Redlining

Redlining Took Place in Lexington

"Redlining" refers to mortgage discrimination against entire neighborhoods based on irrelevant characteristics of the neighborhood (such as occupants' race) rather than the qualifications of an individual home buyer or the merits of a specific house.

Throughout the United States, and in Lexington, financial institutions, insurance companies, and government agencies all practiced redlining. The film Segregated By Design focuses on two federal government agencies that promoted redlining: the Federal Housing Administration (FHA) and the Home Owners' Loan Corporation (HOLC). Both of these agencies, created in the 1930s as part of President Roosevelt’s New Deal, operated in Lexington.

HOLC, a temporary program created in 1933 in response to the rising number of home mortgage defaults and bank foreclosures, operated in two phases. In the "rescue" phase, lasting from 1933–1935, HOLC refinanced individual home mortgages on generous terms, in order to rescue homeowners from foreclosure and thus rescue banks from losing their investments (Michney and Winling 2020).

The FHA was part of the National Housing Act of 1934. Unlike HOLC, which provided mortgages directly to homeowners, the FHA insured mortgage loans that banks and other lenders made to homeowners. The FHA thus subsidized the cost of mortgages by absorbing risks that would normally fall to private financial institutions, making it easier for home buyers to get long-term mortgages with low down payments.

Federal Housing Administration (FHA) Loans: For Whites Only

It was the FHA's discriminatory polices, not HOLC's, that played the greatest role in denying home ownership to Black families and devaluing Black neighborhoods.

The FHA was part of the New Deal administration’s program to rebuild "the shattered housing market" (McGann and Dougherty 2022). The legislation establishing the FHA required the agency to finance only "economically sound" loans, but aside from that gave it considerable leeway to develop its own policies and practices. Unfortunately, the agency "strategically exploited this position to the benefit of white homeowners at the expense of African Americans" (Kimble, 2007, 403). The result was "overwhelming discrimination to core urban neighborhoods and their residents, including virtually all urban Black Americans" (Fishback et al 2021, 27).

The FHA Underwriting Manual: No Loans for "Incompatible Racial Groups"

Because the FHA provided insurance for mortgages with terms up to 25 years (much longer than the typical 5-year mortgages that had been available previously), the agency wanted to make sure that any home used as collateral would maintain its value for the life of the loan. To that end the FHA developed a set of detailed criteria for loan eligibility, based in large part on agency determination of a home's long-term value. The FHA Underwriting Manual sets out these criteria, which included the race of the people in the neighborhood, or even nearby neighborhoods, based on the unproven assumption that people of "incompatible racial and social groups" somehow diminished neighborhood quality and stability.

The excerpts above and below are from the 1938 edition of the Underwriting Manual (US Federal Housing Administration 1938). Some of the language changed a bit from the 1935 edition, but the substance remained the same. In the section below, the manual not only endorses racially restrictive covenants, but actually requires them.

Because of the FHA's discriminatory policies regarding mortgages in Class C and D districts, an important question for Lexingtonians is which neighborhoods in our community were assigned to those classes. Unfortunately, without the Lexington FHA map it is impossible to know for sure. The Underwriting Manual essentially required redlining, and numerous researchers have confirmed that the FHA's redlining policies were nationwide, so we know that redlining took place in Lexington, but we have not yet found proof as to the exact neighborhoods where potential home buyers were denied FHA-backed loans. We discuss that a bit more in the section called What We Don't Know.

Local Realtors Helped Make the FHA Redlining Maps

The FHA was a federal agency, but it had local help in assigning neighborhoods to the four mortgage eligibility classes. According to Gene Slater's 2021 book Freedom to Discriminate, local realtors in each community helped create the base maps upon which the final redlining maps were based, and the leadership of the National Association of Real Estate Boards wielded considerable influence in developing the Underwriting Manual.

In a 2011 article Jennifer S. Light described the FHA's map-creating process. Three prominent realtors in each community helped fill in maps, noting the presence of "factors that the Underwriting Manual considered unfavorable: 'factories, industries, railroad yards ... racial, national or income groups that may be considered undesirable if introduced in other parts of the city.'" The realtors also added comments about "commercial and shopping districts' relative superiority or inferiority, residential areas' average monthly rental, and the rationale for a neighborhood's lack of desirability, whether because of 'color,' 'nationality,' or 'low income'" (Light 2011, 502–503).

We do not know the names of local realtors or other "experts" who may have helped identify supposedly undesirable neighborhoods in Lexington; we discuss this a bit more in "What We Don't Know."

Light asserts that in creating the maps, FHA officials believed they had developed "a set of objective decision-making aids and a housing program above politics," based on sound social science principles and techniques (Light 2011, 486). Of course this "science" included the unproven and virtually unexamined assumption that "invasion" by "incompatible racial or social groups" would inevitably cause a neighborhood's property values to decline (US Federal Housing Administration 1938, Sec. 937). The FHA did no studies to verify that assumption, and in fact a 1950 economist's study that actually contradicted the assumption was all but ignored (Kimble 2007, 404).

The FHA and the (White) Suburbs

At the same time the FHA was insuring home purchase loans for White families, it was also subsidizing "mass-production builders to create subdivisions that were white only" (Rothstein, 2021). In fact, most of the mortgages the FHA insured were for new construction.

The way this worked was that the FHA would approve mortgage insurance for an entire new housing development, at which point lenders would advance money to the developers to build the homes, with very little financial outlay by the builders themselves. This enabled developers and builders to create subdivisions at a speed and scale that had not been seen before. In some communities builders who in the 1920s had only had one or two homes under simultaneous construction would now build hundreds at a time, most with the racially restrictive covenants that the FHA advised (Hanchett 2000, 3–4). By 1949 the FHA program had grown "to insure more than one-third of all new U.S. residential construction" (Fishback et al. 2020, 2).

Lexington experienced a similar increase in the scale and speed of suburban home building. According to a January 1941 Sunday Herald-Leader article, nearly 1,200 new dwelling units were added in the previous 20 months. That figure included 816 suburban homes (comprising almost 70% of the newly built homes). The remaining new dwellings included 63 homes "inside the city" (Templin 1941, 65), and two housing projects, one for Whites and one for African Americans. Some of the subdivisions were entirely new, built on previously agricultural or undeveloped land; others were extensions of earlier subdivisions. We know that some of those subdivisions or streets—Kenwick-Belldale, Melrose, Westwood Court, and Liberty Heights—were subject to restrictive covenants.

It appears that only one of the new areas was available to African Americans: 28 homes in the "largest suburban area for Negro residents, the Douglas Park-Price road area off Georgetown street" (Templin 1941, 66). Those 28 homes for Black families represent 3.4% of the new suburban homes, at a time when African American families accounted for about 30% of Lexington households.

Lexington's suburban building boom continued after WWII. According to a 1962 Herald-Leader article, 15,546 subdivision lots had been platted between the end of WWII and October 1961. The article went on to say, "Subdivisions have become big business, with developers thinking in terms of 100 to 500-acre layouts" (Eckdahl 1962). Among the many suburban lots developed during that period, 176 were available for Black families: 26 in privately funded Haskins Drive subdivision ("Haskins, Ovan") and 150 in St. Martins Village (Davis, 2004).

We do not know which or how many of the subdivisions developed between 1937 and 1961 received prior FHA approval, which would suggest restrictive covenants were in place. We hope other researchers will take up this question. We do know for sure that one of the new subdivisions—Rosemill—was subject to racially restrictive covenants, because that was the subject of Chris Green's Herald-Leader article, which we mention in the Restrictive Covenants section.

After World War II, the GI Bill offered low-down payment, long-term mortgages to veterans, and a substantial percentage of new post-war homes were financed through the Veterans Administration (Bennett, 1996, 287). While the GI Bill did not explicitly exclude African Americans, it was administered at the state and local level, so local laws and prejudices determined who would and would not get benefits. There is considerable evidence that many Black veterans were excluded from benefits, especially in the South (Blakemore, 2021; Katznelson, 2005, 139). We have not found specific information about VA loan experiences for Black Kentucky veterans.

Another reason we can be relatively sure that almost no housing was available to African Americans in the 1937–1961 subdivisions is this statement from the City-County Planning Commission's 1970 Low Income Housing Study, "Prior to the passage of civil rights legislation covering fair housing practices, the only housing available for Negroes was in predominately Negro areas" (p. 29).

What About the Notorious HOLC Redlining Maps?

Many people by now have seen examples of the "Residential Security" maps, which the federal Home Owners' Loan Corporation produced for cities all over the country. The map for Lexington, shown below, was printed in 1938.

Comparing HOLC and WPA maps for Lexington shows that predominantly African American neighborhoods identified on the WPA map correspond quite closely to the areas deemed "declining" or "hazardous," on the HOLC map. Similarly, the areas the WPA map identified as exclusively White were deemed "still desirable" or "best" on the HOLC map.

When we first saw the HOLC map, and especially when we compared it with the WPA map, we thought we had found the "smoking gun"—proof that Lexington's African American neighborhoods had been redlined by the federal government. As we read more, we found that the story is not quite that simple. Yes, the HOLC maps represent negative perceptions of Black neighborhoods, but were they actually used to deny loans in those neighborhoods?

Did HOLC Deny Loans to African Americans in Lexington?

As we said above, the Home Owners Loan Corporation operated in two phases. It was in the 1933–1935 "rescue" phase that HOLC refinanced individual home mortgages.

As it turns out, HOLC did not create its "Residential Security" maps until after its "rescue" phase (Michney and Winling 2020). Thus HOLC staff could not have relied on the maps in deciding whether or not to make individual loans during that period. By the time these particular maps were created, the agency had already refinanced the mortgages of more than a million homeowners.

At the national level HOLC did refinance the mortgages of many African American homeowners, and in some of the lowest-rated neighborhoods. Denying refinancing to African American homeowners would have been contrary to HOLC's initial purpose: "to stabilize financial markets and bail out creditors, the banks and mortgage companies" (Michney and Winling 2020, 151). In addition, national organizations like the NAACP and the Urban League were well aware of the program, urged African American homeowners to apply, monitored the outcomes for those who did apply, and complained to the government when they saw evidence of discrimination.

It thus seems likely that HOLC would have made loans to African American homeowners in Lexington between 1933 and 1935. We do not know how many African Americans were homeowners in those two years, but we do know that in 1939, the year of the WPA survey, African American families accounted for 4,254 (30.7%) of the 13,878 Lexington households and 999 (24.4%) of the 4,111 homeowners. We do not know how many of those homeowners had bank mortgages, faced foreclosure, or received HOLC loans in the early 1930s. This is a topic that still needs to be explored.

Who Made the Maps and How Were They Used?

HOLC stopped lending after 1935, and moved into its "consolidation" phase, which lasted until the agency was dissolved in 1951. During that phase, HOLC sent examiners to communities around the country, gathering information that would help them classify individual neighborhoods by their perceived investment-worthiness. The out-of-town examiners did their work in consultation with local real estate agents, and in some cases bankers and city officials. They rated neighborhoods on criteria they believed were relevant to future investment risk, such as the condition of housing, proximity to environmental nuisances, nearness to amenities, access to transportation, and the race of the residents.

As we have discussed above, the FHA used a similar process in developing its own maps, but it probably did not rely on or copy the HOLC maps. It has been noted that the two existing FHA maps (for Chicago and Greensboro) show similarities to the HOLC maps for those cities, but they are not identical (see Chicago maps below). As one paper states, "Although the FHA largely avoided making loans in neighborhoods later colored red by the HOLC, it did so before the HOLC had made its maps and continued following the same pattern after the maps were drawn" (Fishback et al, 2021, 3).

As to the purpose of the HOLC maps, they were apparently expected to help HOLC in "gauging the risks of the enormous portfolio of loans it had already accumulated, and in managing the resale of its foreclosed real estate holdings back into distressed housing markets" (Fishback et al 2021, 7). In addition, HOLC leaders believed the information they gathered "could prove useful in shoring up the housing market well into the future" (Michney and Winling 2020, 153). At this point we do not have enough information to say exactly how or whether the maps (especially the map of Lexington) helped achieve those aims.

Some authors argue that "the HOLC maps are best viewed as providing clear evidence of how decades of unequal treatment effectively limited where black households could live by the late 1930s rather than reflecting racial bias in the construction of the maps themselves" (Fishback et al. 2020, 28). Others assert that the maps reflect "the racism and elitism of the people who created them" (McGann and Dougherty 2022), and that because those who created the maps were government officials and employees, the maps constitute evidence "that even outside of the U.S. South, the country’s historic record of racial residential segregation has been de jure [by law or government], not de facto [by individual preference]" (Michney and Winling 2020, 173).

Comparison of FHA and HOLC maps for Chicago

The FHA map is on the left; the HOLC map is on the right. We see similarities between the red and yellow areas on the HOLC map and the bright red (C) and dark red/brown (D) areas on the FHA map. One researcher, however, has found agreement between the HOLC and FHA ratings for only 58 percent of the tracts that she analyzed (Fishback et al. 2020, 13) .

Redlining's Contribution to the Persistent Wealth Gap

The Fair Housing Act of 1968 made redlining illegal. The Home Mortgage Disclosure Act (HMDA) of 1975 and the Community Reinvestment Act of 1977 set reporting requirements that can help ensure that lending institutions are complying with the law. Those were good and necessary actions. But outlawing redlining and setting up monitoring systems for lenders did little to address the race-based inequities redlining had helped solidify.

In 2020, economists at the Federal Reserve described the current racial wealth gap in this way:

New data from the 2019 Survey of Consumer Finances (SCF) show that long-standing and substantial wealth disparities between families in different racial and ethnic groups were little changed since the last survey in 2016; the typical White family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family. (Bhutta et al. 2020)

The film Segregated By Design underscores the point that redlining, along with restrictive covenants and other government and private actions that furthered segregation, was largely responsible for the wealth gap that still exists between White and Black people. Segregated By Design's author and narrator Richard Rothstein states:

Our focus now should be to develop policies that promote an integrated society, understanding that it will be impossible to fully untangle the web of unconstitutional inequality that we have woven. To begin, we should first contemplate what we have collectively done, and on behalf of our government, accept responsibility to fix it.

During the period of FHA redlining, when White low- and middle-income families were purchasing homes with federally-insured low-interest loans, Black families were not able to do so. National data help make the story plain: "Between 1945 and 1959, less than 2 percent of all federally insured home loans went to African Americans" (Hanchett 2000, 4). The great majority of the homes that White families purchased during that period have increased in value, most of them many times over.

By the time redlining became illegal nationally with passage of the Fair Housing Act of 1968, Black families had already fallen behind. Their White counterparts had built up equity in their homes, and were now in a position to upgrade or to use their homes as collateral for college loans or home improvement loans. By contrast, prospective Black homeowners faced home prices that had now climbed out of reach of working class families.

In 2018, for the 50th anniversary of the Fair Housing Act, the Kentucky Housing Corporation published a guest commentary by Arthur Crosby, Executive Director of the Lexington Fair Housing Council. Mr. Crosby was asked how far we have come in achieving the goals of the Fair Housing Act: to end overt housing discrimination, overcome historic patterns of segregation, achieve balanced and integrated living patterns, promote fair housing choice, and foster inclusive communities. Here is his response.

After 50 years of segregation, we seem to have accepted how things are, because it seems like that is how things have always been. Americans of every generation know that African Americans have been concentrated in separate neighborhoods as far back as anyone can remember. These racially segregated neighborhoods, however, did not organically happen over time because of personal preferences. They were created through a systemic process to isolate wealth and opportunities for one race over another. (Crosby 2018)

Redlining also helped promote attitudes that have been immeasurably damaging to our country and our community:

By federalizing longstanding discriminatory practices in the mainstream real estate industry and applying a veneer of social scientific methodology to property valuation, HOLC along with the Federal Housing Administration (FHA) helped to perpetuate a still-persistent belief among whites that the presence of African Americans invariably depreciates home prices. (Michney and Winling 2020, 151)

Some cities, including Evanston, Illinois, and metro Denver, recognizing the injustice of government policies that shut Black families out of home ownership during the crucial years for building wealth, have begun directing funds toward increasing Black families' capacities to buy homes. In some cases the intention is explicitly to help build wealth.

*Note concerning the loss of FHA maps

In footnote 11 of their paper, Fishback et al. quote Lynne Beyer Sagalyn as saying that research for litigation by the Contract Buyers League “revealed that the FHA neighborhood files and documents, which would have been useful in indicating which areas were redlined and the reasons therefore, were destroyed. Persons contacted for such information either would not talk for fear of reprisal or merely spoke in generalities." We have not read Sagalyn's dissertation.