Lending Discrimination


Lending Discrimination
written by Richard Green
(who writes about real estate, mortgage finance and urban development)

A recent radio programme (November 2013) “This American Life” explored The Legacy Of Lending Discrimination Against African-Americans.

America’s neighborhoods, 45 years after the passage of the Equal Housing Act, remain segregated. In Milwaukee, our most segregated city, 81 percent of African-Americans would need to move in order for Wisconsin’s largest city to be perfectly integrated; in New York, our largest city, 79 percent would have to move.

Segregation remains in place in part because of prejudice and private sector discrimination, about which I will say more below. But it is also a legacy of Federal policy–a policy that is reviewed in the “This American Life” story, The Missionary. The Missionary was George Romney, who, as Richard Nixon’s HUD secretary, tried to reverse the awful legacy of American housing finance policy with respect to African-Americans. Nixon, being who he was, blocked Romney.
Because the radio story is thorough, I won’t rehash it here, but it is worth emphasizing two particularly nasty things. First, the term redlining arose from maps drawn by the Home Owners Loan Corporation. Colin Gordon of the University of Iowa used GIS to show what the redlining map of St. Louis in 1940 looked like:

The color scheme reflects desirability of neighborhoods for lending, as determined by the HOLC, where the red areas are deemed “hazardous.” You guessed it: the areas to the east, along the Mississippi, is where African-Americans lived. African-American neighborhoods were systematically denied credit.

At the same time the government kept money from flowing to neighborhoods where African-Americans lived, it was also making sure African-Americans were kept away from white neighborhoods. The FHA praised restrictive deed covenants as a mechanism for “stabilizing” neighborhoods.

Beyond the injustice of all of this, housing finance policy has had economic impact across generations. Dalton Conley has shown that the two leading predictors of whether a kid goes to college are: (1) how well educated her parents are and (2) how much home equity her parents have. As a consequence, even those these noxious policies have been repealed, they continue to have consequences.
Amplifying previous government policy is the persistence of discrimination in housing. The estimable Marjorie Turner of the Urban Institute has shown that African Americans are about 17 percentage points less likely to be told about or shown housing than white Americans. To those who think that the continuation of segregation somehow reflects the preferences of African-Americans, you are wrong. African-Americans prefer to live in integrated neighborhoods, albeit with a strong African-American presence.

The legacy of government policy is a segregated society. Segregation matters, because so many opportunities are bound up in the services and networks provided by neighborhoods. Two policies might help alleviate the problem. First, the government should vigorously enforce the Fair Housing Act, and landlords and Realtors who consistently discriminate on the basis of race should be sent to jail (30 days should be enough to scare people). Second, as we go about reforming the housing finance system, we should remember that housing finance was systematically denied to a class of people; the new system should assure continued access to credit for this class.

Finally, we should celebrate gentrification, a phenomenon in which white people move into minority neighborhoods. But more on that another time.

Source forbes.com

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