Redlining refers to the systematic denial of products and services to specific areas and locations for no justifiable reason other than discrimination.
The term metaphorically describes drawing a red line around an area with a red line. Pointing out the geographic area which would be denied products and services.
The untold reason for redlining of regions might be due to:
- Demographic profile of population
- Questionable activities the area is known for
- An area of no real value
- etc
While this term can technically refer to all types of products and services, it is usually used on financial services. And most commonly, specifically referring to mortgages.
For example, a neighborhood might be deemed as too poor and therefore residents are susceptible to defaults. Thus, a lender would reject any home loans to finance property in that specified region.
To prevent being called out for discrimination, lenders often don’t declare that they are redlining certain districts.
But every person, even those with high income and good credit, that applies for a mortgage concerning a property in such areas would have their loan requests declined, without any reason being explained.
However, redlining also presents opportunities for businesses.
For example, when an area is known to be red-lined by various lenders, a lender who is willing to finance these neighborhoods would know that borrower choices are limited. They would then be more receptive to higher interest rates and less favorable terms.
Otherwise, they might not be able to finance a property purchase or mortgage refinance at all.
