Sometimes the only way to solve current problems is to examine the past. In order to assess modern urban problems, we need to look at redlining. Redlining, the practice of discriminatory lending in home mortgages, used to be the norm. A look at the Federal Housing Administration Underwriting Manual of 1938 shows that segregated housing by ethnicity was considered a desirable stabilizing force. Mortgage lending focused on encouraging development of segregated suburbs, often at the expense of urban neighborhoods with minority populations.
What is Redlining?
The term redlining came from actual maps that were used in the 1930s by the Federal Housing Administration and its predecessor, the Home Owners Loan Corporation. The FHA designated neighborhoods where they would insure mortgages by marking them off in green. Neighborhoods where the agency would not insure mortgages were marked by a red boundary. It was FHA policy to maintain segregated neighborhoods and decisions about mortgage insurance were made on that basis. Mortgage lenders, in turn, would make loans with the FHA redlined maps in mind.
An important fact to understand about redlining is that lenders would deny loans to well-qualified minority buyers while approving equally, or in some cases less, qualified White families, based on location. This was an era when deeds in many areas had restrictive covenants. These were requirements within the deed that said the home could not be sold to members of certain ethnic or religious groups. This is shocking to people today, but that’s how the thinking ran in those days. The belief was that neighborhoods were more stable if they were homogeneous. Also lurking underneath this was the idea that people should stay with “their own kind,” at that time defined in many people’s minds by race and religion.
The Fair Housing Act
Congress passed the Fair Housing Act in 1968, making discrimination in real estate financing and sales illegal. So why do we still talk about redlining, more than 50 years later? Because the effects of redlining linger on, decades after the practice has ended. Redlining as an FHA policy began in the 1930s. Neighborhoods marked as “hazardous” back then still struggle with lower homeownership rates today. Homes in those areas also generally worth less than comparable homes in non-redlined neighborhoods.
Home ownership is not just a benefit for the individual family. It also supports the community. Lower homeownership rates usually track to a less secure tax base, higher poverty rates, and all the related problems that come along with them. Discrimination in lending years ago contributes to the significant differences in median net worth of White, Black, Asian and Latino families today. Real estate value rises over time, so the loss of early home ownership opportunities put some minority communities at a disadvantage that did not go away with the end of race-influenced lending.
When We Know Better, We Do Better
It can be uncomfortable to look back at yesterday with today’s eyes. Our society has made significant progress in bringing economic opportunity to all Americans since the era when the law of the land supported redlining. Lenders are required to use financial data, rather than race or ethnicity, in making decisions. More important than the law, though, is that society has changed. There’s the saying when you know better; you do better. We’re in a position to do much better than we did in the past. Today the mainstream of American economic life includes everyone. Modern real estate professionals focus on helping people get the most out of life by assisting them in making sound property decisions. I offer knowledge, service, and commitment to everyone in reaching their real estate ownership goals.