Understanding Redlining: What Everyone Should Know
Redlining, a discriminatory practice in the lending sector, involves lenders denying home loans based on race, color, national origin, or the neighborhood’s racial composition. This practice has roots that trace back to the 1930s. Despite being officially banned in 1968, redlining persists even today, notably in a case involving a major bank in 2023. Knowing what redlining entails and how to address it can empower affected individuals to seek justice.
Types of Redlining Discrimination
Modern-day redlining can closely resemble historical forms, where mortgage lenders denied loans based purely on racial or ethnic factors. For instance, the Department of Justice (DOJ) accused City National Bank of avoiding mortgage lending services to majority-Black and Hispanic neighborhoods. The bank settled by agreeing to pay $31 million to the affected communities.
Another variant of redlining is “reverse redlining,” where predatory lenders target specific racial groups with disproportionately expensive loan products.
FAST FACTS
Origin of the Term “Redlining”
In the 1930s, during the Great Depression, the federal Home Owners’ Loan Corporation created maps outlining neighborhood risk levels and racial compositions. Areas with higher concentrations of nonwhite residents were considered risky, marked in red, hence the term “redlining.”
Identifying Signs of Redlining
Recognizing discrimination in lending can be challenging without comparisons to other applicants’ experiences. Be vigilant for the following red flags during your mortgage application process:
- Lack of Follow-Up After In-Person Meetings: If a lender loses interest in your application after meeting you in person, it could be a sign of discrimination.
- Steering Toward Expensive Loans: If a lender pushes you toward high-cost loans you shouldn’t need based on eligibility criteria, unfair treatment might be at play.
- Vague or Inconsistent Rejection Reasons: Lenders must provide specific reasons for rejecting applications. Ambiguity or illogical reasons suggest possible discrimination.
- Unattractive Loan Rates: Pay attention to significantly less favorable rates compared to your research or other offers. This might indicate discriminatory practices.
Action Steps if You Suspect Redlining
Federal laws like the Fair Housing Act and the Equal Credit Opportunity Act (ECOA) protect against mortgage discrimination. If you suspect redlining, consider these steps:
Contact a local fair housing nonprofit for assistance in discussing your situation, collecting evidence, and filing complaints.
To report an ECOA violation, visit the Federal Trade Commission’s ReportFraud.ftc.gov or file a complaint with the Consumer Financial Protection Bureau.
For FHA violation complaints, head to HUD’s Office of Fair Housing and Equal Opportunity. You can also contact an intake specialist at 1-800-669-9777 or 1-800-877-8339 (TTY).
Consulting an attorney regarding your legal options, including filing a lawsuit, might be beneficial but could incur costs.
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