#REDLINE DEFINITION MANUAL#

The study concluded that there are still negative effects on the housing markets where redlining occurred decades ago. Looking at home sales data from 2000 to 2018, they found that residential properties “just inside the boundary of redlined zones” sold at a much lower price when compared to houses “in higher-graded zones” on the other side of the border. Recent research published by academics at the University of Michigan, who examined the housing market in “marginalized” and “nonmarginalized” neighborhoods that share a border, underlines this fact. Redlining in Real Estate TodayĮven with the passage of anti-redlining laws and several updates to the CRA, the financial system and housing market still struggles with its redlining past. (FDIC) or the Office of the Comptroller of the Currency (OCC). The law seeks to incentivize banks by telling regulators to factor in CRA performance and ratings when evaluating an institution’s application to expand operations or offer new services, including merging with or acquiring another lender.ĭepending on the size and type of financial institution, CRA examinations are conducted by the Federal Reserve, Federal Deposit Insurance Corp. It requires federal financial regulators to periodically grade financial institutions based on their efforts to meet the borrowing needs of all the communities where they do business (largely based on branch locations), especially in low- and moderate-income (LMI) neighborhoods. In response, Congress passed the Community Reinvestment Act of 1977. Many banks also refused to open branches or offer their services in low- and middle-income communities. Condition the availability of a loan on a person’s response to harassmentĮven with the passage of the Fair Housing Act, discrimination against minority borrowers persisted.Discriminate in appraising the value of a property.Develop different loan terms or conditions for a protected class, such as higher interest rates or servicing fees.

Refuse to provide information regarding loans.Refuse to make a mortgage loan or provide other financial assistance for a home.As it relates to mortgage lending, it prohibits banks from discrimination due to race, color, religion, sex, disability, familial status or national origin if they: Johnson in 1968 as part of the Civil Rights Act. The Fair Housing Act was signed into law by President Lyndon B. Here are some of the main rules that prevent redlining in mortgage lending. By the late 1970s, a law was also created to incentivize financial institutions for meeting the needs of underserved communities through lending. Redlining was encouraged by government policy for decades until the Civil Rights movement in the 1950s caused Congress to pass laws that prevented banks from discriminating against protected classes of borrowers in certain areas based on their race or gender.

#REDLINE DEFINITION MANUAL#

The guide was so lenders could assess property value, based on demographics and location, as well as dictating what borrowers were eligible for mortgage loans that meet FHA standards.īanks were reluctant to issue loans without FHA insurance, as having the government backstop meant they could share the risk, while also meeting the standard of engaging in safe and sound lending practices.īut the language used in the manual explicitly deterred lenders from working with minority groups, declaring that areas with “a change in social or racial occupancy generally contributes to instability and a decline in values,” for example.Īs a result, it created a system where lenders regularly denied mortgage loans based on where an applicant lived rather than considering the individual borrower’s profile and creditworthiness.

A large reason why redlining was born was due to 1930’s government-issued Underwriting Manual by the Federal Housing Administration (FHA), which insures some mortgages.

Redline definition