IFF, June 9, 2019: The appraisal bias: How more equitable underwriting can increase capital in communities of color
We are reading a lot about applying a “race equity lens” to community development. So what does it mean to have a race equity lens on capital?
To answer this question, we have to talk about appraisal-based lending – an instrument of systemic racism that still has a profound impact on communities, even after the outlaw of overt redlining more than 50 years ago. IFF has offered non-appraisal-based lending since our founding in 1988 – though I admit it’s not because we were using an explicit race equity lens. We weren’t thinking about it in those terms at that time. Instead, we were using a kind of “nonprofits equity” lens that forced us to deconstruct the challenge of lending to nonprofits that serve lower-income communities.
The National Housing Act of 1934, which established the Federal Housing Administration (FHA), gave birth to “redlining” – a practice in which banks literally created “residential security” maps with red lines that designated where to avoid making loans. The FHA made it harder to obtain mortgage insurance and federal guarantees in communities of color, so banks avoided working in those communities.
While banks cannot legally discriminate and draw circles around communities anymore, the legacy of redlining has forever lowered the (appraised) value of land and properties in these areas.
