REDLINING Effects of Federal Housing Administration FHA Home

REDLINING Effects of Federal Housing Administration (FHA) & Home Owners Loan Corporation (HOLC) Governmental Policy

What is the FHA? The Federal Housing Administration (FHA) is a United States government agency created as part of the National Housing Act of 1934. It sets standards for construction and underwriting and insures loans made by banks and other private lenders for home building.

What was the HOLC? The HOLC was established in 1933 to help distressed families avert foreclosures by replacing mortgages that were in or near default with new ones that homeowners could afford. It did so by buying old mortgages from banks — most of which were delighted to trade them in for safe government bonds — and then issuing new loans to homeowners. The HOLC financed itself by borrowing from capital markets and the Treasury. Credit: Alan Blinder, The New York Time 2/24/2008

239 Residential Security Map’s were created by HOLC in the United States

Redlining is the practice of arbitrarily denying or limiting financial services to specific neighborhoods, generally because its residents are people of color or are poor. Image Credit: Bloomberg. com 8/15/14

GREEN: Gave lender complete blessing to invest. Areas had to be virtually free of African American or “foreign-born whites. ” Government encouraged maximum bank investment in green areas. BLUE: Still good area to invest, make loans at 10 -15% below the maximum available amount. YELLOW: Homes are “out of fashion” and are subject to “infiltration of a lower grade population. ” Government recommendation to lend with extreme care. RED: Neighborhood is struggling to survive and is characterized by “undesirable population or an infiltration of it. ” Thus, mortgage lender would not make loans in these neighborhoods.

Cause & Effects of Redlining 1. Banks est. policy of not making loans in redline areas (Redline area est. by government beginning in 1930’s) 2. Redline areas lack capital or investment and redevelopment 3. Redlined neighborhoods begin to substantially deteriorate. 4. Affluent white population began moving to the suburbs surrounding the core of major cities. 5. The combination of racial restriction ordinances, restricted deed covenants, and redlining “locked” the African American populace in deteriorating neighborhoods.

The Tentacles of Redlining • Retailers: Lack of access to taxicab service, food delivery, and fresh food based on lack of local grocer. • Credit Cards: People living in redlined areas did not have equal access to short term credit (explosion of pawn shop and payday loan industry) • Insurance: Use of zip codes to determine insurance rates negatively effected redlined areas • Credit Score: A person in a redlined area becomes unable to build a positive credit rating based on the systemic limitation of lending to residences of a redlined area. (Cycle of Poverty) • Equity: If unable to own a home, a person is unable gain the benefit of building financial equity in a home.

42 U. S. Code § 1982 Property Rights of Citizens Created as part of the Civil Rights Act of 1866. “All citizens of the United States shall have the same right, in every State and Territory, as is enjoyed by white citizens thereof to inherit, purchase, lease, sell, hold, and convey real and personal property. ”

Jones v. Alfred H. Mayer Co. Facts: Jones, a black man, charged that a real estate company in Missouri's St. Louis County refused to sell him a home in a particular neighborhood on account of his race. Holding: Section 1982 of the congressional act was intended to prohibit all discrimination against blacks in the sale and rental of property, including governmental and private discrimination. Furthermore, the 13 th Amendment's enforcement section empowered Congress to eliminate racial barriers to the acquisition of property since those barriers constituted "badges and incidents of slavery. ” Source: http: //www. oyez. org/

Video Review of Redlining (6 Minutes) Race: The House we Live In