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Redlining and the Racial Wealth Gap

Posted on 16. Apr, 2018 by

As we reflect on the 50th anniversary of the Fair Housing Act, it is important to remember how present day segregation and inequality were created and maintained by generations of discriminatory housing policies.  One of the most significant was redlining, a practice where banks and insurance companies literally drew red lines around neighborhoods that were considered an unsafe investment, using racially explicit policies that targeted African-American neighborhoods and other communities of color. Redlining maps gave different color grades to each neighborhood: green being the “best;” blue–“still desirable,” yellow–“definitely declining,”, and red–“hazardous.”

Image: Mapping Inequality: Redlining in New Deal America, Digital Scholarship Lab, University of Richmond. To explore an interactive map of your neighborhood, check out Mapping Inequality from Richmond University’s Digital Scholarship Lab.

After World War I, the practice of redlining was adopted by the federal government, and it became even more damaging and widespread. It was government policy to deny African-Americans home loans and to actively enforce segregation: “incompatible racial groups should not be permitted to live in the same communities,” stated the Underwriting Manual of the Federal Housing Administration (FHA).

Photo Source: Trinity College Epress

Redlining was enforced not just by government policy, but also through industry practices. From 1924-1950, Article 34 of The Realtor Code of Ethics read, “A Realtor should never be instrumental in introducing into a neighborhood a character of property or occupancy, members of any race or nationality, or any individuals whose presence will clearly be detrimental to property values in that neighborhood.” Individual homeowners were at times complicit themselves. In many cases, restrictive covenants were written into the deeds of homes, stating that they could not be sold to anyone who was not “of the Caucasian race.” As a result of all of these actions, less than two percent of all FHA mortgages went to non-white families.

These policies not only prevented African-Americans from buying homes till 1968, it set up the racial wealth gap we see today: Median white wealth is twelve times higher than median black wealth, according to the Economic Policy Institute. In the article, Janelle Jones argues that “Overall, housing equity makes up about two-thirds of all wealth for the typical (median) household. In short, for median families, the racial wealth gap is primarily a housing wealth gap. This is no accident.” While white families accumulated wealth through homeownership, African-American families didn’t have the opportunity to invest and build equity in a home, making it harder for their children and grandchildren to buy homes.

In his powerful article, “The Case for Reparations,” Ta-Nehisi Coates writes that “when the mid-20th-century white homeowner claimed that the presence of a Bill and Daisy Myers decreased his property value, he was not merely engaging in racist dogma—he was accurately observing the impact of federal policy on market prices. Redlining destroyed the possibility of investment wherever black people lived.”

A recent study by the National Community Reinvestment Coalition found that neighborhoods marked by the Home Owner’s Loan Corporation as “hazardous” have lower incomes, more minorities and signs of gentrification.

While redlining has been illegal since the passage of the Fair Housing Act in 1968, it still occurs today. GNOFHAC, along with the Fair Housing Alliance and 18 other civil rights organizations, recently filed a federal lawsuit against Deutsche Bank for neglecting foreclosed homes in communities of color. While the bank owns properties in both predominately white communities as well as African-American communities, photographs show they neglected to maintain the bank-owned homes in communities of color, resulting in these homes having overgrown grass and weeds, unlocked doors and windows, broken doors and windows, dead animals decaying, and trash and debris left in yards, while homes in white neighborhoods were kept free of debris and trash and had secured windows and doors.

“The neglected appearance of Deutsche Bank-owned homes in middle- and working-class neighborhoods of color destroys the homes’ curb appeal for prospective homebuyers and invites vandalism because the homes appear to be abandoned. Additionally, the blight created by Deutsche Bank/Ocwen/Altisource results in a decline in home values for African American and Latino families who live next door or nearby, deepening the racial wealth gap and inequality in America,” states GNOFHAC’s News Release.

In another recent example of redlining, The Department of Housing and Urban Development filed charges on behalf of the National Fair Housing Alliance (FHA) in January 2017, accusing Bank of America and two of its employees of lending discrimination. The National Fair Housing Alliance conducted mystery shopper tests with white and Latino applicants both pretending to be prospective mortgage borrowers in South Carolina. The NFHA investigation found that the Latino applicants were consistently given inferior loan options compared to the white applicants, and therefore Bank of America was discriminating based on national origin, one of the protected classes under the Fair Housing Act. The case settled in May 2017, with Bank of America agreeing to contribute more than $400,000 to support fair housing in South Carolina.

While 50 years have passed since redlining and all forms of housing discrimination were made illegal under the Fair Housing Act, the effects of discriminatory housing practices persist today. As the examples above show, redlining still occurs and helps to further segregation and inequality, which is especially damaging when carried out on a large-scale by banks and institutions. If you think you have experienced discrimination by a bank, insurance company, or other housing provider, call the GNO Fair Housing Action Center at (877) 445-2100.

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