How Do Mortgage Lenders Influence Neighbourhood Dynamics? Redlining and Predatory Lending

Abstract

Manuel Aalbers argues that the actions of mortgage lenders can play an important role in understanding the trajectories of some of the most deprived neighbourhoods in Western cities. Mortgage lenders use the notion of the neighbourhood as a means to reduce their risk or to extract profit, and as such can exercise destructive powers over the neighbourhood. Through the practice of redlining, mortgage lenders may write of whole neighbourhoods as being too risky for investment. In some neighbourhoods, mortgage lenders are only willing to provide finance against higher interest rates and down-payments. Aalbers calls this yellowlining if these practices are based on place-based factors, and is an example of sub-prime predatory lending. He argues that redlining and place-based predatory sub-prime lending are not opposites as is sometimes argued, but are two adjacent positions on a continuum of exclusionary lending practices. The practices of redlining and predatory lending disproportionally hit the same socio-economic groups: low-income groups and ethnic minorities. Redlining is named explicitly as a form of an institutionalised discriminatory practice leading to segregation in both the US and the Netherlands. Although the key factor in redlining is place-based, it is suggested that the underlying cause, in some cases, may be race-based.