Is it illegal to redline? If so, are there any exceptions when it is legal?
Yes. Redlining—named for lenders who actually drew a red line around a neighborhood on a map, refusing mortgages to buyers in areas considered “risky"—is against the law. Banking practices received congressional scrutiny in the Fair Housing Act of 1968, which prohibited discrimination, and the Home Mortgage Disclosure Act of 1975, which required the release of data on bank lending. Unfortunately, despite these attempts to stop discriminatory practices, many believe that some lenders still deny mortgage loans based on the neighborhoods in which the applicants live
There are no exceptions by which redlining is statutorily legal, but some may argue that the current federal regulations are themselves a form of redlining. And others may argue that financial institutions have a right to stop lending mortgage money in, for example, a declining economic area or market environment. If a bank can show that a specific mortgage loan or that lending in a specific area will significantly and adversely affect its business opportunities or bottom line in the future, is that redlining or prudent financial investing?
Joan A. Koffman, Esq., Real Estate Attorney, Koffman & Dreyer, Newton, MA
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