Redlining: The King of All Fair Lending Risks

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If you think redlining is just a Community Reinvestment Act problem, nothing could be further from the truth. While there is some crossover, redlining is very much a core fair lending problem. In its simplest form, redlining is when a lender simply doesn’t make loans in certain parts of your community, and it’s nearly always based on some prohibited basis characteristic of the neighborhood. In other words, a lender isn’t making loans typically in higher-minority areas.

Redlining is an old problem. You may be shocked to learn that our own government not only sanctioned redlining but mandated it for many years. In fact, the FHA and later the VA wouldn’t guarantee mortgages to minority individuals or in minority areas for many years. In the 1960s, the Fair Housing Act finally came along and made these practices illegal. Problem solved, right? Wrong! Redlining still happens, it’s just not as open and blatant as it once was. Since our communities have been segregated for so long, it’s not that easy to just reverse the effects of redlining. We can’t just pick up generations of families and integrate them into different parts of the communities. However, we can make sure that credit is available so people can choose to live where they want. So how do we spot redlining, and how do we prevent it in 2023?