REDLINING
Effects of Federal Housing
Administration (FHA) & Home Owners
Loan Corporation (HOLC) Governmental
Policy
What is the FHA?
The Federal Housing
Administration (FHA) is a
United States government
agency created as part of
the National Housing Act
of 1934. It sets standards
for construction and
underwriting and insures
loans made by banks and
other private lenders for
home building.
What was the HOLC?
The HOLC was established in 1933 to help
distressed families avert foreclosures by
replacing mortgages that were in or near
default with new ones that homeowners could
afford. It did so by buying old mortgages from
banks — most of which were delighted to
trade them in for safe government bonds —
and then issuing new loans to homeowners.
The HOLC financed itself by borrowing from
capital markets and the Treasury.
Credit: Alan Blinder, The New York Time 2/24/2008
239 Residential Security Map’s were created by HOLC in the United States
Redlining is the
practice of
arbitrarily
denying or
limiting financial
services to
specific
neighborhoods,
generally because
its residents are
people of color or
are poor.
Image Credit: Bloomberg.com 8/15/14
GREEN: Gave lender complete blessing to invest. Areas had to be virtually free of African
American or “foreign-born whites.” Government encouraged maximum bank investment in
green areas.
BLUE: Still good area to invest, make loans at 10-15% below the maximum available amount.
YELLOW: Homes are “out of fashion” and are subject to “infiltration of a lower grade
population.” Government recommendation to lend with extreme care.
RED: Neighborhood is struggling to survive and is characterized by “undesirable population or
an infiltration of it.” Thus, mortgage lender would not make loans in these neighborhoods.
Cause & Effects of Redlining
1. Banks est. policy of not making loans in redline areas
(Redline area est. by government beginning in 1930’s)
2. Redline areas lack capital or investment and
redevelopment
3. Redlined neighborhoods begin to substantially
deteriorate.
4. Affluent white population began moving to the
suburbs surrounding the core of major cities.
5. The combination of racial restriction ordinances,
restricted deed covenants, and redlining “locked” the
African American populace in deteriorating
neighborhoods.
The Tentacles of Redlining
• Retailers: Lack of access to taxicab service, food delivery,
and fresh food based on lack of local grocer.
• Credit Cards: People living in redlined areas did not have
equal access to short term credit (explosion of pawn shop
and payday loan industry)
• Insurance: Use of zip codes to determine insurance rates
negatively effected redlined areas
• Credit Score: A person in a redlined area becomes unable
to build a positive credit rating based on the systemic
limitation of lending to residences of a redlined area.
(Cycle of Poverty)
• Equity: If unable to own a home, a person is unable gain
the benefit of building financial equity in a home.
42 U.S. Code § 1982
Property Rights of Citizens
Created as part of the Civil Rights Act of 1866.
“All citizens of the United States shall have
the same right, in every State and Territory,
as is enjoyed by white citizens thereof to
inherit, purchase, lease, sell, hold, and
convey real and personal property.”
Jones v. Alfred H. Mayer Co.
Facts: Jones, a black man, charged that a
real estate company in Missouri's St. Louis
County refused to sell him a home in a
particular neighborhood on account of his
race.
Holding: Section 1982 of the congressional
act was intended to prohibit all
discrimination against blacks in the sale and
rental of property, including governmental
and private discrimination. Furthermore, the
13th Amendment's enforcement section
empowered Congress to eliminate racial
barriers to the acquisition of property since
those barriers constituted "badges and
incidents of slavery.”
Source: http://www.oyez.org/
Video Review of Redlining (6 Minutes)
Race: The House
we Live In