Fair Lending Practices

Author: Nancy Hudspeth
Department of Political Science & Public Administration
California State University, Stanislaus
Turlock, CA 95382

Copyright: The author, 2020


BACKGROUND: Fair Lending and HMDA

The Home Mortgage Disclosure Act (HMDA) is a federal law that requires mortgage lenders to report information about the loans they have approved (and denied) in order to show that they are serving their communities fairly.  Congress passed the HMDA in 1975 to provide citizens with information that could be used to identify and address discriminatory lending practices, such as “redlining.”

The practice that became known as redlining began in the 1930s when a federal program called the Home Owners’ Loan Corporation (HOLC) created color-coded maps of more than 200 U.S. cities. These maps rated neighborhoods in terms of their desirability for investment. The “best” areas were coded blue or green; the “worst” areas were coded red. The HOLC maps were then used by the Federal Housing Administration (FHA), banks, and insurance companies when deciding whether, and at what interest rate, to approve mortgage applications for property located in various neighborhoods. In general, the redlined neighborhoods were areas inhabited by low-income people, recent immigrants, and racial, ethnic, or religious minorities, while the green and blue neighborhoods were inhabited by middle-class and wealthy white homeowners.  Thus, the HOLC, a federal program that had originally been intended to boost the housing market during the Great Depression, contributed to the decline of central cities, the growth of suburbia, and hindered the efforts of low-income minorities to build wealth through homeownership. In 1968, the Fair Housing Act banned discriminatory lending practices, including redlining, but the effects are still apparent today.