What Is Redlining?
Redlining is a discriminatory practice that puts services out of reach for residents of certain areas based on race or ethnicity. It started in the 1930s and was used to prevent people of color in urban areas from buying a home in certain neighborhoods or getting a loan to renovate their house.
The U.S. government used color-coded maps ranking the loan worthiness of neighborhoods in more than 200 cities and towns across the United States.
Banks and other mortgage lenders regularly rejected loans for creditworthy borrowers based strictly on their race or where they lived.
Redlining is most often associated with mortgage lending practices, but it can also be seen in student loans, business loans, car loans, and personal loans.
According to the real estate app, Redfin, Black families have lost out on at least $212,000 in personal wealth over the last 40 years because their home was redlined.
Today, redlining is an illegal practice thanks to the 1968 Fair Housing Act and the 1977 Community Reinvestment Act (CRA). The Fair Housing Act bans discrimination based on someone’s race when the person is trying to rent or buy a home, as well as apply for a mortgage. The act also makes it illegal to impose predatory interest rates or fees.
While redlining neighborhoods or regions based on race is illegal, lending institutions may take economic factors into account when making loans. They are not required to approve all loan applications on the same terms and may impose higher rates or stricter repayment terms on some borrowers.
“[The Fair Housing Act of 1968] doesn’t roll back or undo or make amends for 50 years of housing discrimination that had gone on up to that point,” said LaDale Winling, a professor of history at Virginia Tech. “It’s going to take probably another 80 or 90 years of vigorous enforcement and vigorous remediation to undo that legacy.”
How Does Redling Affect HBCUs?
While the legacy of redlining still impacts minority communities today, it also impacts students attending Historically Black Colleges and Universities in the form of educational redlining.
the Student Borrower Protection Center, a watchdog group, released a report in February 2020, that found some financial service firms may be engaging in educational redlining by placing higher borrowing costs on students who attend HBCUs and other Minority Serving Institutions (MSI).
The group ran a test, applying for a dozen loans on the lender website, Upstart — posing as a 24-year-old man. It said he lives in New York, works as a financial analyst, and makes $50,000 a year. Each time the group applied for a loan, the only factor that changed the outcome was where he went to school.
The group found that if the otherwise identical loan applicant went to NYU instead of Howard, there was an astonishing difference. For a $30,000 personal loan with a five-year term, it found an applicant would pay about $3,500 more in interest and fees if they went to Howard.
“It seems apparent when you do the side-by-side comparisons that where this hypothetical borrower went to school mattered in terms of how Upstart measured their creditworthiness, and that to Upstart there’s a penalty for attending an HBCU or HSI,” Kat Welbeck, the civil rights counsel at the Student Borrower Protection Center, said.
HBCUs are also affected by reverse redlining, which is the practice of targeting minority neighborhoods for higher prices or lending on unfair terms, such as predatory lending of subprime mortgages.
These neighborhoods are often the site of most HBCUs are located, and are being transformed by gentrification.
Gentrification makes off-campus housing unaffordable and pushes students out. For example, in North Nashville, Fisk University and Tennessee State University students were able to rent apartments off-campus for many years, but, recently, as White urbanites move into the neighborhood, the costs of housing have gone up, pushing residents and HBCU students out.
The Future of Redlining
The Biden-Harris Administration has been working to combat discriminatory lending and modern-day redlining.
In October 2021, The Justice Department announced the launch of the department’s Combatting Redlining Initiative.
The Initiative seeks to make mortgage credit and homeownership accessible to all Americans on the same terms, regardless of race or national origin and regardless of the neighborhood where they live.
“We know well that redlining is not a problem from a bygone era but a practice that remains pervasive in the lending industry today,” said Assistant Attorney General Kristen Clarke for the Justice Department’s Civil Rights Division. “ Our new Initiative should send a strong message to banks and lenders that we will hold them accountable as we work to combat discriminatory race and national origin-based lending practices.”
There are also organizations committed to ending housing discrimination, including, The National Fair Housing Alliance.
Click here, to learn more about you can join the fight to end housing discrimination.