FHA Underwriting Manual Formalizes Racial Covenants, Physical Segregation

The Federal Housing Administration publishes its Underwriting Manual, which establishes formal mortgage lending requirements that institutionalize racism and segregation within the housing industry. The manual emphasizes the negative impact of “infiltration of inharmonious racial groups” on credit risk and explicitly states that “incompatible racial groups should not be permitted to live in the same communities.” To limit perceived risk, the manual recommends restrictive covenants prohibiting “the occupancy of properties except by the race for which they are intended.”

The manual provides detailed guidance on physical segregation methods. FHA appraisal instructions direct banks to steer clear of areas with “inharmonious racial groups” and recommend that municipalities enact racially restrictive zoning ordinances. The manual even suggests that highways serve as effective barriers to separate African-American from white neighborhoods. In practice, FHA enforces these policies with extreme measures: in one Detroit development during World War II, FHA will not proceed unless the developer builds a 6-foot-high cement wall separating the development from a nearby African-American neighborhood.

Through this overt practice of denying mortgages based upon race and ethnicity, FHA plays a decisive role in the legalization and institutionalization of racism and segregation. The agency simultaneously refuses to insure mortgages in and near African-American neighborhoods while subsidizing builders mass-producing entire white-only subdivisions. This creates the federal architecture for systematic racial exclusion from homeownership and wealth-building that will concentrate poverty in urban cores while subsidizing white flight to segregated suburbs.