Federal Housing Administration Created, Institutionalizes Racial Segregation

The National Housing Act creates the Federal Housing Administration, which immediately implements systematic racial discrimination through mortgage underwriting guidelines. From its first operations in 1934, FHA staff conclude that no loan could be economically sound if the property was located in a neighborhood that was or could become populated by Black people, as property values might decline over the life of their 15 to 20-year standardized loans. This federal policy becomes the architect of institutionalized redlining that will persist until the 1960s.

The FHA’s discrimination precedes even the infamous HOLC redlining maps. The first FHA-insured loans are recorded in each city in early 1935, before HOLC completes its maps (Baltimore in May 1937, Peoria in October 1938, Greensboro in June 1937). The FHA excludes core urban neighborhoods and Black borrowers from day one of its operations, with practices showing little change after the HOLC maps are created. This demonstrates that federal redlining originates as deliberate government policy, not merely as adoption of private sector discrimination.

Between 1934 and 1962, only two percent of the $120 billion in new housing subsidized by the federal government goes to nonwhites. Between 1945 and 1959, African Americans receive less than 2 percent of all federally insured home loans. This systematic exclusion from wealth-building homeownership creates generational wealth gaps that persist into the 21st century, as African-American families prohibited from buying suburban homes in the 1940s-60s gain none of the equity appreciation that white families accumulate through federally-subsidized mortgages.