What is redlining and how can it be solved?
REdlining has been a discriminatory lending practice that’s been banned for centuries, but sadly, a few remnants of the bias protocol continue to haunt black and brown homeowners today. What is redlining and how did it become so deeply embedded in our society?
According to New York Times, the term derives from government homeownership programs that were created during the New Deal of the 1930s. The programs offered “government-insured mortgages” to struggling new homeowners in order to combat foreclosures during the Depression .
Later, the government introduced new protocols for homeowners seeking assistance. Organizations like the Home Owners Loan Corp and the Federal Housing Administration (FHA), used “color-coded maps” that essentially ranked neighborhoods eligible to receive government mortgages. The questionable practice occurred “in more than 200 cities and towns across the United States”, notes the New York Times.
Neighborhood creditworthiness was rated from “A” to “D”, with “D” areas being the least likely to receive additional aid. Why? The federal government has claimed that property values in these areas will decline over time. Coincidentally, many of these “D” areas were where a large concentration of blacks lived.
Around the same time, the FHA, established in 1934, provided financial support for builders to mass-produce entire housing estates for white communities, but on one condition. None of the newly built homes were to be sold to African Americans.
Richard Rothstein notes in his book The color of the law that black people were evicted from areas surrounding new suburban communities and forced to live in housing projects.
“The segregation of our metropolitan areas today leads … to stagnant inequality because families are much less able to be upwardly mobile when they live in segregated neighborhoods where opportunities are absent,” Rothstein said. says NPR in 2017. “If we want greater equality in this society, if we want less hostility between the police and young African American men, we have to take steps to desegregate.”
The FHA was never able to provide evidence that blacks living in close proximity to whites would devalue the property or jeopardize the loans of white homeowners. Rothstein notes in his book that property values skyrocketed when black families brought homes near all-white neighborhoods because, in some cases, they were willing to pay more than whites to own property due to strict protocols.
According to a study conducted by the Census Bureau, 44% of black families owned their homes in the first quarter of 2020, compared to 73.7% of white families. In some cities, the black home ownership gap is startling. The Washington Post notes in its article titled “One house, one life of impact”, that in Minneapolis, only 25% of blacks own homes “compared to 76% of whites”. DC has the highest homeownership rate among blacks, at 51%, but the number is still considerably lower than that of white-owned households, which stand at 70% in the city.
Thanks to the Fair Housing Act of 1968, which prohibited housing discrimination in the United States, redlining no longer exists. Additionally, the Home Mortgage Disclosure Act of 1975 required lenders to provide certain mortgage data to prospective homeowners. It was certainly a huge leap forward, but unfortunately some of the lingering effects of redlining have seeped into other parts of the home buying process, greatly impacting homeownership success. to black property and wealth.
Economists from the University of Utah and Carlos Avenancio-León from Indiana University found that Black families pay 13% more in property taxes compared to white families. Disparities in property values also stifle black home ownership. A study carried out by a real estate company red fin suggests that black families are more likely to own homes in formerly demarcated neighborhoods than in areas deemed “greener” or more profitable. According to the study, over the past 40 years, demarcated neighborhoods have gained “$212,023 or 52% less in equity compared to homes in green neighborhoods. In turn, these neighborhoods are seen as undesirable and worthless, and the ramifications spill over into other aspects, including the lack of funding for schools and health resources in formerly demarcated communities. Other issues impacting black homeownership are lack of access to credit and higher mortgage denial rates.
There must be a silver lining, right?
In October 2021, the Department of Justice (DOJ) launched the Anti-Redlining Initiative which would partner with the Office of Financial Protection and the Office of the Comptroller of the Currency to ensure fair lending practices. The decision came after the department reached a settlement against Trustmark for discriminating in lending.
“Lending discrimination goes against the fundamental promises of our economic system,” Attorney General Merrick B. Garland said in a statement at the time. “When people are denied credit simply because of their race or national origin, their ability to participate in the prosperity of our nation is virtually eliminated,” Garland continued, “We are committed to addressing modern redlining by making much more robust use of our fair lending authorities. We will spare no resources to ensure that federal fair lending laws are rigorously enforced and that financial institutions provide equal opportunity for every American to obtain a credit,” he added.
Another way to combat the effects of redlining would be through educational programs dedicated to raising awareness of the down payment assistance programs offered by the FHA. Some organizations like the Neighborhood Assistance Corporation of America, fully cover down payment and closing costs for qualifying homebuyers, allowing them to benefit from a low mortgage rate.
“There is a program in the books at the moment, the Native American Home Loan Guarantee HUD program, which needs to be extended to black people,” Donnell Williams, president of the National Association of Real Estate Brokers in Lanham, told the Washington Post. “The program offers loans with interest rates as low as 2% and lower down payment requirements.”
Adjusting credit score models to consider alternative ways of assessing a borrower’s creditworthiness would make the homebuying process more inclusive for black people. While the topic has been discussed for centuries, repairs could be another way to secure home ownership. Surely we could use those 40 acres!
Why is home ownership so important? Home ownership can provide wealth for generations. It can be passed on or sold as an investment property. Retirement is also a key factor. Being able to live rent-free after you retire will save you a lot of money and protect your financial security. Either way, black people need to have access to property. It is an essential path in the creation of wealth for future generations to come.
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