are much less able to be upwardly-mobile when they’re living in segregated neighborhoods where opportunity is absent,” Rothstein told NPR in 2017. “If we want greater equality in this society, if we want a lowering of the hostility between police and young African-American men, we need to take steps to desegregate.”
The FHA could never provide evidence that Blacks living near Whites would devalue property or put White homeowner’s loans at risk. Rothstein notes in his book that property values skyrocketed when Black families brought homes near all-white neighborhoods because, in some instances, they were willing to pay more than Whites to own property due to strict protocols.
According to a study conducted by the Census Bureau, 44 percent of Black families owned their home during the first quarter of 2020, compared to 73.7 percent of White families. In some cities, the Black homeownership gap is startling. The Washington Post notes in their article titled “One home, a lifetime of impact”, that in Minneapolis, only 25 percent of Blacks own homes “compared with 76 percent of Whites.” DC has the highest rate of Black homeownership hovering at 51 percent, but the number is still drastically lower in comparison to White-owned households, which stand at 70 percent in the city.
Thanks to the Fair Housing Act of 1968, which banned housing discrimination across the U.S., redlining no longer exists. Additionally, the Home Mortgage Disclosure Act of 1975 required lenders to provide certain mortgage data to prospective homeowners. It was certainly a huge leap forward, but sadly, some of the lingering effects of redlining have seeped into other parts of the home buying process, which greatly impacts the success of Black homeownership and wealth.
Economists at the University of Utah and Carlos Avenancio-León of Indiana University found that Black families pay 13 percent more in property taxes compared to White families. Disparities in property value also stifle Black homeownership. A study by real estate company Redfin suggests that Black families are more likely to own homes in formerly redlined neighborhoods than areas that have been deemed “greenlined” or more profitable. According to the study, over the past 40 years, redlined neighborhoods have gained “$212,023 or 52 percent less in equity compared to homes in greenline neighborhoods. In turn, these neighborhoods are seen as undesirable and worthless, and the ramifications trickle down into other aspects, including lack of funding for schools and health resources in formerly redlined communities. Other issues that impact Black homeownership are lack of access to credit and higher mortgage denial rates.
There has to be a silver lining, right?
Back in October 2021, the Department of Justice (DOJ) rolled out the Combating Redlining Initiative that would partner with the Financial Protection Bureau and Office of the Comptroller of the Currency to ensure fair lending practices. The decision came after the department reached a settlement against Trustmark for engaging in lending discrimination.
“Lending discrimination runs counter to fundamental promises of our economic system,” Attorney General Merrick B. Garland said in a statement at the time. “When people are denied credit simply because of their race or national origin, their ability to share in our nation’s prosperity is all but eliminated,” Garland continued, “We are committing ourselves to addressing modern-day redlining by making far more robust use of our fair lending authorities. We will spare no resource to ensure that federal fair lending laws are vigorously enforced and that financial institutions provide equal opportunity for every American to obtain credit,” he added.
Another way to fight back against the effects of redlining would be educational programs dedicated to raising awareness about downpayment assistance programs offered by the FHA. Some organizations like the Neighborhood Assistance Corporation of America, completely cover downpayment fees and closing costs for eligible homebuyers, allowing them to lock into a low mortgage rate.
“There’s a program on the books right now, the Native American Home Loan Guarantee program from HUD, that needs to be expanded for Blacks,” Donnell Williams, president of the National Association of Real Estate Brokers in Lanham told The Washington Post. “The program offers loans with interest rates as low as 2 percent and lower down payment requirements.”
Adjusting credit score models to consider other ways of evaluating a borrower’s creditworthiness would make the home buying process more inclusive for Blacks. While the topic has been in discussion for centuries now, reparations could be another way of ensuring homeownership. We could surely use that 40 acres!
Why is homeownership so important? Homeownership can provide wealth for generations. It can be passed down or sold as an investment property. Retirement is also a key factor. Being able to live rent-free after you retire will save you a ton of money and protect your financial security. Whatever the case may be, Black people need to have access to homeownership. It’s a critical pathway in building wealth for future generations to come.