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Whence "Redlining"?

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I sent this in email to a friend who's been tracking and reporting developments in the Fanny/Freddie fiasco.

I was wondering: was "redlining" an actual bank practice, or was it a term invented to vilify banks? Did banks actually specify geographic areas within which they wouldn't write mortgages, or did they evaluate the creditworthiness of individual applicants and it just turned out that many of the poor risks happened to be in the same geographic area? If the former, it's nothing more than a stupid business practice, eliminating potentially valuable business based solely on where someone lives, and, of course, stupid business practices shouldn't be illegal. If the latter, then there's no basis for any charge of discrimination other than on the entirely rational and responsible basis of ability to pay.

If it was racism (which I would be shocked to learn was any bank's policy, or was even tolerated "under the table," in 1977), surely banks would have been denying mortgages to vast numbers of non-whites and the issue wouldn't have been geography. It's blatantly obvious that all that really existed was a way for groups like ACORN to advance their agendas by screaming "Racism!" at a ridiculously racially-sensitive Congress. I am curious about the origin of the term "redlining," though.

I think it's a question that deserves answering, but I have no idea how to find out. He didn't have an answer.

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Indeed, "redlining" was a term invented to vilify banks. More specifically, it is an anti-euphemism the sole purpose of which is to condemn rational lending criteria such as, but not limited to, income, credit-worthiness, employment history, asset portfolio, debt to income/asset ratios and, yes, at least as respects mortgages, location and soundness of the property.

Are these criteria discriminatory?

You betcha. And, I should think, with good reason . . . as the recent subprime mortgage implosion, etc., clearly illustrates.

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Indeed, "redlining" was a term invented to vilify banks. More specifically, it is an anti-euphemism the sole purpose of which is to condemn rational lending criteria such as, but not limited to, income, credit-worthiness, employment history, asset portfolio, debt to income/asset ratios and, yes, at least as respects mortgages, location and soundness of the property.

Are these criteria discriminatory?

You betcha. And, I should think, with good reason . . . as the recent subprime mortgage implosion, etc., clearly illustrates.

I just sent an inquiry to a friend who is President of a bank on this, but have not heard back from him yet. My sense is that years ago, many years ago, there were racist lending practices. And as was pointed out -- and echoed repeatedly by Ayn Rand on the issue of racism -- it is a stupid business practice that actually harms the racist.

I think the geography thing is a tough one. I know that racial segregation has decreased, but it still exists, so I think the general comment is right that if all of the denials are in one area it is hard to know if it is race or creditworthiness. I guess the only way to tell is to review all of the decisions, which would be very time consuming (though I am sure some democratic government person has allocated lots of money for such a study that probably has bad methodology and for which we have no good data!).

I dont think there is any racism today in bank lending, or insurance, or any major business. It is something that the left and all of their cohorts try to perpetuate in order to argue for more invasive government intervention.

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The term "redlining" does refer to an alleged practice of the insurance and banking industries, coined, according to the - as always - use-at-your-own-risk Wikipedia entry:

Redlining is the practice of denying or increasing the cost of services, such as banking, insurance, access to jobs,[2] access to health care,[3] or even supermarkets[4] to residents in certain, often racially determined,[5] areas. The most devastating form of redlining, and the most common use of the term, refers to mortgage discrimination, in which middle-income black and Hispanic residents are denied loans that are made available to lower-income whites. The term "redlining" was coined in the late 1960s by community activists in Chicago. It describes the practice of marking a red line on a map to delineate the area where banks would not invest; later the term was applied to discrimination against a particular group of people (usually by race or sex), no matter the geography. During the heyday of redlining these areas were most frequently black inner city neighborhoods. Later, through at least the 1990s, this discrimination involved lending to lower-income whites, but not to middle- or upper-income blacks. (ref: Immergluck, Dedman.)
(Note: I've found this same entry scattered all over the internet. The author has been busy, or others lazy.

The source quoted for Wikipedia was "Immergluck, Dedman". I found a book containing information on Dedman, an investigative journalist for the Atlanta Journal/Constitution. He published his research on home loans in Atlanta in May, 1988.

In my recollection, I first heard the term in the late '60s, early '70s, as applied to auto and homeowner's insurance, and it was geographic, because the insurance companies had data on losses, thefts, break-ins, etc., in those particular areas. In the case of bank loans, you have to stretch the definition to make it fit and, as the quote above shows, stretch it the "community activists" (the Left) did. It turned into a term for any demographically-motivated pricing scheme.

As with profiling, the concept of redlining started as a legitimate attempt to assess actuarial risk, not to deny specific racial groups loans or insurance. If all lenders or insurers had redlined out a specific area, then there would have been no insurance in that area, no loans, and the market would have been a tempting one for companies that were willing to lend or insure at higher risk for a higher cost. That, according to the "activists", would again have been unfair discrimination. The market, working rationally, is always considered "unfair" to the Left. That is the fundamental claim of Socialism.

Again, "discrimination" (free of connotation of motive) is the ability to differentiate between two entities. The financial companies were using the criterion of risk to determine where it was safe to lend or insure. The activists repainted the picture, looking for the correlation they wanted to make and, sure enough, hey, look! it's Racism! No. Certainly not as a rule.

"Redlining" was used in 2003, during the Congressional investigation of Raines and the Freddie and Fannie accounting irregularities, to imply that low-income (read "African-American") communities were being intentionally underserved [i don't have a primary reference; I'm basing this on the explanation of a financial analyst for an Oklahoma Bank who spoke on KTOK, Oklahoma City, yesterday]. According to Rush Limbaugh on his Tuesday radio program, the threat of sanctions led Raines to promise the Congressional Black Caucus, who he thanked for his job (Limbaugh played the taped speech by Raines to the CBC; it should be on his website archives) that he would make loans available to "all..." As the financial analyst pointed out, the number of sub-prime loans issued in 2003 were 8% of all loans. By 2006, that number was 20%. Now that's a correlation. [i will chase down the name of the analyst for KTOK].

So it was a lack of discrimination that led to the current melt-down. Having been brought up by Liberals, I know that one of the fundamental goals of the Left is to attack any form of discrimination in the epistemological sense as discrimination in the sense of bigotry. When I was a good, little Liberal kid, it was so hammered into me that to discriminate against black vs. white was evil that, when someone came up to me on the playground and asked which kid was "Sam" (can't remember name), and Sam was the only black kid in the dodge-ball game tournament we were playing, I struggled to describe him by only non-"racist" attributes: "Uh, he's wearing brown shorts... and he's got curly hair... and he's about this tall... he's that guy over there, next to the 4 guys..." -- some other kid broke in: "He's the black kid over there" "Ok, thanks!" ... and there I was, standing there, stunned that this other kid had dared to describe him by a taboo attribute.

In the current case, it's not the black or white or brown or whatever that matters, it's the ability to repay a loan. And these doctrinaire race-baiters turned it upside-down again, so that the banks were in the position I was in as a kid on the playground: Don't you dare "discriminate". Oh, and we'll cover you in case it doesn't work out.

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