INDEX Community-Based System Dynamics: An Essential Tool in the 5 Community Development Toolbox Opportunity Knocks: Socially Underwriting the 8 Small-Dollar Mortgage Communities and Capital: 9 A Foundation for Success SUMMER 2017 AND MORE >> Redlining Louisville Project: Early Lessons Learned The Office of Redevelopment Strategies of Louisville Metro Government launched Redlining Louisville: The History of Race, Class, and Real Estate. This interactive map allows investigation of some of the ways redlining and the HOLC has affected hous- ing, development, disinvestment and lending patterns in Louisville since the 1930s. HOLC residential security maps provided snapshots of nearly every major American city in the 1930s before urban sprawl moved into greenfield sites (an area of land, usually in the countryside, that has never had build- ings on it before). The colors in a typical map represented a four-point classification system devised by the HOLC to indicate where local lenders were encouraged to make loans and where loan requests should be denied. Green (“A Grade”) was an indicator for the very best SOURCE: Redlining Louisville: The History of Race, Class and Real Estate. borrowers, followed by blue (“B Grade”) and By Jeana E. Dunlap and Joshua Poe natural disaster in its history. At the same yellow (“C Grade”). Red (“D Grade”) was time, the federal government was embarking the color reserved for areas of the city where magine if all your hard work and aspira- access to capital would be withheld. tions were crippled by a small handful of on a new mechanism to support homeowner- I ship opportunities for millions of Americans. In describing how neighborhoods were individuals with low expectations for your graded in the 1937 Louisville residential future success, credibility or worth. Redlin- The Home Owners’ Loan Corp. (HOLC) was also attempting to mitigate risk for the property survey, the HOLC, along with local ing practices in America did just that. In the realtors, lenders and other real estate profes- latter months of 1937, the city of Louisville, financial institutions that would help deploy billions of dollars in mortgage capital across sionals, offered the following explanation: Ky., had recently recovered from the Great >> continued on Page 3 Flood of 1937, the single most significant the country. THE FEDERAL RESERVE BANK of ST. LOUIS | CENTRAL TO AMERICA’S ECONOMY Calendar Money, Purpose, Success: Bridges is a quarterly publication of the SEPTEMBER 2017 14 Women’s Empowerment Summit Community Development Office of the Federal Regional Food Systems: Driving Reserve Bank of St. Louis. It is intended to 14 Cleveland, Miss. 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Upjohn Institute Free subscriptions are available by calling 314-444- for Employment Research 8761, emailing [email protected] or Visit: www.investinwork.org visiting www.stlouisfed.org/subscriptionspage. Redlining Louisville Project >> continued from Page 1 “In establishing the grade of an area, such HOLC Neighborhood Descriptions factors as these are considered—Intensity of A First Grade B Second Grade C Third Grade D Fourth Grade the sale and rental demand; percentage of home ownership; age and type of buildings; economic stability of area; social status of the population; sufficiency of public utilities; accessibility of schools, churches and business centers; transportation methods; topography of the area; and the restrictions set up to protect the neighborhoods. The price level of the homes is not the guiding factor.” The process of considering race and class in real estate appraisal did not begin or end with the HOLC. In the 1930s, it was a commonly accepted notion in the real estate industry that the socioeconomic characteristics of a neigh- borhood determined the value of housing to a much greater degree than physical charac- teristics. These notions were widely upheld by the Federal Housing Administration’s (FHA) underwriting manuals far into the 1970s. Average Residential Property Values by Census Tract The FHA’s underwriting system used such > $295k to $509k > $164k to $295k > $56k to $164k $0 to $56k standards as “protection from adverse influ- ences and inharmonious racial groups.” The FHA manual warned that “older properties in ^ The site features an a neighborhood have a tendency to accelerate interactive slider that the rate of transition to lower class occu- allows the user to overlay pancy” and suggested that apartment owners the HOLC map with the comparative data. should look to the suburbs, preferably a site “set in what amounts to a privately owned and privately controlled park area.” The “restrictions set up to protect the neighborhoods” referred to deed restrictions prohibiting the sale of property to people of color regardless of their income, accumulated wealth or ability to repay their loan. These restrictions were mentioned in the assess- ments more often than physical characteris- tics (e.g., topography or quality of structures). For instance, several affluent neighborhoods were described as the best areas of the city SOURCE: Redlining Lousiville: The History of Race, Class and Real Estate. in large part because they were also “one of the highest restricted areas.” Predominantly >> continued on Page 4 Bridges Summer 2017 | 3 Redlining Louisville Project opportunity. When thriving minority busi- to develop innovative strategies and new >> continued from Page 3 nesses and successful entrepreneurs on Old resources that provide parity, possibilities and white residential areas were often described as Walnut Street in Louisville’s historic Russell wealth-building opportunities for our entire “well restricted” and having “restrictions well neighborhood were forced to shut down by community. observed.” The HOLC residential security urban renewal in the late 1960s, the poten- We invite you to visit our interactive story- maps were made available to private lenders tial for intergenerational wealth building map, Redlining Louisville: The History of and realtors