REDLINING

Redlining was the practice of refusing to back mortgages in neighborhoods based on racial and ethnic composition. The strict lending standards practiced by the Federal Housing Administration (FHA) were contained in the FHA Underwriting Handbook.[1] These standards determined which kinds of properties were acceptable mortgage risks. In addition to physical quality standards of a structure, the FHA not only based their decisions on the location and physical property, they also used race and ethnicity in their decisions. The 1938 FHA Underwriting Handbook incorporated “residential security maps” into their standards to determine where to mortgages could or could not be issued.[2] This, in turn, led to the practice of redlining, which marked certain neighborhoods, especially those inhabited by African Americans, as ineligible for FHA mortgages.

Developed by the Home Loaners' Loan Association (HOLC), under President Franklin Roosevelt's New Deal legislation, color-coded maps indicated the level of security for real estate investments in 239 American cities. The maps were based on assumptions about the community, not on the ability of various households to satisfy lending criteria.

HOLC appraisers divided neighborhoods by categories including occupation, income, and ethnicity of inhabitants in an attempt to eliminate the personal views of appraisers and applied the following codes:

"A = BEST" or green rating: a new, homogeneous area in demand as residential location in good times and bad.

"B = STILL DESIRABLE" or blue rating: a still desirable area that had reached their peak but were expected to remain stable for many years.

"C = DEFINITELY DECLINING" or yellow rating: a neighborhood in the early stages of declining. Generally, these were sparsely populated fringe areas that were typically bordering on African-American neighborhoods.

"D = HAZARDOUS" or red rating (hence the term “redlining”): an area in which things taking place in a yellow-rated neighborhood had already occurred. African-American and low-income neighborhoods were considered to be the worst for lending.

These maps, which separated neighborhoods primarily by race, were the foundation for segregation and discrimination in lending. Many argue the HOLC maps set the original precedent for housing discrimination thus allowing the federal government to practice institutional racism.

Part II, Section 6 of the FHA 1938 Manual described a five-point rating grid to analyze the "Attitudes" and "Ability to Pay" of every person seeking a mortgage. A rating of "1 [indicated] a very poor condition...5 [indicated] that excellent conditions pertain to the feature."

1. Social and Economic Characteristics

2. Motivation in Relation to Transaction

3. Employability and Earning Stability

4. Relation of Obligations to Transaction

5. Relation of Income to Transaction

Pages 44-45, Paragraphs 626-627.

Part II, Section 10, rated the actual person requesting a loan. Using the same five-points above, the borrower was rated as follows:

1. Social and Economic Characteristics

• Character.[1]
• Family Life and Relationships.[2]
• Associates.[3]
• Maturity .[4]
• Attitude toward Obligations.[5]

2. Motivation in Relation to Transaction

• Cash Investment.
• Motives for borrowing.
• Importance of Property to Borrower.[6]

3. Employability and Earning Stability

• Versatility.
• Personality.[7]
• Employment.
• Occupational Impairment.
• Reemployment Possibilities.
• Reserves and Contributions.[8]
• Age.
• Health.

4. Relation of Obligations to Transaction

• Nature of Obligations.[9]
• Effect of Obligations on Capacity.[10]

5. Relation of Income to Transaction

• Ratio of Property Value to Annual Income.
• Ratio of Total Monthly Payment to Income.[11], [12]
• 
  

[1] ...the sum of the traits and habits that constitute a person's mental and moral being. Paragraph 1012, page 129.

[2] ...a harmonious home is a significant factor in the desire for maintaining a home. Paragraph 1013, page 129.

[3] ...the highest rating...[should be] ascribed to the borrower's chosen associates [who are] law abiding, sober-acting, sane-thinking people of acceptable ethical standards. Paragraph 1014, page 130.

[4] ...distinction should be made between borrowers with established characteristics and borrowers whose characteristics remain to be established. Paragraph 1015, page 130.

[5] ...the borrower's attitude toward his obligations is duly influenced by the degree of cooperation that he receives from his immediate family. Paragraph 1017, page 131.

[6] ...borrower who acquires property for occupancy in a location inhabited by a class or race of people that may impair his interest in the property...should be ascribed a lower rating in this feature to reflect the diminishing importance of the property to the borrower. Paragraph 1031, page 134.

[7] Personality is reflected in the borrower's poise, speech, tact, appearance, courtesy, sincerity, and alertness. Paragraph 1041, page 136.

[8] ...principal consideration should be directed to the reserves which produce income...these assets shall be analyzed as to their degree of stability, amount, and liquidity. Paragraph 1046, page 137.

[9] ...conditions surrounding the borrower, by virtue of his environment and ambitions, permit reasonable inference as to their probable course in the future. Paragraph 1052, pages 138-139.

[10] This factor requires an analysis...on his earning capacity and stability and, therefore, on the transaction. Obligations incurred for the purpose of acquiring income-producing or income-increasing assets indicate a more favorable condition than obligations incurred solely for transitory purposes. Paragraph 1057, page 140.

[11]...consideration is given to other living expenses and obligations, such as number of children and other dependents, the borrower's scale of living, cost of home maintenance, and payments required by other obligations. Paragraph 1060, page 141.

[12]...generally speaking, as family incomes are found to be in lower brackets, progressively higher percentages of the family income will be devoted to paying for the cost of shelter... Paragraph 1062, page 142.

West Rock, as indicated by the map below, was rated "D1." Today, the region is home to some of the most prime real estate in Little Rock.

West Rock, as indicated by this document, was rated "D1," or "population 100% negro...[with] no shifting of population." Entitled "Little Rock, Ark. Real Estate Area Map," the classification was agreed on by:

Housing Authority of Little Rock State Appraisers Mr. S. R. Ferriss and Mr. Bentley Cox;

Realtors Mr. R. A. McCaskill, Mr. Wm. D. Phillips, Mr. Guy Brannon, Mr. J. D. Walthour, Mr. Albert C. Reed, Jr., and Mr. Sam A. Block of Block Realty;

Mr. R. E. Weaver, Jr., President, Weaver & Company, Loan Correspondents for Prudential Insurance Company.