Most people want to believe that redlining — the racist practice of denying mortgages and loans to persons living in historically minority-dominated neighborhoods based on race or ethnicity— is a thing of the past in the United States.
Considering that the practice was widely outlawed 55 years ago, it’s easy to see why the average American could buy into this false narrative.
But little progress has been made in the fight for racial justice since the passage of the Civil Rights Act nearly 60 years ago.
In 2019, the average Black household reported 7.8x less wealth than their white counterparts. The median white household has nearly $190,000 net worth, whereas Black families only report a mere $24,000. These discrepancies only become more striking as household incomes fluctuate.
Nearly 20% of low-income Black households have no net worth or even negative net worth due to various kinds of debt such as student loans and credit cards. We expect this statistic to rise sharply due to the COVID-19 pandemic — that battered Black and other minority households at exponential rates— paired with current record-breaking inflation.
Today, the wealth gap between Black and white Americans has remained unchanged for the last 20 years. And experts only expect the gap to widen further the coming years.
One of the main reasons for this massive racial wealth disparity is that white Americans are nearly 23% more likely to be homeowners than their Black counterparts. Black Americans have struggled to secure home loans and build generational wealth for decades thanks to the still alive and widespread practice of racist redlining.
What is Redlining?
During his days as Governor of New York, former President Franklin D. Roosevelt believed that adequate housing was a necessity for all Americans. So, when he took office in 1932, Roosevelt set his sights on enacting broad housing reform.
As part of his New Deal package of legislation, Roosevelt enacted the National Housing Act of 1934. This act created the Federal Housing Administration (FHA), a government body “that insured banks, mortgage companies, and other lenders” to encourage increased home building and repairs around the country.
Though this plan worked as intended for white Americans, it actively punished minorities. Neighborhoods in 239 cities were surveyed by government workers and color-coded on widely circulated maps. Majority-white districts were graded A and colored green or B and blue to signify their desirability. In contrast, the neighborhoods where minorities, especially Black Americans, typically resided were yellow and given a C or a D and red.
Lenders considered yellow and red neighborhoods as a massive financial risk. Banks and mortgage brokers did not build branches in majority-black neighborhoods. Home loans became almost impossible to acquire for minorities¹.
If minorities were lucky enough to find a lender willing to offer mortgages in redlined districts, they experienced astronomical interest rates that did not affect white homebuyers. This forced generations of Black Americans and other minorities to forgo homeownership entirely¹.
The passage of the Fair Housing Act in 1968 was supposed to correct the racial bias in mortgage lending and outright ban racial discrimination in housing. However, this legislation did little to stop lenders from using these flawed and racist maps to inform their lending decisions.
Nearly 100 years have passed since the FHA was first created. Yet, 3 out of 4 previously redlined neighborhoods still face significant levels of economic inequality today.
Redlining Today
Black and minority communities across the U.S. still suffer from the effects of widespread redlining. The practice has caused minority households to have lower economic opportunities and worse health outcomes. These neighborhoods have worse environments — there are fewer trees and more toxins in the air — and they are routinely impacted by violent crime and police brutality².
Despite the numerous lasting effects of redlining on minority communities, some states still allow the practice.
To end redlining once and for all, the Department of Justice announced the Combatting Redlining Initiative last year. Under the initiative, prosecutors aim to enforce fair lending practices and force lenders who do not comply to pay damages to the communities they harm.
As the first prosecution under the initiative, a mortgage lender named Trident Mortgage settled with Philadelphia state and federal prosecutors for $20 million. Lawyers alleged that Trident Mortgage prevented people from nonwhite neighborhoods from applying for home loans and getting approved for mortgages.
And more recently, Lakeland Bank in New Jersey also settled with federal and state prosecutors. Between 2015 and 2021, the bank engaged in redlining. They failed to provide loans and other services to Black or Hispanic neighborhoods. Not 1 of their 40 branches was in a predominantly minority community.
Though President Biden’s Justice Department is doing important work to end redlining, Black and Hispanic communities around the country still suffer from this blatantly racist practice. It is time that we advocate for broad lending reform in all 50 states. And ensure that no American is again denied credit based solely on their race, ethnicity, socioeconomic staus, or location.
