Redlining is no longer limited to racist maps used to determine who receives a mortgage, as it was in the 1930s. Today, it also includes Internet service providers targeting ads to consumers using their racial profile and schools filtering content by restricting Internet search results, thereby limiting a student’s horizons.
“It’s frustrating and mind-boggling that we’re still dealing with this kind of discrimination fifty-three years after the Fair Housing Act was enacted,” Jesse Van Tol, CEO of the National Community Reinvestment Coalition, tells The Progressive. “Clearly the agencies responsible for enforcement of fair lending, fair housing, and consumer protection laws haven’t done enough, and the same can be said for lenders themselves.”
The latest Home Mortgage Disclosure Act data shows that families of color are still denied mortgages at a rate 80 percent higher than white applicants.
To begin addressing these issues, the Department of Justice’s Housing and Civil Enforcement Section announced a new initiative on October 22 to combat redlining with the help of local U.S. Attorneys’ offices. While the initiative is isolated to the DOJ, it will complement the ongoing work of other government agencies.
For example, the Department of Housing and Urban Development has settled thirty-four housing discrimination cases since January. The Treasury Department also hired its first-ever Counselor for Racial Equity, a position that will help expand lending opportunities in communities of color.
As part of the initiative, the DOJ, Consumer Financial Protection Bureau, and Office of the Comptroller of the Currency announced a $5 million settlement with Trustmark National Bank to resolve redlining claims. According to the complaint, the bank routinely denied mortgages in Black and Latinx neighborhoods in Memphis, Tennessee, from 2014 to 2018 while concentrating its branches in white neighborhoods.
Assistant Attorney General Kristen Clarke of the DOJ’s Civil Rights Division described the settlement as “critical to [ensuring] that banks and lenders are providing communities of color equal access to lending opportunities.”
The term “redlining” comes from a New Deal-era program that was designed to rapidly increase—and segregate—U.S. housing stock. The Federal Housing Administration’s Underwriting Manual from 1936 told banks that the agency wouldn’t insure mortgage loans in non-white neighborhoods. Without this security blanket, banks stopped lending in those areas altogether. Meanwhile, the administration was explicitly subsidizing homebuilders of all-white subdivisions.
Similarly, the Homeowners Loan Corporation, which hired and trained real-estate appraisers at the time, created a neighborhood ranking system that guided appraisal practices for decades before redlining was outlawed under the Fair Housing Act in 1968. Non-white and immigrant neighborhoods often ranked at the bottom of the list.
These programs had a disastrous impact on communities of color. After the housing boom that followed World War II, these communities were essentially isolated in urban areas at a time when well-paid jobs were relocating to the suburbs with returning war veterans. In turn, home values began to rise alongside the demand for housing.
Nancy Kwak, a professor of urban history at the University of California, San Diego, argues in her book A World of Homeowners that these government programs are the genesis of the racial homeownership gap because they were specifically designed to exclude people of color. While fair housing legislation has since outlawed these government practices, Kwak says the impact of the programs can be seen in the racial wealth gap.
According to research from the Federal Reserve, the average net worth of a white family is nearly $200,000, eight times greater than the average wealth of Black families and five times the wealth of Latinx families. This is the largest discrepancy between white people and people of color since 1968. At the same time, housing remains a key driver of a family’s net worth, with 46 percent of white families owning a home compared to just 17 percent of Black families.
Redressing these past grievances won’t come easily, which is why Kwak says the DOJ’s initiative “can only be one step in a multipronged approach to fair housing and desegregation.”
“There are a lot of private discriminatory acts that continue to be hard to catch and even harder to prosecute, like the practice of steering, where prospective buyers are ‘steered’ to racially segregated markets,” Kwak tells The Progressive.
One industry that Kwak says commonly “steers” buyers into segregated markets is the mortgage industry. It’s done by subtly manipulating an individual’s credit score.
Credit scores are calculated using five primary metrics developed by the Fair Isaacs Corporation, or FICO: payment history, amount owed, length of credit history, credit mix, and new credit. An individual’s credit score is 65 percent determined by their payment history and amount owed, and that score is used by banks to determine the risk of underwriting a loan.
FICO credit scores are one of the most important elements of a mortgage application. However, a study of consumer credit data by economists Laura Blattner at Stanford University and Scott Nelson at the University of Chicago revealed that not all FICO scores are the same, even those of equal numbers.
Rather, mortgage approval rates are often determined by the volume of information in an applicant’s credit file. Since low-income and minority mortgage applicants typically have less information in their files, they are denied mortgages at higher rates. This also means that removing bias from the algorithms used by banks to analyze credit files will not reverse the trend.
This is one reason why the latest Home Mortgage Disclosure Act data shows that families of color are still denied mortgages at a rate 80 percent higher than white applicants. Black households are also denied refinancing loans at an average of more than 30 percent compared to the overall denial rate of 17 percent.
Those who secure mortgages are often saddled with high-interest loans that make it difficult to build equity. Wells Fargo, the nation’s largest mortgage lender, settled a lawsuit in 2012 for $184.3 million over allegations that the bank steered homeowners of color to subprime loan products during the 2007-2008 financial crisis. These loans carried high interest rates, thereby creating hundreds of thousands of dollars in extra obligations for the homeowner.
Despite the overwhelming need to reform the nation’s mortgage lending laws, Richard Horn, a former senior counsel at the Consumer Financial Protection Bureau, says the DOJ’s initiative may not have the desired impact. He recently told Bloomberg that some banks may “rush” to settle redlining claims to get regulators to approve certain other activities like mergers.
For example, Cadence Bank settled redlining claims with the DOJ in August for $8.5 million while the company put the finishing touches on a $2.8 billion sale to BancorpSouth. A month later, the DOJ required the banks to sell seven branches in northeastern Mississippi to resolve antitrust concerns arising from the merger.
However, Kwak calls the DOJ initiative an “important step in the right direction” because enforcement of U.S. fair housing laws has always been “a key problem in making equal access a reality beyond legislation.”
“Redlining is one problem, but it occurs in this much larger context,” Kwak says.