Redlining remains one of the most egregious examples of encoded racism in the U.S.
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Current presidential candidate and former New York City Mayor Michael Bloomberg is under fire for comments he made blaming the end of a racist lending policy for the global financial crisis of 2008.
The remarks were made at a forum hosted by Georgetown University in 2008. “It all started back when there was a lot of pressure on banks to make loans to everyone,” he said. “‘Redlining’, if you remember, was the term where banks took whole neighborhoods and said, ‘People in these neighborhoods are poor, they’re not going to be able to pay off their mortgages, tell your salesmen don’t go into those areas.’”
Then, he said this: “And then Congress got involved—local elected officials, as well—and said, ‘Oh that’s not fair, these people should be able to get credit.’ And once you started pushing in that direction, banks started making more and more loans where the credit of the person buying the house wasn’t as good as you would like.”
Bloomberg made his billions in media, financial services, and software; his eponymous Bloomberg terminal is a fixture in the lives of institutional investors, financial reporters, and monied market watchers. While it’s natural for him to view the world through a Wall Street lens, it’s difficult to reconcile his remarks with what actually happened in the crisis—or further back in history.
He appears to be sort of alluding to the contemporary understanding that mortgage defaults triggered by aggressive and often predatory lending practices sparked the economic meltdown of 2008. And while some lenders targeted high-risk or inexperienced borrowers with shoddy products, there were plenty of credit-worthy people who ended up in foreclosure after being swept up in a real estate investment mania that seemed to have no end.
Bottom line, it is inaccurate to put any of this on the shoulders of the poor.
It’s also worth noting that the predatory behavior disproportionately impacted families of people of color who were already financially fragile.
“As a whole, African-American and Hispanic families were less affluent leading up to the 2008 Financial Crisis. They earned less annually and had a higher percentage of their mortgages fall underwater during the recession compared to their white counterparts,” reports my colleague Lucinda Shen in a 2018 piece looking back on the lasting damage wrought by lenders. “As a result, the gap between their wealth and the wealth of white families had continued to widen since the recession.” The recession also derailed the plans of young adults trying to enter the housing market, and hastened the economic decline of rural zip codes, she notes. (But not the wealthier ones.)
But to imply banks just threw up their hands and gave money to the irresponsible poor because Congress said they had to is simply… no. Just, no.
Redlining was (and continues to be) one of the most egregious examples of encoded racism that has existed in the U.S.
The practice began in the 1930s during the Great Depression.
The Roosevelt administration charged two New Deal agencies, the Federal Housing Administration (FHA) and the Home Owners’ Loan Corporation (HOLC), with a vital job: Stabilize the housing market which had largely collapsed.
They got right to work—by infusing the ugly racial hierarchies of Jim Crow into the bedrock of U.S. mortgage lending and real estate practices.
It was the HOLC who gave us the image behind the term “redlining.” Their agents created “Residential Security” maps of major American cities and color-coded them according to lending risk: Green for the “Best,” blue for “Still Desirable,” yellow for “Definitely Declining,” and red for “Hazardous.” Green areas got the best mortgage rates, red was stuck with no or inferior credit options.
The assessments were not subtle.
HOLC’s agents described the residents of Carver Heights, a neighborhood in Savannah, Ga., as “a fair class of negroes and low type of white.” In a redlined section of Milwaukee, called “Polish Flats,” the agents warned of “Mexicans encroaching in the Northeast.” While neighborhoods with Jewish immigrants from Europe and Catholics were labeled “hazardous” at the time, it was typically the predominantly Black and Latinx communities who would never recover.
A recent study by the National Community Reinvestment Coalition (NCRC), an advocacy group dedicated to ending discrimination in lending, found that three out of four formerly redlined communities are still struggling, some 80 years later. “It’s as if some of these places have been trapped in the past, locking neighborhoods into concentrated poverty,” Jason Richardson, director of research at the NCRC, told the Washington Post.
The practice was banned by the Fair Housing Act of 1968, but bedrock is hard to break.
A 1998 Pulitzer Prize-winning series by investigative reporter Bill Dedman published in The Atlanta Journal-Constitution found that Atlanta area banks routinely lent to poor white families, but not in middle-class or more affluent Black neighborhoods.
In a follow-up piece, Dedman found that nobody else did, either.
The last decade saw a spate of lawsuits and investigations, alleging both redlining and reverse redlining—the practice of steering risky, high interest loans to otherwise creditworthy Black and Hispanic borrowers. Major lenders like Citigroup, Bank of America, and Wells Fargo have all been implicated.
In 2015, Associated Bank, a lender operating in parts of Illinois, Wisconsin, and Minnesota, agreed to provide $200 million in lower interest rate mortgage loans to credit-worthy borrowers of color who had been previously denied loans, as part of a settlement with the U.S. Department of Housing and Urban Development. It is the biggest such settlement of discrimination charges in history.
Still, the people in today’s forever-redlined zip codes live with an 80-year-old stamp of bigotry over their heads. Think East St. Louis: “Foreign and negro population rising, smoke nuisance from proximity to industrial plants.” Baltimore: “Infiltration of Negro, Relief families—Yes, many.” Detroit: “Unreliable tenants. Slums and fire hazards. Vandalism. Negro
They can’t bootstrap their way out four generations of lack of access to credit markets. And yet, we expect them to.
“I think most people believe the problem is not with the rules but with the people. Most middle-class whites in America don’t have empirical observations of what happens in underserved neighborhoods or understand the historical treatment of poor and minority communities,” John Taylor, chief executive of the NCRC told the Washington Post.
To his credit, Bloomberg promised in a speech last January to prompt lenders to update their credit-scoring models, an apparent turnaround from his 2008 sentiments. “[B]ecause millions of black households don’t have a credit score which is needed to get a mortgage.”
Let’s add on from there. What if borrowers of color could trust banks to properly finance their homes? Their dreams? What if government assessors observed the things imperiling fragile neighborhoods— fire hazards, smoke nuisance, poverty, and yes, gun violence—and actually helped them?
Ellen McGirt
@ellmcgirt
Ellen.McGirt@fortune.com