By Todd M. Michney
Redlining, the targeted denial of loan monies to urban areas considered poor investment risks, was invented by the federal government in the 1930s and represents one of the most egregious examples of a policy promoting systematic racial inequity in modern U.S. history. So egregious, in fact, that public intellectual Ta-Nehisi Coates argues in a memorable, extended opinion piece that due to redlining’s comparatively recent history, reparations should legitimately be paid to residents of the mainly African American neighborhoods disadvantaged by its effects.
Although the federal government eventually discontinued its outright advocacy of racial segregation in housing, and reforms were passed in the mid-1970s to remedy the self-fulfilling urban crisis that redlining helped bring about, systematic racial discrimination in lending by financial institutions has proven quite tenacious. Redlining has been once again in the news since the 2008 foreclosure crisis and recession – or more accurately, “reverse redlining,” that is, lending policies which rather than starving low-income urban neighborhoods of funds, aim to extract whatever economic value remains by extending credit on a subprime basis. Despite mounting evidence of predatory lending since the early 2000s, it took a major financial meltdown to expose the extent of such policies. Even more disturbingly, new methods of systematically denying credit are reportedly again on the rise.
Atlanta has figured prominently in the history of redlining, most famously for the Pulitzer Prize-winning 1989 series “The Color of Money”, an exposé of discriminatory local lending practices which appeared in the Atlanta Journal-Constitution, sparking an investigation by the Justice Department as well as attempted reforms. And as in other cities, systematic lending discrimination currently appears to be alive and well here in Atlanta. Yet in a seemingly even more baffling twist, Atlanta in the 1930s was in the top tier of cities where a significant proportion of black homeowners actually got mortgage relief from the same federal agency that invented redlining. Some further explanation is in order.
The Home Owners Loan Corporation (HOLC) was established in 1933 as part of the New Deal legislation passed to address the Great Depression. It was empowered to refinance the mortgages of modest, nonfarm homes using bonds fully insured by the federal government. The HOLC proved popular; by the time the agency stopped accepting applications in mid-1935, some 40 percent of the entire country’s eligible homeowners had applied, with more than half of these receiving loans – over a million in all. Credited with stabilizing the Depression-hit housing market, the HOLC turned a $14 million profit when its remaining assets were sold to private lenders in 1951.
But at the same time, the HOLC conducted “city surveys” that mapped the locations of nonwhite neighborhoods and rated them as poor investment risks, using a four-color system of letter grades; red, or “D” neighborhoods were the lowest-rated, hence the term “redlining” since banks were discouraged from writing mortgages in such areas. The presence of African Americans was not the only reason why some neighborhoods got “D” ratings; for example, extremely old housing stock or nearby industries could also trigger this designation. However, all black neighborhoods received “D” ratings regardless of their residents’ income or the condition of their housing.
But here’s the twist: despite its invention of redlining, the HOLC willingly refinanced the mortgages of some black homeowners. Geographer Amy Hillier first uncovered this counterintuitive pattern, and in cities including Detroit, Birmingham, Houston, Indianapolis, and Atlanta among others, African Americans not only refinanced their homes in substantial numbers through the HOLC, but actually accessed refinancing more readily than whites when their lower homeownership rates are taken into account. While explaining this seeming contradiction will require a more substantial discussion than is possible in this forum, the statistics for Atlanta indicate that African American access to HOLC refinancing was far from insignificant. Out of the city’s approximately 3,500 nonwhite homeowners in 1940, the HOLC held the mortgage for nearly 500, some 42 percent of all reported black mortgages. White Atlantans owned homes at nearly double the rate of blacks, but upon comparing their loan access relative to homeownership, African Americans actually gained access at a ratio 1.24 times the white rate.
What explains this pattern? In the North, African Americans were a growing part of the Democratic Party constituency, which they leveraged for some consideration. In the South, black voting rights were practically nonexistent at the time, but a paternalistic attitude of protecting those African Americans considered “deserving” by whites – typically their employees – from exploitative mortgage brokers motivated concern, albeit condescendingly. The HOLC was to some degree the lender of last resort, so blacks having fewer mainstream options for loan relief helps explain their higher rates of utilization. Another incentive to help African Americans save their homes may have been to keep them where they were; this is implied by HOLC administrators’ unyielding promotion of racially-segregated neighborhoods. Finally, perhaps the most compelling explanation – and one that has continuity with our current “reverse redlining” – is that being largely recruited from the real estate profession, HOLC administrators were well aware that there was money to be made in lending to black homeowners at often exorbitant rates; thus we can understand HOLC refinancing to some degree as a windfall for creditors clamoring to be made whole.
Although the HOLC was intended as a temporary measure, its methods were picked up by the more permanent Federal Housing Administration (FHA), which commissioned additional maps on the same design. Federal segregationist policy officially ended in 1952, four years after the Supreme Court’s landmark Shelley v. Kraemer ruling invalidated deed restrictions forbidding sales to racial minorities, which FHA required as a condition to insure mortgages. Meanwhile, the government – and banks – denied that redlining had ever existed, and it was not until late in the following decade that the public found out about the maps and the term came into common usage. Some communities began mobilizing around the issue, ultimately resulting in reform legislation like the Home and Mortgage Disclosure Act (1975) and Community Reinvestment Act (1977). However, banks found new ways to discriminate as they sought out more nonwhite borrowers starting in the 1990s. In Atlanta and elsewhere, redlining remains a focus for activism to the present day, amid evidence that discriminatory lending is taking unprecedented new forms, for example incorporating data extracted from social media.