What to know about ‘redlining’ discrimination in mortgage lending

Written by: Credit Karma Staff
• •3 min read
Aerial view of housing developments outside of a city, with mountains visible in the distanceImage: Aerial view of housing developments outside of a city, with mountains visible in the distance

In a Nutshell

Redlining is a type of discrimination in mortgage lending based on race, color or national origin. There are laws against it, but it can still happen, so it’s good to know the warning signs and how to respond.
Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.

Redlining is a form of discrimination in the mortgage industry where lenders avoid giving home loans to applicants based on their race, color or national origin, or the racial makeup of their neighborhoods.

The practice of redlining dates back to the 1930s, when the federal government openly restricted mortgages to applicants from Black or Asian neighborhoods. Redlining was officially outlawed in 1968, but cases as recent as 2023 — one involving a major national bank — make it clear that redlining isn’t dead.

Let’s take a look at how redlining can happen, how to identify redlining, and steps you can take if you think you’re experiencing redlining.

Types of redlining discrimination

Modern redlining may resemble redlining from the past, when mortgage lenders would outright deny applicants based on their race, color or national origin.

The Department of Justice (DOJ), accused City National Bank of this type of redlining. Specifically, the DOJ says the lender avoided “providing mortgage lending services to majority-Black and Hispanic neighborhoods … and discouraged residents in these neighborhoods from obtaining mortgage loans.” To settle the allegations, the lender agreed to pay $31 million in relief to the affected communities.

But redlining can take other forms, such as “reverse redlining.” In this scenario, lenders use predatory lending tactics to market unfairly expensive loans to applicants based on their race.

FAST FACTS

Why is it called redlining?

Back in the 1930s during the Great Depression, the federal government created the Home Owners’ Loan Corporation to provide financial assistance to people who were behind on their mortgages. The bankers in this organization created maps that outlined various neighborhoods and identified the property values and racial make-up of residents. Areas with a greater concentration of nonwhite residents were labeled risky and outlined in red.

ShowHide

Signs of redlining to watch for

It’s not always obvious when lenders discriminate, especially if you don’t have a way of comparing your experience with applicants from other backgrounds.

Think about the following scenarios as you proceed with your mortgage-shopping journey to help you tune in to possible red flags:

  • Does the lender lose interest in your application after seeing you in person? If a lender seems eager to work with you when you call or inquire online, then discourages you from applying or claims to lose your application after you stop by an office, that might mean you’re facing discrimination.
  • Does the lender steer you toward applying for expensive loans, even though the eligibility criteria say you should qualify for a better rate? Pressuring you to choose a worse loan or deviating from advertised terms suggest a lender could be treating you unfairly.
  • Does the lender reject your application with vague excuses or give reasons for declining that don’t add up? Lenders are obligated to give you specific information about why they turn you down, and skirting this requirement is a strong clue that a lender isn’t acting above board.
  • Does the lender offer you rates that are unattractive compared to other offers you’ve received, or that are vastly different from what you expect based on your research? A lender that seems to disregard current market rates might be discriminating.

What to do if you suspect redlining

The two main federal laws that protect you from mortgage discrimination are the Fair Housing Act and the Equal Credit Opportunity Act, or the ECOA.

If you suspect discrimination, you might consider starting by asking a local fair housing nonprofit for help talking through your experience, gathering evidence and submitting your complaint.

To file a report about an ECOA violation, you can go to the Federal Trade Commission’s site at  ReportFraud.ftc.gov — or file a complaint with the Consumer Financial Protection Bureau, which also enforces the ECOA.

To file an FHA violation complaint, you can head to HUD’s Office of Fair Housing and Equal Opportunity (FHEO).You can also talk to an FHEO intake specialist at 1-800-669-9777 or 1-800-877-8339 (TTY).

Consulting with an attorney about your legal options including steps you’d need to take to file a lawsuit might also be a good idea, but could involve some costs.