Redlining is considered discriminatory and prohibited by the ECOA.[1] Redlining refers to the actual or figurative
act of drawing red lines around certain areas of a city to exclude unfavorable
areas for home or commercial loans. If a borrower wished to obtain a loan
secured by property contained within the red lines, he or she would be denied
or given onerous loan terms unrelated to the applicant’s ability to repay. For example an area that is predominantly on racial component, or high crime rates, or happens to be next to the mosque... a mortgage loan might be more expensive rate or unavailable. The
FDIC referred to this practice as “destructive, morally repugnant, and
against the law.” [2]
[2] Federal Deposit Insurance Corporation. Policy
Statement on Discriminatory Lending. 59 Fed. Reg. 18267, Apr. 15, 1994.
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In recent history, lenders
attempted to implement a practice known as reverse redlining.
This practice targets credit consumers once thought to be undesirable loan
candidates and offers exploitative sub-prime home loan products calculated to
deplete the applicant’s wealth. Reverse redlining targets racial minorities,
elderly, immigrant and other vulnerable populations by extending oppressive
lending terms likely to result in default and foreclosure. Instead of
offering access to credit to communities once excluded due to redlining,
reverse redlining directly targets these groups, reduces urban growth and
further adds to the problem of inner-city property declination.[1]
[1] Squires, Gregory D. Predatory Lending:
Redlining in Reverse. Jan/Feb 2005. http://www.nhi.org/online/issues/139/redlining.html.
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