As we celebrate 50 years of the Fair Housing Act, enacted on April 11, 1968, it’s important to remember that one of the key motivations for this groundbreaking legislation was to fight against discriminatory lending practices, otherwise known as “redlining.” So we can be grateful that this practice is now just a sad chapter in our history, right? Not so fast…
While “redlining” refers more generally to the practice of denying services to minority groups in certain geographic areas, the term is best known for the denial of financial services such as home or small business loans. In the 1930s, it became common practice for banks in major metropolitan areas to literally create color-coded maps designating “high risk” areas to avoid when doing business. If you were unfortunate enough to live in one of these “red line” neighborhoods, your chance of getting a loan, or even affordable insurance for your business, was greatly reduced.
These “redlined” sections were most often older, predominantly black, inner-city neighborhoods.
Thanks to the Fair Housing Act and fair housing advocacy, the homeownership gap between whites and African Americans started steadily shrinking since the 1970s. But the story doesn’t end there.
Alive and Well
A recent study of 61 metro areas, analyzing 31 million home mortgage records, has found a huge reversal in the progress made to end the disproportionate denial of home loans. In fact, the denial rate is now even wider than it was in the Jim Crow era. How is this possible?
Naturally banks deny that race or ethnicity factor into lending decisions, but they do admit that a customer’s credit profile, and specifically their credit score, play a major role in whether or not a loan request is approved. Unfortunately, lenders have so far resisted any attempts to require reporting of credit score data to the government, citing privacy concerns, even when studies have found that proprietary credit score algorithms have a discriminatory impact on borrowers of color.
Lehigh Valley Implications
There is no reason to think that the Lehigh Valley is immune from these modern redlining practices. For example, Fair Housing testing by the Housing Equality Center of Fort Washington, PA, conducted a test of treatment of homebuyers in 2012, and found that 76 percent were treated of minority testers were treated differently by housing professionals. Looking at our area, the Reveal study found that:
“ [O]ut of 130 mortgage applications by blacks during 2016, 18.5 percent were denied, or about 2.5 times more than white applicants, but investigators deemed that data as “not statistically significant.” Other minority groups saw similar denial rates.”
Banks routinely rely on credit scores when assessing eligibility for mortgages, but these scores don’t account for rent, utility and other local payments.
In the Lehigh Valley, for example, where homeownership rates for whites are in many locations above 65 percent, the median homeownership rates for blacks in Lehigh County is 31.1 percent and in Northampton County is 44.8 percent. The rates are similar for Latino homeowners, although there are about 21,000 households, compared with 12,000 black homeowners. Even when accounting for house price to income ratios, age and marriage rates, studies show reduced home ownership for blacks of about 22 percent compared to whites in a national study.
Redlining practices helped to inspire the Fair Housing Act, and as we mark its fiftieth anniversary this year, it is important to look at the links between denial of credit and lending practices which contribute to the differential in homeownership rates in our communities. Modern redlining may inspire the next chapter in the ongoing efforts to guarantee fair housing rights for all.
A special thank you to our Fair Housing CDBG funders in the Lehigh Valley: City of Allentown, City of Bethlehem, City of Easton, Lehigh County and Northampton County.