how redlining works
the term redlining was coined by sociologist john mcknight in the 1960s and is derived from the practice used by the federal government and lenders of literally drawing a red line on a map around the neighborhoods where they would not invest based on demographics alone black inner city neighborhoods were most likely to be redlined investigations found that lenders would make loans to lower income white borrowers but not to middle or upper income black borrowers 1unable to get regular mortgages black residents who wanted to own a house often were forced to resort to exploitatively priced housing contracts that massively increased the cost of housing and gave them no equity until their last payment was delivered chicago s contract buyers league was formed in the 1960s by a group of inner city residents to fight these practices effects of redliningin the 1930s the federal government began redlining real estate delineating risky neighborhoods for federal mortgage loans based on the race of the residents the result of this redlining in real estate could still be felt decades later in 1996 homes in redlined neighborhoods were worth less than half that of the homes in what the government had deemed as best for mortgage lending according to research by home sale company zillow that disparity has only grown greater in the following two decades 2examples of redlining can be found in a variety of financial services including not only mortgages but also student loans credit cards and insurance although the community reinvestment act was passed in 1977 to help prevent redlining critics say discrimination continues to occur 3for example redlining has been used to describe discriminatory practices by retailers both brick and mortar and online reverse redlining is the practice of targeting neighborhoods mostly non white for higher prices or lending on unfair terms such as predatory lending of subprime mortgages there s also evidence of what midwest bankcentre ceo orv kimbrough calls corporate redlining as reported by the business journals since peaking before the 2008 financial crisis the annual number of loans to black owned businesses through the u s small business administration s 7 a program decreased by 84 compared to a 53 decline in 7 a loans awarded overall 4the report also found an overall trend of significantly less lending to businesses in black majority neighborhoods compared to white majority ones legality of redliningcourts have determined that redlining is illegal when lending institutions use race as a basis for excluding neighborhoods from access to loans in addition the fair housing act which is part of the civil rights act of 1968 prohibits discrimination in lending to individuals in neighborhoods based on their racial composition 5 however the law does not prohibit excluding neighborhoods or regions on the basis of geological factors such as fault lines or flood zones the destructive legacy of redlining has been more than economic a 2020 study by researchers at the national community reinvestment coalition the university of wisconsin milwaukee and the university of richmond found that the history of redlining segregation and disinvestment not only reduced minority wealth it impacted health and longevity resulting in a legacy of chronic disease and premature death in many high minority neighborhoods on average life expectancy is lower by 3 6 years in redlined communities when compared to the communities that existed at the same time but were high graded by the holc 6while redlining neighborhoods or regions based on race religion national origin sex or marital status is illegal under u s law lending institutions are allowed to take economic factors into account when making loans lending institutions are not required to approve all loan applications on the same terms and may impose higher rates or stricter repayment terms on some borrowers but the reason for doing so cannot be any of the prohibited bases 7lenders are not forbidden from redlining areas with regard to geological factors such as fault lines or flood zones 7