In this era, the Federal Housing Administration (FHA) and the Home Owners' Loan Corporation create color-coded maps where different colors are assigned to neighborhoods based on the perceived risk of investments there, refusing to insure mortgages in the areas they have marked red. Essentially all Black neighborhoods are "redlined" in this era, as well as some Mexican, Italian, Jewish, and other white "ethnic" neighborhoods.

According to an FHA report: "Red areas represent those neighborhoods which...are characterized by detrimental influences in a pronounced degree, undesirable population or infiltration of it. Low percentage of home ownership, very poor maintenance and often vandalism prevail. Unstable incomes of the people and difficult collections are usually prevalent. The areas are broader than the so-called slum districts. Some mortgage lenders may refuse to make loans in these neighborhoods and other [sic] will lend only on a conservative basis."

Because homeownership is one of the primary mechanisms of building generational wealth within capitalism, the legacy of redlining remains one of the biggest economic factors in the racial wealth gap today.