What is Redlining
Redlining forever shaped America’s residential patterns. The Homeowners Loan Corporation (HOLC), created as part of the New Deal to refinance home mortgages in default due to the 1929 crash, evaluated neighborhoods and broke them into four “lending risk” categories: best, still desirable, definitely declining and hazardous. Each category was given a color. Neighborhoods with people of color were marked in red – hence “redlining” – and considered high-risk for mortgage lenders. As a result, most people of color were unable to secure loans to purchase a home or open a business, hindering their ability to build wealth and economic security for themselves and their families. While urban neighborhoods of color were systematically denied investment, suburban white communities were flooded with investment, expanding the racial wealth gap.
An “End” to Redlining
While HOLC only created lending maps from 1935-1939, legal discriminatory mortgage lending practices continued until 1968 when the Federal Fair Housing Act (FHA) theoretically prohibited racial discrimination in housing. The FHA makes it illegal to discriminate based on seven protected classes in the sale or rental of a home, or in mortgage lending. However, the FHA alone was insufficient to address the devastating impacts of redlining. The Community Reinvestment Act (CRA), enacted in 1977, aims to expand access to credit for all citizens. It encourages banks to meet the credit needs of the communities in which they operate, with a specific focus on low-and-moderate income (LMI) neighborhoods. Federal bank agencies evaluate lending, investment and services to LMI neighborhoods and rank banks based on their performance. Banks with low CRA grades can experience delays or denials of merger applications. Members of the public can view and comment on a bank’s CRA ratings which the government takes into account when reviewing and evaluating a request.
Long-Term Impacts of Redlining
The detrimental impacts of redlining still impact neighborhoods of color today. Neighborhoods identified as “hazardous” in the 1930s currently have significantly lower socioeconomic opportunities and are home to a disproportionate number of people of color. In comparison, 91 percent of areas classified as “best” in the 1930s remain middle-to-upper-income today, and 85 percent of them are still predominately white. The influences of redlining are seen in cities across the country, including Durham, North Carolina.
People of color continue to face barriers securing mortgages. Lenders often claim the disproportionate number of denials to people of color are due to the potential borrowers’ credit history and debt-to-income ratio. In North Carolina, minorities are about twice as likely as white applicants to see a loan application denied. Insufficient access to mortgages can help explain the ever increasing homeownership gap between whites and African Americans. Homeownership is closely tied to wealth creation and inter-generational wealth development. Today, the racial wealth gap continues to grow, in no small part due to the insufficient access to affordable housing and homeownership opportunities for people of color. No single policy change will reverse decades of residential segregation; however, with ongoing support for revival programs, there is hope for more equitable opportunities for all citizens.
How does Redlining Affect CASA Tenants
Today, homes in majority-black neighborhoods are undervalued on average by $48,000, adding more barriers to wealth development. In addition, disproportionately more people of color pay over half their income on rent, increasing economic strain. Significant policy changes are necessary to help remedy the decades of forced economic and residential segregation. CASA strives to increase economic and housing opportunities for our tenants across the Triangle, 70% of whom are people of color. CASA’s tenants often have limited housing opportunities, particularly when it comes to access to homeownership or affordable rental housing. With a varied housing portfolio, CASA provides diverse housing options to households who may otherwise remain residentially segregated .
Stay tuned for Part III of the Fair Housing Mini-Series: Advertising