Redlining Essay ⋆ Essays on Controversial Topics ⋆ EssayEmpire

Redlining primarily refers to an illegal discriminatory practice by real estate lenders or insurance companies who decide that certain areas are high-risk investments. Despite strong credit qualifications of would-be borrowers, lenders refuse to give mortgages to buyers wanting to purchase properties in those designated areas or to give building improvement loans to the current owners. Similarly, insurance companies redline when they refuse to issue property insurance policies to applicants who live in those areas. The term is also used when large supermarkets abandon low-income communities, leaving residents with limited access to affordable, quality food.

Redlining originated in 1935 when the Home Owners’ Loan Corporation, at the request of the Federal Home Loan Bank Board, created “residential security maps” between 1935 and 1940 to identify the level of risk for real estate investment in 239 U.S. cities. It put out maps with underwriting guides that were color-coded as A (blue), B (green), C (yellow), and D (red) levels of credit worthiness. “Type A” neighborhoods were the most affluent, while “Type D” neighborhoods were the highest-risk, low-income, and often predominantly black neighborhoods.

Even more influential than the maps, which had a limited distribution, was the Federal Housing Administration’s Underwriting Manual, whose biased appraisal guidelines lenders had to follow if they wanted to receive FHA insurance. Whatever its cause, redlining played a role in the decay of America’s cities in the mid-20th century with frequent denial of funds for improvement and/or redevelopment.

In the 1960s, consumer activists in Chicago spearheaded reform, and congressional scrutiny led to corrective legislative action: the Fair Housing Act of 1968 and the Home Mortgage Disclosure Act of 1975. The Community Reinvestment Act of 1977 was intended to end all redlining practices by requiring banks to apply the same lending standards in all neighborhoods. Critics contend, however, that such discrimination persists.

After a six-month investigation of 24 million mortgage records and 200 interviews, U.S. News & World Report in 1995 reported the continuance of redlining, prompted in large measure by urban crime, vandalism, and declining property values. As a result, poor and minority homeowners were 50 percent less likely to secure full-coverage property insurance than the residents living in predominantly white, middle-class areas. Seven years later, a 2002 study—after controlling for business size and credit quality, industrial mix, and neighborhood income—revealed that small businesses in black neighborhoods still received fewer loans. A 2003 study also reported the continuance of racial profiling in the banking and insurance industries. Though not as blatant or prevalent today, evidence suggests the continued presence of redlining.

Bibliography:

Hillier, Amy. 2003. “Redlining and the Home Owners’ Loan Corporation.” Journal of Urban History 29(4):394-420.
Immergluck, Dan. 2002. “Redlining Redux.” Urban Affairs Review 38(1):22-41.
Leob, Penny, Warren Cohen, and Constance Johnson. 1995. “The New Redlining.” U.S. News & World Report, April 17, pp. 51-56.
Squires, Gregory D. 2003. “Racial Profiling, Insurance Style: Insurance Redlining and the Uneven Development of Metropolitan Areas.” Journal of Urban Affairs 25(4):391-410.

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