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

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Some of the most secretly damaging manifestations of American racism can be found in the discriminatory acts of financial and real estate institutions, particularly the policies of urban segregation known as “redlining”. In this excerpt from Rebecca K. Marchiels After redlining: the urban reinvestment movement in the age of deregulation, we get an insight into the pioneering work to recognize these unjust acts and to fight them on their own territory.

In 1970, amid the ongoing battle with panic traders, Shel Trapp led members of the West Side Coalition against Panic Peddling into the offices of Chicago’s second largest savings and loan company, Bell Federal. The group had scheduled a meeting with the bank president to ask why his institution is not lending in their neighborhood and new home buyers are at the mercy of panic and contract sales. Several West Siders came to Trapp and complained that the bank had rejected their loan applications without explanation. Trapp argued that the best way to get answers is to confront the president face to face. As the West Siders crowded into the banker’s office that afternoon, they saw something that changed their understanding of what was going on in their neighborhood. A map of Chicago hung on most of one wall, showing several streets of the city with a red marker, delimiting old, integrated, or minority-majority neighborhoods. One of the areas outlined was the West Town neighborhood, where some WSC members lived. When asked about the card, the bank president explained that his institute only granted long-term, fixed-interest “conventional” loans outside of the demarcated areas. Inside those red lines were “FHA Areas” where the bank only made mortgages guaranteed by the Federal Housing Administration’s new urban home ownership initiatives. In the tradition of the organizers, this episode marked the birth of the term “redlining”, the geographical discrimination by financial institutions based on the age or the racial composition of a neighborhood. Although the term was used in political circles prior to 1970, the meeting introduced the concept to activists who worked to expose panic and property devaluation in their racially changing neighborhoods.

What Chicagoans referred to as “FHAed” was a manifestation of a major street-level shift in urban home finance that they did not fully understand. The Housing and Urban Development Act (HUD) of 1968, which extended FHA insurance to urban mortgages, reconfigured the relationship between urban homeowners and the institutions that capitalized their mortgages. It began to dismantle the frugal New Deal financial regime that many white Americans took for granted in the late 1960s, but mostly in older neighborhoods and inner ring suburbs rather than evenly in the metropolis. The Federal Housing Administration was established to stabilize a mortgage market that was rocked by the Great Depression in 1934. Many historians have documented the extent to which the FTA’s preference for new housing in homogeneously white areas played a decisive role in the construction of the white suburbs in the decades after World War II. Which most scholars still had to consider, but Trapp and other townspeople soon discovered that the FHA had become a different institution in 1970.

After the urban rebellions of the 1960s, policymakers launched new FTA initiatives to expand home ownership to city dwellers in hopes of bringing stability to cities. These programs created a separate and unequal urban home finance system in older and racially changing areas on the premise that such neighborhoods represented “high risk” investments while white neighborhoods and suburbs maintained their ties to their local thrifts. Through the FHA, the federal government insured urban mortgages and protected investors’ capital whether or not a homeowner could repay the loan. In a strange reversal of traditional mortgage lending, where savers wanted buyers to pay back their loans, the FHA inadvertently incentivized mortgage lenders to lend to people who couldn’t afford them. Real estate agents kept flipping the same houses and charging fees on commissions, while mortgage houses charged closing fees and servicing the loans, and investors got the insurance payouts for defaults. In the FHA’s aggressive efforts to bolster urban home ownership, their new programs stimulated the supply side of the mortgage market without considering how the street-level programs would perform. In 1973, five years after the HUD bill was passed, a low estimate put the number of homes affected nationwide at 250,000 and payments to FHA speculators at $ 3.6 billion. The FHA programs not only set the stage for this abuse, but also disrupted local ties between the neighborhoods and the savings houses that had been their main source of mortgage capital. Mortgage-backed securities changed the role of savings houses like Bell Federal in the urban mortgage markets, replacing neighborhood savings and loans with a system in which savers, along with mortgage houses, sold loans to investors through a secondary market that had no part in the fate of the individual neighborhood from which the Loan originates. The New Deal financial regime disappeared in transitional urban areas.

Trapp and his co-organizers took the logic of the New Deal financial regime for granted in the 1960s. At first, they did not cite the reforms of the Depression era as the reason, but expected long-term fixed-rate mortgages from local savings and credit loans such as Bell Federal. They talked about what had changed in their natural order and why that change was bad for their neighborhood. In their battle against the FHA insurance programs, they wondered why local thrifts had stopped lending. In doing so, they began to articulate their assumptions about what lenders should do. Their beliefs about the proper role of lenders, combined with their organizing worldview, fueled the urban reinvestment movement in the early 1970s.

The new FHA programs have not only changed the relationship between urban borrowers and their lenders. They also induced Trapp and other West Siders to break with their training as neighborhood-based community organizers in the Alinsky tradition and become national with their campaigns. The discovery that federal, rather than local, policies like the FHA’s had recently exacerbated property abuse, made Trapp and his co-organizer, Gale Cincotta, aware that the same federal programs likely opened up speculators in other “transitional neighborhoods” across the country. In 1972 they convened a conference of community groups from across the country to discuss their shared experiences of real estate abuse. The meeting marked the beginning of the national struggle for urban reinvestment, a multi-ethnic social movement of “urban survivors” seeking fair access to credit for previously demarcated neighborhoods. But that would come later. When Trapp and the townspeople met with Bell Federal, they were only just beginning to learn about the mechanisms of home financing that made it possible to panic in urban transition areas like theirs.


Rebecca K. Marchiel is Assistant Professor of History at the University of Mississippi.

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

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