Redlining

What Is Redlining?

Redlining is the practice of refusing, limiting, or charging more for mortgage loans, homeowners insurance, or other financial services because of where a person lives, especially when the neighborhood's racial or ethnic composition was the real basis for the decision. The name comes from the red lines that were drawn on maps to mark areas considered too risky to lend in.

How Redlining Developed

In the 1930s, the federal Home Owners' Loan Corporation produced maps of many American cities that graded neighborhoods by perceived lending risk. Areas graded lowest were colored red, and they often included neighborhoods with large Black or immigrant populations. Private lenders and federal housing agencies used similar appraisal and underwriting standards, which made it harder for residents of these areas to buy homes, borrow money, or build equity.

Why It Matters to Investors

Redlining affected property values. Homes in marked areas had less access to financing, which tended to depress their prices and slowed wealth-building for the families who owned them. Modern lenders and insurers can produce similar patterns without any explicit racial rule, through factors such as credit score requirements, property appraisal methods, or pricing models that correlate closely with geography. This is sometimes called digital or modern redlining.

Legal Responses

The Fair Housing Act of 1968 prohibits discrimination in housing-related lending based on race, color, national origin, and other protected characteristics. The Community Reinvestment Act of 1977 encourages banks to meet the credit needs of the communities they serve, including lower-income areas. Regulators continue to enforce fair lending rules by examining lending patterns for signs of geographic discrimination, though critics argue that subtler forms of the practice persist.