Definition
Redlining is the practice — institutionalized by the federal Home Owners' Loan Corporation (HOLC) beginning in 1935 — of mapping urban neighborhoods into four grades of mortgage risk (A green, B blue, C yellow, D red), with majority-Black neighborhoods almost universally graded D (red) and excluded from federally backed lending, regardless of the actual condition of the buildings or the financial capacity of the borrowers.
The HOLC maps were used directly by the Federal Housing Administration (FHA) and the Veterans Administration (VA) to decide where to issue and insure mortgages over the next three decades. Because federally backed mortgages were the dominant form of mid-century home finance, the maps effectively decided which neighborhoods could accumulate property wealth and which could not.
Why it matters
How it works
The mechanism was assembled in two steps, mid-Depression.
Step one — the HOLC, 1933 to 1935
The Home Owners' Loan Corporation was created in 1933 to refinance failing Depression-era mortgages. To allocate its lending, HOLC commissioned local real-estate boards in 239 cities to grade every residential neighborhood on a four-tier scale and shade them on a city map. The grading criteria included building age and condition, but explicitly named factors included "infiltration of Negroes" and "foreign-born population." Any neighborhood with significant Black residency was graded D and shaded red, regardless of the buildings or borrowers.
Step two — the FHA, 1934 to 1968
The Federal Housing Administration, established in 1934 to insure new mortgages and unlock long-term low-down-payment lending, adopted the HOLC criteria directly into its Underwriting Manual. The manual instructed underwriters that "incompatible racial groups should not be permitted to live in the same communities" and explicitly rewarded racial restrictive covenants as a sign of "stable neighborhood character." From 1934 to about 1968 the FHA insured roughly $120 billion in mortgages; an estimated 98 percent of those insured loans went to white borrowers.
The compounding effect
Redlined neighborhoods lost three things at once. Loans for purchase dried up, so Black families could not buy and accumulate equity. Loans for repair and improvement dried up, so housing stock deteriorated. And loans for refinance dried up, so when a redlined homeowner needed cash they were forced into the contract-sale or finance-company market at exploitative terms. Over thirty years, the gap between green-shaded and red-shaded neighborhoods compounded into the modern racial wealth gap.
Subsequent legislation outlawed the explicit practice: the Fair Housing Act (1968) prohibited racial discrimination in sale, rental, and finance; the Home Mortgage Disclosure Act (1975) required banks to report lending by census tract; the Community Reinvestment Act (1977) required banks to lend in low-and-moderate-income neighborhoods where they took deposits. Enforcement has been uneven, and the inherited geography is sticky: the 1937 HOLC red zones in most American cities are still, in 2020, the neighborhoods with the lowest property values and the most disinvestment.