Redlining was not a fringe practice by rogue banks. It was federal policy, created by the federal government, administered through federal agencies, and sustained with federal resources for four decades. In 1934, Congress passed the National Housing Act, which created the Federal Housing Administration. The FHA's mandate was to stimulate the economy by making homeownership affordable — specifically by guaranteeing mortgages, which reduced lender risk and enabled 30-year fixed-rate loans at lower interest rates. This program built the American middle class. It also built a system that deliberately excluded Black Americans from that middle class.

The FHA's underwriting manual stated explicitly that 'if a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes.' The agency drew maps of American cities and marked neighborhoods in four categories: green (best), blue (still desirable), yellow (declining), and red (hazardous). Red neighborhoods were predominantly Black. The FHA refused to insure mortgages in red zones — not because of the financial condition of individual applicants, but because of the racial composition of the neighborhood. A Black family that qualified in every financial metric was denied if they wanted to buy in a 'hazardous' area. A white family moving to a white suburb got guaranteed financing, low rates, and a 30-year path to wealth.

The Home Owners' Loan Corporation produced these maps for 239 cities between 1935 and 1940. They were widely adopted by private banks, who used them as a de facto blacklist. The result was a closed system: Black families could not buy in redlined areas, could not access the wealth-building mechanism of homeownership in appreciating neighborhoods, were often confined to deteriorating urban housing, and watched their neighborhoods decline in value partly because no capital could legally flow into them. One documented example from Detroit: a developer wanted to build a white subdivision near a Black neighborhood. The FHA refused to insure it unless a physical wall separated the developments. The developer built a half-mile-long, six-foot-high concrete wall. The FHA then approved the mortgage insurance.

The Fair Housing Act of 1968 made redlining illegal. It came 34 years after the FHA was created and 23 years after the end of World War II, during which period the GI Bill extended the same homeownership benefits to white veterans — building a generation of white middle-class wealth — while Black veterans were frequently denied access to those same benefits in practice. By 1968, the compounding had already happened. Neighborhoods that had been mapped as 'hazardous' in 1935 had spent three decades starved of investment. Their residents had spent three decades without access to equity. That equity gap did not disappear when the law changed.

The numbers are stark. Today, Black household wealth averages approximately 5 percent of white household wealth. Economist Richard Rothstein, in his landmark book The Color of Law, argues that this figure is 'almost entirely attributable to unconstitutional federal housing policy in the mid-20th century.' The research supports this: identical-sized homes in Black neighborhoods that were redlined in the 1930s and 1940s are worth 23 percent less today than equivalent homes in comparable white neighborhoods that were not redlined, according to a 2018 study. After redlining ended, predatory lending — or 'reverse redlining' — targeted the same communities with subprime loans in the 2000s. The same neighborhoods were targeted twice: first denied access to capital, then targeted with exploitative capital. In the 2008 financial crisis, Black homeowners who had finally built some equity lost it at higher rates than white homeowners.