Read an Excerpt from Rebecca K. Marchiel’s “After Redlining”

February 16, 2021
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Some of the most quietly pernicious manifestations of American racism can be found in the discriminatory actions of financial and real estate institutions, particularly in the urban segregation policies that came to be labeled “redlining.” In this excerpt from Rebecca K. Marchiel’s After Redlining: The Urban Reinvestment Movement in the Era of Deregulation, we get an inside look at pioneering efforts to recognize these unjust actions and fight them on their own turf.

In 1970, in the midst of the ongoing battle with panic peddlers, Shel Trapp led members of the West Side Coalition against Panic Peddling into the offices of Chicago’s second-largest savings and loan association, Bell Federal. The group had a meeting scheduled with the bank president to ask why his institution wasn’t lending in their neighborhood, leaving new homebuyers at the mercy of panic peddlers and contract sales. Several West Siders came to Trapp complaining that the bank had rejected their applications for loans with no explanation. Trapp reasoned the best way to get answers was to confront the president face to face. That afternoon, when the West Siders huddled into the banker’s office, they saw something that changed their understanding of what was going on in their neighborhood. Covering most of one wall hung a map of Chicago in which several of the city’s streets had been traced with a red marker, creating borders around old, integrated, or majority-minority neighborhoods. One of the outlined areas was the West Town neighborhood, where some members of the WSC lived. When asked about the map, the bank president explained that his institution only made long-term, fixed-rate “conventional” loans outside the delineated areas. Inside those red lines were “FHA areas,” where the bank only granted mortgages guaranteed by the Federal Housing Administration’s new urban homeownership initiatives. In organizer lore, this episode marked the birth of the term “redlining” to denote geographic discrimination by financial institutions on the basis of a neighborhood’s age or racial composition. Though the term had been used in policy circles before 1970, the meeting introduced the concept to activists working to uncover what caused panic and property devaluation in their racially changing neighborhoods.

What the Chicagoans began to call “being FHAed” was the street-level manifestation of a larger shift in urban home financing that they had yet to fully understand. The Housing and Urban Development (HUD) Act of 1968, which expanded FHA insurance to urban mortgages, reconfigured the relationship between urban homeowners and the institutions that capitalized their mortgages. It began to dismantle the thrift-centric New Deal financial regime that many white Americans took for granted by the late 1960s, but it did so primarily in older urban neighborhoods and inner-ring suburbs, rather than evenly throughout the metropolis. Created to stabilize a mortgage market rocked by the Great Depression in 1934, the Federal Housing Administration provided lenders with insurance on mortgages so that lenders would be protected from loss if a homeowner defaulted. Many historians have documented the extent to which the FHA’s bias toward new housing in homogeneously white areas played a crucial role in building the white suburbs in the decades following World War II. What most scholars have yet to consider, but Trapp and other urbanites soon discovered, is that the FHA had become a different institution by 1970.

In the wake of the 1960s urban rebellions, policymakers created new FHA initiatives to expand homeownership to urbanites in hopes of bringing stability to cities. Those programs created a separate and unequal urban home financing system in older and racially changing areas, on the premise that such neighborhoods constituted “risky” investments, while white neighborhoods and suburbs maintained their relationships with their local thrifts. Through the FHA, the federal government insured urban mortgages, protecting investors’ capital regardless of whether a homeowner could repay the loan. In a strange reversal of traditional mortgage lending, in which thrifts wanted buyers to pay back their loans, the FHA inadvertently created incentives for mortgage lenders to issue loans to people who could not afford them. Real estate agents flipped the same houses again and again, making fees on the commissions, while mortgage houses collected fees for closing costs and servicing the loans, and investors received the insurance payouts for defaults. In the FHA’s aggressive efforts to bolster urban homeownership, its new programs stimulated the supply side of the mortgage market with little consideration for how the programs would unfold at the street level. By 1973,  five years after the passage of the HUD Act, a low estimate put the number of affected homes nationwide at 250,000 and the payments to FHA speculators at $3.6 billion. In addition to creating the conditions for this abuse, the FHA programs also severed the local relationship between urban neighborhoods and the thrifts that had been their primary source of mortgage capital. Mortgage-backed securities changed the role of thrifts like Bell Federal in urban mortgage markets, replacing neighborhood savings and loans with a system in which thrifts joined mortgage houses in selling loans to investors through a secondary market that had no stake in the fate of the particular neighborhood where the loan was originated. In transitional urban neighborhoods, the New Deal financial regime disappeared.

Trapp and his fellow organizers took the logic of the New Deal financial regime for granted by the 1960s. At first, they didn’t cite the reforms of the Depression era as the reason they expected long-term, fixed-rate mortgages from local savings and loans like Bell Federal. What they did talk about was what had changed in what seemed to them the natural order of things, and why that change was bad for their neighborhoods. In their struggle against the FHA insurance programs, they questioned why local thrifts had stopped lending. In so doing, they began to articulate their assumptions about what lenders should do. Their convictions about the proper role of lenders, combined with their organizing worldview, animated the urban reinvestment movement in the early 1970s.

The new FHA programs changed more than the relationship between urban borrowers and their lenders. They also prompted Trapp and other West Siders to break with their training as neighborhood-based community organizers in the Alinsky tradition and go national with their campaigns. Discovering that federal, not local, policies like the FHA’s had worsened recent real estate abuse raised awareness in Trapp and fellow organizer Gale Cincotta that the same federal programs were likely enabling speculators in other “transitional” neighborhoods nationwide. In 1972, they called a conference of community groups from around the country to discuss their shared experiences with real estate abuse. The gathering marked the beginning of the national urban reinvestment struggle, a multiracial social movement of “urban survivors” who sought fair access to credit for previously redlined neighborhoods. But that would come later. At the time Trapp and the urbanites met with Bell Federal, they were just beginning to learn about the home financing mechanisms that enabled panic peddling in transitional urban neighborhoods like theirs.


Rebecca K. Marchiel is assistant professor of history at the University of Mississippi.

After Redlining is available now from our website or your favorite bookseller.

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