Redlining

What Is Redlining?

Redlining is the practice of denying people access to credit because of where they live, even when they personally qualify for a loan. The Federal Reserve, in enforcing fair lending laws, treats it as illegal disparate treatment. That covers a lender giving unequal access to credit, or unequal terms, because of the race, color, national origin, or other protected traits of the residents of an area.

Historically, mortgage lenders widely redlined core urban neighborhoods, and Black neighborhoods in particular.

How Redlining Worked

The name is widely thought to trace to the Home Owners’ Loan Corporation (HOLC), a New Deal agency. Between 1935 and 1940, it drew “residential security” maps for 239 cities, grading neighborhoods from A (best) to D (riskiest). The D areas were shaded red. Grades were based partly on housing age and prices, but race, ethnicity, and immigrant status were also influential factors.

Historians debate how much private lenders actually used the HOLC maps. The role of the Federal Housing Administration (FHA) is clearer. Federal Reserve History calls the FHA the architect of federally sponsored redlining from 1934 until the 1960s. FHA staff concluded that loans in neighborhoods that were, or might become, home to Black residents were not economically sound. The agency’s 1938 Underwriting Manual warned against “inharmonious racial groups” and recommended racially restrictive covenants. FHA insurance generally favored new suburban construction over older urban areas.

Ending Legal Redlining

• 1968: The Fair Housing Act banned discrimination in real estate and mortgage lending, including racially motivated redlining.
• 1970s: Community groups used data made public under the Home Mortgage Disclosure Act to document continued redlining.
• 1977: The Community Reinvestment Act affirmed that federally regulated banks must help meet the credit needs of the communities where they operate, including low- and moderate-income neighborhoods.

Federal Reserve History concludes that these reforms helped end redlining as a widespread legal practice. The Federal Reserve says it has referred redlining cases to law enforcement and continues to enforce fair lending laws.

Why It Still Matters

A 2017 Chicago Fed study, revised in 2020, compared neighborhoods on either side of HOLC map boundaries. Areas with lower grades saw lower homeownership, house values, and rents and more racial segregation in later decades. The authors attribute this to reduced access to credit followed by disinvestment. See Redlining, Segregation, and Fair Housing.