Redlining of neighborhoods explained

Redlining is the process of denying mortgage loans based on the racial makeup of a neighborhood.

Michael Nyerges, Cincinnati Enquirer

A recent legal complaint against Old National Bank that alleges the company discriminated against Black borrowers in mortgage lending has raised questions among redlining experts about whether there is a lack of access to financial services in red-lined neighborhoods and majority-Black neighborhoods in Indianapolis.

The complaint filed by the Fair Housing Center of Central Indianaalleges that just 3.86% of the bank's mortgage loans in Marion County went to Black borrowers in 2019 and 2020,even though Black residents comprise nearly 28% of the county'spopulation,according to census data.

Old National Bank is one of the largest mortgage lenders statewide and the largest bank headquartered in Indiana.Legal scholars saythat if the bank'spolicies disproportionately harmed Black residents,the bankcould be liable for illegal discrimination under the Fair Housing Act of 1968.

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Amy Nelson, the executive director of the Fair Housing Center of Central Indiana, said the Old National Bank case may just be the tip of the iceberg.

In addition to this bank, she said her organization's investigations have found there are about a dozenlenders or mortgage brokers who originate a significant amount of loans in the Indianapolis metropolitan area and offer fewer mortgage loansto Black borrowers compared to others.

Old National Bank officials deny the company engaged in redlining.

"Old National strongly and categorically denies the claims made in this lawsuit. As a community bank, we are committed to fair, responsible and equitable lending practices," saidOld National Bank spokesperson Kathy Schoettlin in an email to IndyStar."That is simply who we are, and its one of the reasons we have been recognized for the past decade as one of the worlds most ethical companies."

The legal complaint accusesthe bank of deliberately closing bank branches in majority-Black neighborhoods, making it more difficult forBlackhome buyers to access mortgage loans.

The legal complaint alleges the bank is guilty of 'redlining,' a term which refers to mortgage loan discrimination perpetuated by the government-sponsored Home Owners' Loan Corporation in the 1930s.The corporation created mapsthat purported to show the level of risk for mortgage lending inneighborhoods all over the country.

Majority-Black or majority-non-whiteneighborhoods were labelledred.The Federal Housing Authoritywould not insure home mortgage loans in the red neighborhoods, effectively denying loan access to prospectiveBlack homeowners.

The term now more generally refers towhen "lenders intentionally avoid providing services to individuals living in predominantly minority neighborhoods because of the race of the residents in those neighborhoods," according to a definition offered by the Department of Justice in a 2019 press release on redlining.

"Over the last decade, Old National has disproportionately closed branches located in Black neighborhoods, while maintaining its presence in neighborhoods serving white residents," the legal complaint states.

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All of the closed branches were located either in or immediately adjacent to a census tract with a 25% or higher proportion of Black residents,according to the complaint.

Unai Miguel Andres, adata analyst at the The Polis Center at IUPUI who researches the effects of redlining, said the lack of financial services in some majority-Black neighborhoods, along with the general lack of services such as grocery stores and shopping malls, is a legacy of the 1930sredlining and the subsequent underinvestment in these communities.

Miguel Andresand two other colleagues found in a June 2021 paper that individuals living in redlined neighborhoods in Indianapolis continue to have worse health incomes, lower incomes and higher violent crime rates than non-redlined neighborhoods.

"Redlining and discriminatory lending practices led to segregation being perpetuated," said Miguel Andres."(Residents in redlined neighborhoods)were denied loans and that affected their capacity to accumulate equity."

Florence Roisman, a legal expert in housing segregation and discrimination at the Indiana University McKinney School of Law, said housing discrimination does not have to be intentional for it to be illegal, citing a 2015 U.S. Supreme Court case.

As long as a practice has a discriminatory effect, which may include perpetuating segregation, and cannot be justified by a legitimate non-discriminatory purpose that could not be satisfied in another way, it is illegal under the Fair Housing Act, Roisman said.

This means the relevant legal question in a lawsuit against Old National Bank is not whether the company intended to discriminate against Black borrowers but whether its actions caused harms that disproportionately affected Black borrowers, Roisman said.

"Their intention isirrelevant," Roisman said.

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Incourt, it may be easier to prove that a company's policies had a disproportionate effect on Black borrowers than that that company intentionally discriminatedagainst Black borrowers.

"Its hard enough to prove what is the intent of a single human being, and when youre talking about multi-member entities, its even harder to prove intent," Roisman said."Courts dont like to say that a person or an entity committed an act of intentional discrimination; its like the reluctance to say somebody is a racist. Courts, like lots of people, are very reluctant to put that label on someone."

In the past five years, there have been two other major casesalleging banks were guilty of redlining inIndianapolis.

A 2017 case againstUnion Savings Bank and Guardian Savings Bankalleged the banksengaged in redlining majority-Black neighborhoods in Ohioas well as the Indianapolis metropolitan statistical area. Similar to the Old National Bank case, this bank was accused oflocatingbranches to avoid serving majority-Black neighborhoods.The case ended in a settlement when the court ordered the banks to invest at least $7 million in a loan subsidy fund and open two full-service branches and a loan production office in majority-Black census tracts.

Two years later,the Justice Department settled a suit against the Muncie-based First Merchant bank, which it and the Fair Housing Center of Central Indiana accused ofredlining in Indianapolis by intentionally avoiding predominantly Black neighborhoods.

Contact IndyStar reporterKo Lyn Cheang atkcheang@indystar.com or 317-903-7071. Follow her on Twitter: @kolyn_cheang.

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Old National Bank redlining: discrimination may not be intentional - IndyStar