FHA insured home

For more than 30 years, the Federal Housing Administration used federally-insured mortgages to mandate racial segregation in housing. It didn't change until the Fair Housing Act of 1968 was passed.

On Monday, Jan. 20, we celebrated the life and legacy of the Rev. Dr. Martin Luther King Jr. This leader of the civil rights movement worked tirelessly to turn America into a nation where we truly have freedom and justice for all.

You’ve probably heard talk about “institutional racism.” I’m going to cite an example for you. You probably won’t see this in the history books, but, for more than 30 years, the U.S. Government mandated racial segregation in housing.

In 1934, as part of the new deal, the Federal Housing Administration was created. One of their programs was federally-insured home mortgages. These turned America from a land of renters to a land of home owners. However, this was a program for whites only.

Most banks had a policy of not making loans in black communities. They would outline on a map in red the areas where they would not make loans. These were almost always the black neighborhoods. This practice, called “redlining,” is now illegal. However, the attitudes that led to it are still around.

The policies and regulations of the FHA home mortgages discouraged integrated neighborhoods. In order for a new development to quality for the mortgages, the developers had to agree the homes would be for whites only.

To put it simply, a developer couldn’t build an integrated project even if he or she wanted to because potential buyers would not be able to get the financing they would need to buy these homes.

Sometimes the results of these regulations sounded almost silly. In 1941, a developer in Detroit agreed with the FHA and the banks his new housing development would be for whites only. However, they were balking at insuring the mortgages because the development was next door to a black neighborhood.

They only agreed to insure the mortgages when the developer said he’d build a wall between the two neighborhoods. That wall is still in place today.

In the years after World War II, the suburban building boom was in full swing. Many former GIs qualified for these mortgages. However, black former GIs were excluded. This is how the suburbs became “lily white.”

You’ve heard that old bit about how a black family moving into a neighborhood lowers property values? The state reason for discouraging integrated housing was to protect the property values of white property owners.  However, this became a self-fulfilling prophecy. If a black family moved in, the nearby homes no longer qualified for the federally insured mortgages. That made them less desirable, and the value declined.

Meanwhile, in America’s cities, “urban renewal” was the trend. Slums, which were often traditional black neighborhoods, were cleared away and replaced with shiny new developments. As black residents saw it, they were being forced out of their homes and their businesses were being closed so white-owned big business could make a lot of money.

Going back to Detroit as an example, there were two black neighborhoods near downtown, Black Bottom and Paradise Valley. Both communities had many black-owned businesses and black property owners. Paradise Valley was known for its night clubs and thriving jazz scene.

Black Bottom was razed for the Lafayette Park redevelopment. Paradise Valley was razed to make way for the Chrysler Freeway. Many blacks came to see “urban renewal” as another phrase for “black removal.”

Many black residents had to move into public housing projects. These weren’t really meant to help the poor, but to put money in the pockets of urban planners, construction companies and public employee unions. The system was designed to make and keep people dependent on the government so bureaucrats could keep their jobs and justify their existence.

Resentment over urban renewal in Detroit was one of the factors that led to the terrible riots that erupted on July 23, 1967.

The racial policies concerning federally insured home mortgages didn’t end until the Fair Housing Act of 1968 was passed. This, along with the 1964 Civil Rights Act and the 1965 Voting Rights Act, was one of the landmark pieces of civil rights legislation from the 1960s.

However, as I noted before, the attitudes that created these policies are still with us.

Perhaps the best sign of these policies is the gap in personal wealth between white and black households. While the income gap has diminished over the years, the personal wealth gap is as wide as ever. White families have, on average, 13 times the personal wealth of black families. That is the result of decades of home ownership.

Personal wealth means equity. Equity means money for college, to start a business, or to buy items like cars and appliances.

What can be done about this?  The situation didn’t happen overnight, and there will be no easy, quick fixes. Clearly, steps must be taken to improve black home ownership. Until that happens and black Americans have more equity, the personal wealth gap will remain.

Our government and banks need to acknowledge how they created this situation. They also need to take actions to change things.

That would be a step in the right direction.


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