During the 1930s the federal government enacted legislation to address problems in housing.
In June 1933 Congress approved the Home Owners Loan Corporation (HOLC). It refinanced tens of thousands of mortgages. From June 1933 to June 1935 HOLC supplied more than $3 billion. HOLC also developed formal, uniform methods of appraisal. It divided cities into neighborhoods, on the basis of a rating system.
The best, "most desirable" neighborhoods were graded as First rate, or A. They were ethnically homogeneous and had a large number of professionals living in them. They were coded green on a map.
Second grade or rate neighborhoods were considered "still desirable," although not the best, and colored blue on a map.
Third rate neighborhoods were "declining," and rated C, and colored yellow. These neighborhoods had been invaded or infiltrated by less desirable ethnic groups.
The least desirable neighborhoods were rated as four, or D, and colored red. They were run down, densely populated, and filled with "undesirable" ethnic groups.
In 1934 the National Housing Act created the Federal Housing Administration(FHA). It insured long term mortgage loans, by private lenders for home construction and sale. It allowed for a repayment period of 25-30 years. If the person with the mortgage defaulted, the FHA would indemnify (pay) the bank. Thus there was a loan guarantee for the bank.
Ultimately, FHA favored giving mortgages for new homes rather than existing homes. And the newest homes would be built in suburban developments. It became easier to get a mortgage for a new house in the suburbs than an older house in the cities.
Between 1934 and 1962, the FHA and (later) the Veterans Administration financed more than $120 billion worth of new housing (see George Lipsitz, The Possessive Investment in Whiteness, p. 6). Ninety eight percent (98%) of this money went to white people. Less than two percent (2%) went to Afro-Americans and other nonwhites (Lipsitz, p. 6). Recall that Afro-Americans were ten percent of the US population. Between 1934 and 1972, the FHA helped 11 million families to purchase a home, and helped another 22 million to improve their properties (home improvement).
Some people might think that this difference was due to differences in income or the quality of a neighborhood in which one wished to purchase a home. Yet the Federal Reserve has show that this is NOT true. The Federal Reserve conducted a study in Boston (c.1992). It found that even when blacks and whites had similar low income, bankers made 2.9 times as many mortgage loans per 1,000 housing units in low-income white neighborhoods as in low-income black neighborhoods. In Houston, Texas, in a very egregious example, one bank disqualified 13% of middle-income white loan applicants and 36% of middle-income black applicants with similar qualifications. (Douglas Massey and Nancy Denton, American Apartheid, p. 108).
The practice of restricting Afro-Americans to the "ghetto" was not an accident. It was deliberate and systematic. It was quite conscious. It went on for decades (legally until 1968). The FHA aided and abetted and turned a blind eye to racial discrimination by private lenders. Basically the FHA subsidized housing discrimination. It was a deliberate system of preferential treatment based on white privilege. It was not based on merit. It was not earned. It was not a matter of some people working harder than others. It was not a matter of some people necessarily being any more qualified than someone else. Merit and qualification and being more deserving are cherished American myths, because they smooth over a potential sense of guilt. The policies of the FHA and private lenders was pure, unadulterated favoritism based on the color of one’s skin. It was the maximization of opportunities for some, based on minimizing access to opportunities for others. Indeed, it was the maximizing of opportunities for some at the expense of others. This federal policy SUBSIDIZED a practice by private lenders that created all-white suburbs and allowed only a small handful of blacks (500,000) to move to the suburbs (as of 1962). This is de facto housing segregation. It would prove even more difficult to root out than the de jure segregation in the South. And after segregation and disenfranchisement had been tackled in the South, by 1966 Martin Luther King would be pushed by riots in Harlem and Rochester (NY) and Elizabeth, NJ and Watts, Los Angeles to confront the issue of housing segregation and the ghetto. And I should add that while King was focused on segregation and disenfranchisement in the South from 1955 to 1965, the person who dramatized the problems of the ghetto in the North was Malcolm X. By 1966 the civil rights movement would learn that it did not have the luxury of ignoring de facto preferential treatment for whites in the area of housing, in the North as well as in the South.
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Like an onion. If one peels off the first, outer layer, there is another layer under it. And then another…and another…and another…