Underwriting Whiteness: The Legacy of "Red-Lining"

Ever wonder why most American suburbs are more white and affluent while central cities are more black, brown and poor? Part of the reason is found in this 1936 Home Owners Loan Corporation map of Philadelphia. (click on the map to see a larger, more readable image)

During the New Deal era, the federal government instituted a revolutionary change that put homeownership within reach for millions of Americans for the first time. The feds decided to back up, or insure, loans made for the purchase of a home. This new social welfare policy meant that instead of putting down, say 50% or more of the cost of the home as a down-payment and paying the loan back over a short term at a high rate of interest, individuals could now put only 10-20% down and repay the loan over a long term, often 30 years, at a much lower rate of interest. This federal subsidy of homeownership was critical to the growth of a white middle class in the United States following WWII. This remains the basic outline of the lending system today...

In 1935, the Home Owners Loan Corporation began making maps of more than 200 U.S. cities that indicated the “level of security” for real estate investments in each area surveyed (see map). The darker dotted line encircles the major housing inventory in the city. The grey area underneath the two large “A”s is the main industrial zone for the city. Federal assessors ranked areas of the city based on a four-color scale. The neighborhoods that received the highest, or best rating (and were thus most likely to receive federally subsidized loans), were colored blue (called “desirable” or “best”). These areas were racially homogenous (meaning “white”), usually more affluent, and often newer developments on the edges of the city. Neighborhoods that were in transition, particularly racial transition (so were mixed), were colored yellow (called “declining”), which made it more difficult to get a loan there. Poorer and older urban neighborhoods that were less affluent and were predominately black or brown were colored red (“hazardous”) and received very few loans. This process came to be known as “red-lining.”

These maps, along with Federal Housing Authority underwriting manuals, which similarly categorized neighborhoods along lines of race and class, and real estate practices, like “block-busting,” promoted racial and economic segregation. The maps became the basis for lending decisions, not just by the federal government, but also by private financial institutions, which used the HOLC maps and FHA underwriting manuals as their own guides. In short, “red-lining” funneled billions of tax dollars toward newer, affluent, white suburban neighborhoods and away from poorer, or more integrated, urban neighborhoods. It shifted public wealth toward one group in one area over another in other areas and, in the process, reified racial inequality. In fact, between 1934 and 1962, the federal government backed $120 billion of home loans… more than 98% went to white homebuyers! Talk about massive redistribution of wealth!

This policy made possible the segregated, all-white suburbs that sprang up all across the country after WWII. Further government subsidies to municipal services in these areas only increased their values even more, which in turn fueled commercial investment there. So, not only were affluent white suburbanites able to access federally subsidized loans to buy homes, the value of that property steadily rose over time as a result of these other public supports. And, as public policy subsidized "white flight," business and other economic development followed to the fringes from downtowns.

Conversely, African Americans and Latinos remained confined to older and poorer urban neighborhoods where property values continued to decline as a direct result of these public policy decisions. Urban renewal plans and highways construction plans during the 1950s and 1960s exacerbated these problems by destroying housing stock in central cities and displacing poor residents. As these areas became associated with racialized poverty, welfare policies increasingly dumped poorer residents in them, adding to the woes already there. Denied home loans, inner-city residents were unable to purchase new homes, upkeep existing houses (which were often older stock, and, as a result, in need of repair), and thus were not able to accumulate wealth through home equity as whites were doing. And, in reality, this situation meant that most brown and black people didn't own homes at all, but rented property from white slum landlords who lived outside the community.

The result of all of this has been that American society has systematically subsidized the wealth creation of white families and undermined the wealth creation of families of color. Even today, when the more egregious dynamics of this system are outlawed, the results of past discrimination persist and grow as wealth (or lack of it) accumulates from one generation to the next. As sociologist Dalton Conley points out in the excellent 3-part documentary, “Race: The Power of an Illusion,” a family's net worth is not simply the finish line. It's also the starting point for the next generation. Those with wealth pass their assets on to their children - financing a college education, lending a helping hand during hard times, or assisting with the down payment for a new home. It also provides financial security in retirement. Not surprisingly, the racial wealth gap - and the head start enjoyed by white families - appears to have grown since the gains of the Civil Rights Movement.

Because it is hidden in institutions and public policies, these processes are largely invisible to the average white person, who does not realize she/he is participating in such a racist and unequal system. After all, they simply walk into a bank and apply for a loan. Consequently, because they don't see the racial advantage they are receiving, they don't view their position in society as the result of discriminatory social welfare policies, but rather the result of hard work and merit. In turn, they often look at poor urban neighborhoods and associate the conditions they see with the character of the people living there rather than with a rigged system. Black people (or brown people) themselves become associated with poverty and its symptoms. Black people (and brown people) become, in many white minds, synonymous with poverty, urban blight, run-down neighborhoods, delapidated housing, failed public schools, crime, violence, drug use, etc.

This is one reason it is very important to shine light on the system as it actually works, not as people believe it works, or wish it worked. By rendering the invisible visible, perhaps we are better able to think constructively about truly egalitarian and just solutions to the ongoing inequalities in our society.

The Civil Rights Act of 1968 and the Community Reinvestment Act of 1977 were aimed at the most egregious aspects of this system. "Red-lining" is technically illegal now in the United States. But, lest we think this is all ancient history, a recent study by ACORN (2005) found, "when buying or refinancing a home, borrowers of color, and African-Americans in particular, receive mortgages with much less favorable terms than whites receive. African-Americans have been segregated into the subprime market where they receive loans with higher interest rates, larger fees, and onerous features such as prepayment penalties." The cycle continues...

For the full study, see:
ACORN report on predatory lending practices at Wells Fargo

So, again, why are those suburbs mainly white and affluent and those urban neighborhoods disproportionately poor and black or brown?

More resources can be found here:
Resources on "red-lining" today
Insurance Red-Lining: Still Fact, Not Fiction"
Documentary website: "Race: The Power of an Illusion"

Take action in your community:
ACORN campaign to stop predatory lending practices
Consumer Action Guide: "Stop Housing Discrimination in Your Community"