Redlining

1936 security map of Philadelphia showing redlining of lower income neighborhoods. Households and businesses in the red zones could not get mortgages or business loans.]]

Redlining is the practice of denying, or increasing the cost of services such as banking, insurance, access to jobs, access to health care, or even supermarkets to residents in certain, often racially determined, areas. The term "redlining" was coined in the late 1960s by John McKnight, a Northwestern University sociologist and community activist. It describes the practice of marking a red line on a map to delineate the area where banks would not invest; later the term was applied to discrimination against a particular group of people (usually by race or sex) no matter the geography. During the heyday of redlining, the areas most frequently discriminated against were black inner city neighborhoods. For example, in Atlanta, through at least the 1980s, this practice meant that banks would often lend to lower-income whites but not to middle- or upper-income blacks.

Reverse redlining occurs when a lender or insurer particularly targets minority consumers, not to deny them loans or insurance, but rather to charge them more than would be charged to a similarly situated majority consumer.

History

Although in the United States informal discrimination and segregation have always existed, the practice called "redlining" began with the National Housing Act of 1934, which established the Federal Housing Administration (FHA).

On the maps, the newest areas — those considered desirable for lending purposes — were outlined in blue and known as "Type A". These were typically affluent suburbs on the outskirts of cities. "Type B" neighborhoods were considered "Still Desirable", whereas older "Type C" were labeled "Declining" and outlined in yellow. "Type D" neighborhoods were outlined in red and were considered the most risky for mortgage support. These neighborhoods tended to be the older districts in the center of cities; often they were also black neighborhoods.

Some redlined maps were also created by private organizations, such as J.M. Brewer's 1934 map of Philadelphia. Private organizations created maps designed to meet the requirements of the Federal Housing Administration's underwriting manual. The lenders had to consider FHA standards if they wanted to receive FHA insurance for their loans. FHA appraisal manuals instructed banks to steer clear of areas with "inharmonious racial groups" and recommended that municipalities enact racially restrictive zoning ordinances, as well as covenants prohibiting black owners.

Impact

Redlining paralyzed the housing market, lowered property values and further encouraged landlord abandonment. As abandonment increased, the population density became lower. Abandoned buildings would serve as havens for drug dealing and other illegal activity. Although open redlining was made illegal in the 70s through community reinvestment legislation, the practice continued in less overt ways. AIDS activists allege redlining of health insurance against the LGBT community in response to the AIDS crisis.

ShoreBank, a community-development bank in Chicago's South Shore neighborhood, was a part of the private-sector fight against redlining. Founded in 1973, ShoreBank sought to combat racist lending practices in Chicago's African-American communities by providing financial services, especially mortgage loans, to local residents. Many sources characterize ShoreBank's efforts as overwhelmingly inspirational and successful. In a 1992 speech, then-Presidential candidate Bill Clinton called ShoreBank "the most important bank in America." Gregory D. Squires wrote in 2003 that it is clear that race has long affected and continues to affect the policies and practices of the insurance industry. Workers living in American inner cities have a harder time finding jobs than suburban workers. Redlining has helped preserve segregated living patterns for blacks and whites in the United States, because discrimination motivated by prejudice is often contingent on the racial composition of neighborhoods where the loan is sought and the race of the applicant. Lending institutions such as Wells Fargo have been shown to treat black mortgage applicants differently when they are buying homes in white neighborhoods than when buying homes in black neighborhoods.

Mortgages

Reverse redlining occurs when a lender or insurer particularly targets minority consumers, not to deny them loans or insurance, but rather to charge them more than would be charged to a similarly situated majority consumer, specifically marketing the most expensive and onerous loan products. These communities had largely been ignored by most lenders just a couple decades earlier. However these same financial institutions in the 2000s saw black communities as fertile ground for subprime mortgages. Wells Fargo for instance partnered with churches in black communities, where the pastor would deliver "wealth buildling" seminars in their sermons, and the bank would make a donation to the church in return for every new mortgage application. There was pressure on both sides, as working-class blacks wanted a part of the nation’s home-owning trend. A lower savings rate and a distrust of banks stemming from a legacy of redlining may help explain why there are fewer branches in minority neighborhoods. In recent years while subprime loans were not sought out by borrowers, brokers and telemarketers actively pushed them. A majority of the loans were refinance transactions allowing homeowners to take cash out of their appreciating property or pay off credit card and other debt.

Several state attorney generals have begun investigating these practices which may violate fair lending laws, and the N.A.A.C.P. have filed a class-action lawsuit charging systematic racial discrimination by more than a dozen banks.

Redlining Property Type. Other forms of redlining include the nullification of mortgage loans based on internal bank policies and procedures that fail to recognize complex property types. Co-Op and Condo Conversions in New York City are one such example. These building types are often made up of legacy rent controlled and rent stabilized units or may contain another protected class of tennant. Lenders who practice redlining will often cite sponsor concentration or high rental concentration as an excuse to "redline" the property type. Such internal policies which run counter to known state and municipal laws and statutes are an illegal form of silent judgment on the economic and racial makeup of a building seeking to convert and improve a neighborhood or community.

Mortgage Redlining in Hawaii

Redlining is apparently a reality in Hawaii where clear lines have been drawn and loans are not being granted on over 24,000 lots and thousands of homeowners in the districts of Captain Cook, Hawaii, Kau, Hawaii and Puna, Hawaii. The area involved encompasses hundreds of square miles and is termed Lava Zones 1 and 2. is divided into 9 Lava Flow Hazard Zones, which are unrelated and not to be confused with the 9 District "zones". These Lava Flow Hazard Zones are numbered according to the degree of hazard from inundation by lava flows. Zone 1 is the area of the "greatest" hazard, where lava is most likely to come from the ground, and coincides with the rift zones of the volcano. Zone 2 is directly down slope in Zone 1. Almost all lenders refuse any mortgages in Zones 1 and 2 and US governmental policies support the practice despite the availability of insurance. USGS.]] No FHA or VA loans may be made in the area owing to "potential volcano activity." "It was concluded that these two zones should be classified as non-participation areas for the purpose of HUD program assistance"

Fannie Mae has a similar policy. "Properties in lava zones 1 and 2 are not eligible due to the increased risk"

Freddie Mac's Relief Refinance Program excludes homeowners in Lava Zones 1 and 2. It is not clear if new mortgages can be sold to Freddie Mac..however..it appears not.

Lenders are heavily influenced by the Fannie Mae and Freddie Mac standards for two primary reasons. First, they are the leading purchasers of home mortgages in the secondary market. Second, the parameters that they set have been adopted into the technology of the loan approval process. Consequently, the loan policies that are set by Fannie Mae and Freddie Mac become the de facto loan policies of the vast majority of lending institutions.

One alternative to reselling loans, is to keep them in the lenders portfolio or on their books. A portfolio lender can be a bank, credit union, private firm, or private individual. When firms offer loans and put them in their own portfolio they can offer loans that need not conform to HUD, Fannie, or Freddie guidelines.

It appears no one has formally contested bank denials to provide loans on fully insured and permitted properties in these areas.

A second question homeowners have been asking is why their insurance policies which cost more since they are in a higher risk area are not acceptable proof that the collateral is protected. Most insurance in the area is issued by an association formed by the State of Hawaii called the Hawaii Property Insurance Association. Any firm offering insurance in Hawaii must join the association. Therefore, homes are being backed by firms like Allstate and Statefarm. By Hawaii State statutes that formed the association, any insurance policy issued by the association was supposed to be accepted as a valid policy.

Retail

Retail redlining is a spatially discriminatory practice among retailers, of not serving certain areas, based on their ethnic-minority composition, rather than on economic criteria, such as the potential profitability of operating in those areas. Consequently, consumers in these areas often find themselves "vulnerable" because no other retailers will serve them. They may be exploited by other, often smaller, retailers who charge them higher prices and/or offer them inferior goods.

Credit cards

Credit card redlining is a spatially discriminatory practice among credit card issuers, of providing different amounts of credit to different areas, based on their ethnic-minority composition, rather than on economic criteria, such as the potential profitability of operating in those areas. Many believe policies of credit card companies such as American Express that reduce credit lines of individuals that make purchases at retailers frequented by so-called "high-risk" customers to be akin to redlining.

Insurance

Racial profiling or redlining has a long history in the property-insurance industry in the United States. From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of the insurance industry. Home-insurance agents are generally able to detect the race of someone who contacts them by telephone. This information affects the services provided to those who inquire about purchasing a home-insurance policy. This type of discrimination is called linguistic profiling. There have also been concerns raised about redlining in the automotive insurance industry. Credit-based insurance scores have been shown to produce unequal results by ethnic group. In July 2007, the Federal Trade Commission (FTC) released a study showing African American and Hispanic consumers to be substantially overrepresented in the lowest scores (highest rates) and substantially underrepresented in the highest scores (lowest rates). Since insurance scores also effectively predicted risk within each ethnic group, the FTC concluded that the scoring models are not solely proxies for redlining. The report was disputed by representatives of the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for Economic Justice, for relying on data provided by the insurance industry.

Student loans

In December 2007, a class action lawsuit was brought against student loan lending giant Sallie Mae in the United States District Court for the District of Connecticut, alleging that Sallie Mae discriminates against African American and Hispanic private student loan applicants.

The case further alleges that the factors Sallie Mae uses to underwrite private student loans cause a disparate impact on students attending schools with disproportionate minority populations. The suit also alleges that Sallie Mae fails to properly disclose loan terms to private student loan borrowers. The case is in litigation.

Environmental racism

Policies related to redlining and urban decay can also act as a form of environmental racism, which in turn have an impact on public health. Urban minority communities may face environmental racism in the form of parks that are smaller, less accessible and of poorer quality than those in more affluent or white areas in some cities. This may have an indirect impact on health, since young people have fewer places to play and adults have fewer opportunities for exercise. Institutionalized racism affects general health care as well as the quality of AIDS health intervention and services in minority communities. The overrepresentation of minorities in various disease categories, including AIDS, is partially related to environmental racism. The national response to the AIDS epidemic in minority communities was slow during the '80s and '90s, showing an insensitivity to ethnic diversity in prevention efforts and AIDS health services.

Liquorlining

Instead of denial of services to low-income neighborhoods, sometimes the exact opposite can occur as well when it is the most lucrative option for the service providers. When those services are believed to have adverse effects on a community, that can be considered to be a form of "reverse redlining." The term "liquorlining" is sometimes used to describe high densities of liquor stores in low income and/or minority communities relative to surrounding areas. As neighborhoods decline in income, supermarkets, grocery stores, and other retail outlets move out, but liquor stores remain. However, unlike redlining, this is usually not illegal.

See also

Black flight

Blockbusting

Computer-assisted reporting

Community Reinvestment Act

Cream skimming

Housing Segregation

Inclusionary zoning

Mortgage Discrimination

Planned shrinkage

Racism

Racial steering

Urban renewal

Timeline of Racial Tension in Omaha, Nebraska

White flight

References

Footnotes

Notations

Frederick Babcock "Neighborhood Life Cycle" theory

External links

Revolution '67 - Documentary about the Newark, New Jersey race riots of 1967

Redlining in Philadelphia. Amy Hillier, PhD

Redlining, and Neighborhood Appraisals in Philadelphia

Housing Policy History, NC Housing Coalition

From 'black-balling' to 'marking': the suburban origin of redlining in Canada

Bill Dedman received the Pulitzer Prize in investigative reporting in 1989 for this series of articles, which described racial discrimination in mortgage lending in the Atlanta area.">"The Color of Money": Bill Dedman received the Pulitzer Prize in investigative reporting in 1989 for this series of articles, which described racial discrimination in mortgage lending in the Atlanta area.

Kozmo delivering consumer racism? Investigative probe by MSNBC.com unearths first case of "cyber-redlining."

Crossney and Bartelt 2005. Residential Security, Risk, and Race: The Home Owners' Loan Corporation and Mortgage Access in Two Cities. Urban Geography

Crossney and Bartelt. The Legacy of the Home Owners' Loan Corporation. Housing Policy Debate.

Category:Civil rights and liberties Category:History of racism in the United States Category:Racial segregation Category:United States Department of Housing and Urban Development Category:Urban decay Category:Mortgage industry of the United States Category:Urban politics in the United States