Redlining in Black Communities
From: rehm (
Date: Thu, 15 Apr 93 12:20 CDT
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Date:         Thu, 15 Apr 1993 08:45:37 PDT
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From: New Liberation News Service <nlns [at]>
Subject:      NLNS: Redlining in Black Communities
To: Multiple recipients of list ACTIV-L 

/* Written  8:34 pm  Apr 14, 1993 by nlns [at] in */
/* ---------- "NLNS Packet 3.11 *** 4-14-93" ---------- */

Loan Rejected:  Redlining on Black Communities
Kevin Cartwright, Diatribe

(NLNS)--Redlining is a reality in African American communities across
the United States. It is a practice which discriminates against Blacks of all
economic sectors when they apply for home and business loans and
consumer credit. Blacks, more than any other racial/ethnic group (with the
possible exception of Native Americans), receive less credit. Internal
erosion and decay of Black communities can be attributed to a
community's inability to realize its full potential and produce the best of
itself because of lack of funding, thus leaving abandoned homes and
buildings as skeletons of a former past. Although redlining goes back
many years, it has recently taken on the veneer of conspiracy; it is a
widespread practice that disregards such legislation as the Community
Reinvestment Act (CRA) of 1977, which requires banks to reinvest in
communities of color.
        The 1990 Federal Reserve Board report on mortgage lending
showed that Blacks were at least twice as likely to have mortgage
applications rejected than whites. According to Black Enterprise
magazine, the FRB report "reviewed 6.4 million loan application records
from 9,281 lending institutions nationwide. It revealed that, in 1990,
33.9% of Black applicants were denied conventional mortgage loans as
compared to 14.4% of white applicants, and 26.3% of Blacks were denied
government-backed mortgage loans compared to 12.1% of whites." This
disparity is indicative of a widespread pattern of undermining Black
economic empowerment and community renewal.
        Theoretically, the criteria for the approval of home mortgage loans
are income, existing debt, and credit history. Banks and other lending
institutions contend that Blacks are "higher risk" applicants. To rationalize
loan rejections, banks often invoke the stereotype of Blacks as
disproportionately downtrodden, as the working poor, and as more likely
to change jobs frequently for hope of higher pay. Another "rationale" is
that banks would not gain a profit if they extended small loans on
moderately-priced homes which they contend are requested
overwhelmingly by Black applicants. Banks simply reject Black applicants
instead of burdening themselves with processing applications.
        Credit history is another reason given for high rejection rates.
Upon closer examination, however, there is an obvious double standard as
the loan distribution patterns do not correspond solely to credit history. In
a given metropolitan statistical area (MSA), Blacks with income at or
above the 120% median (which is considered middle income as opposed
to 80% which is lower income status), and without the "problems" of
credit history et. al., have the highest rejection rate at 21.4%, compared to
whites at 8.5%, Asians at 11.2%, and Latinos at 15.8%.
        Contrary to popular opinion, "affirmative action" for whites is a
serious reality. Comparing a Black applicant at or above 120% of an
average American income to a lower-income white applicant at 80%, the
white applicant is statistically more likely to have a loan approved. This
travesty also extends to Blacks and other people of color who wish to
renovate or rehabilitate abandoned buildings in poor communities.
Because banks carry such a heavy bias against these types of reclamation
projects, they rarely come to fruition, since loans are rejected; thus, it is
clear that middle-income people are equally affected as lower-income
        Black businesses are also being treated unfairly by redlining.
Andrew Brimmer of Black Enterprise has written that according to a
survey of Black-owned businesses in Atlanta, St. Louis, Miami and Dade
County, Florida, a pattern has emerged. He says, "Black applicants were
turned down at a higher rate than whites, were more often required to have
collateral, needed co-signers or guarantees even when they had firm
government contracts, and usually raised less working capital using such
contracts as collateral."
        There exists a legal requirement apparently intended to ensure that
banks and other financial institutions reinvest in minority communities.
The 1977 Community Reinvestment Act is on the books, yet the Federal
Reserve Board, which is supposed to monitor violations of this act, has
complicitly given banks who practice redlining satisfactory CRA ratings
on a regular basis. In California, this is very much the case: Bank of
America, First Interstate Mortgage, Security Pacific, Wells Fargo and
many others have been gracious recipients of satisfactory CRA ratings
despite their history of redlining patterns. It is also painfully evident with
Japanese-owned banks in California. The Greenlining Coalition of San
Francisco and the National Community Reinvestment Network of Boston
provided data on five major Japanese banks with combined assets of $37
billion. The data showed that only 68 out of 3,287 loans were extended to
Blacks, yet their CRA ratings were deemed satisfactory. To their credit,
however, the Bank of Tokyo has set a goal of 20% loans to minority- and
women-owned businesses.
        Nevertheless, this type of neglect speaks of racism, discrimination
and an obvious racial preference in lending. But there are ways to combat
this problem. The Greenlining Coalition is doing superlative work in this
area. They have negotiated with government officials and executives of
parent banks to deal with redlining in California. The Association of
Community Organizations for Reform Now (ACORN) is a national
organization committed to reversing insufficient lending in poor
neighborhoods. They have exercised considerable muscle around potential
interstate banking mergers by negotiating agreements for new community
plans. Without satisfactory CRA ratings, no merger can take place. The
merger between the C&S/Sovran of Atlanta with NCNB of Charlotte,
N.C., extracted a 10-year, $10 billion community lending agreement,
thanks to the efforts of ACORN.
        In Philadelphia, Fidelity Bank has taken even more meaningful
steps in the right direction by working closely with ACORN, churches and
community groups to help facilitate the loan process. This coalition
screens potential borrowers and assists them with application filings; it
also helps a borrower who has fallen behind to rearrange his or her
finances to make payments. ACORN also persuaded Continental Bank of
Philadelphia to apply alternative criteria for low income, no credit
applicants. They agreed to waive an employment standard--a worker
having to stay two years at the same job--and only require an applicant to
have been employed continuously over three years. "We've come to
understand that the poor have different income streams, and that no credit
doesn't necessarily mean bad credit," says Continental Senior Vice
President Ralph F. Desderio. According to Business Week, "out of 150
low-income mortgages, none has defaulted and only three are more than
60 days past due."
        As to the extent of attempts by the federal government to address
the redlining issue, the federal agency of Housing and Urban Development
(HUD) has sponsored a "sting" operation to expose lending institutions
that discriminate against minority loan applications. They will send
minority and white testers of comparable income and credit characteristics
into bankthrifts and mortgage companies to apply for loans to purchase
homes in the same neighborhood. Despite good intentions, however, this is
not nearly enough.
        Communities disproportionately affected by redlining must find
innovative ways to rectify this problem. Community control of financial
institutions is the logical direction to go. Community-development credit
unions must be established and maintained to address biases in lending.
There are roughly 400 community-development credit unions designed to
do this, and the Black community and other communities of color can ill-
afford to have banks like Harlem's Freedom National Bank fall by the
wayside without something to buffer or replace it. This era is still one of
last hired, first fired. And it remains the era where government is hostile to
poor people doing anything in the way of self-empowerment, particularly
with respect to economic empowerment. It is in the best interest of all to
be firm and direct about the economic direction of these communities;
otherwise, boarded storefronts, abandoned homes, an absence of lending
places, and check-cashing establishments will dominate, as they do now,
for ages to come.

Diatribe is published by the People of Color News Collective at UC
Berkeley, and they can be reached at 700 Eshleman Hall, Berkeley CA
94720; psloh [at]

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