Expert AnalysisNov./Dec. 2023 IssueRedlining

Redlining – Really? It’s Still Happening?

Believe it or not, redlining is still happening in the United States in the mortgage industry. It may or may not be intentional, but it is still happening. I’m sure you are thinking this can’t be happening. After all, we don’t even have red pens anymore!!

What is the history of redlining and when did it start?

Redlining practices were prevalent from the 1930s to the 1960s. Ostensibly intended to reduce lender risk, redlining effectively institutionalized racial bias, making it easier to discriminate against and limit homebuying opportunities for people of color. The FHA was the architect of federally sponsored redlining from 1934 until the 1960s.

So then, when was redlining discontinued?

Some 40 years after the first redlining map was drawn, redlining was banned under the Fair Housing Act of 1968. But in many ways, HOLC (Home Owners’ Loan Corporation) and the Federal Housing Administration had already written the textbook for racist real estate practices. I could write pages on the bias of this, but scoring was put in place and housing policies were created believing they were doing the best for neighborhoods.

Unfortunately, after the Fair Housing Act was put into law, many minorities could not afford housing in neighborhoods they wanted to live in. The segregation continued within neighborhoods and cities, even though, the alleged red pens were lost.

What is happening today? In October 2021 Attorney General Merrick Garland created the ‘Combating Redlining Initiative.’ To date the DOJ has received $107 million in 10 settlements from banks that have violated the redlining Fair Housing Act. Today, the examiners are actively evaluating fair lending compliance of lenders based on their reasonably expected market area, or REMA. The REMA is used to evaluate lending and level of services majority-minority census tracts for potential redlining. So, it leaves one to wonder, did these institutions ‘fragrantly’ redline? Only they can answer that question, but anyone who has been in negotiations with the DOJ now knows it is cheaper and easier to negotiate and settle than continue to try and prove your innocence.

Beware, as the DOJ doesn’t discriminate between small and large players. They are after the bad actors. Here are 4 recent settlements:

  • National Bank of Los Angeles $31M for 2017-2020 practices of redlining
  • Ameris Bank of Jacksonville FL $9M for 2016-2021 practices of redlining
  • Essa Bank & Trust of Philadelphia $3M for 2017-2021 practices of redlining
  • American Bank of Oklahoma/Tulsa $1.5M for 2017-2021 practices of redlining

Could you be next?

As you can see, these recent examinations are looking back a number of years in the past. Your trying to pull records for those years is time consuming and may have blanks in the information needed, which actually helps the DOJ suite. Not you. Remember the lack of data is not a defense for you and your firm.