FHA Mortgage Guide

The Philadelphia Inquirer has published a powerful letter that needs to be repeated.

We often see government-backed financing as something designed to help entry-level homebuyers, especially minority purchasers. In fact, the early history of government programs reflected the social values of the time, values which we now see as repulsive.

Bill Brooks of Newark, DE put this very well in his letter to the Inquirer (”FHA rules, not Levitt, kept blacks away,”August 30, 2007)

“The Federal Housing Administration (FHA),” said Brooks, “had adopted a racist policy that made it all but impossible for blacks to move into a Levittown development. The FHA’s 1934 underwriting manual, used to evaluate communities suitable for mortgage insurance, stated, ‘if a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes.’ The manual went on to suggest that ’subdivision regulations and suitable restrictive covenants’ are the best way to ensure such neighborhood stability. Restrictive covenants of this kind, written into property deeds, required that no person of African descent be allowed to live in a FHA-insured property except as a domestic servant or laborer.”

In fact, it wasn’t just the FHA program that contained such racist regulations — and it wasn’t terribly long ago that such concepts were common in real estate.

Appraisal regulations in general used to say that homes in integrated communities were to be assigned a lower value than homes in segregated neighborhoods or neighborhoods where ownership was determined on the basis of a “gentlemen’s agreement.”

Don’t believe it?

It wasn’t until 1980 — 1980! — when appraisers finally agreed that who occupies a home was not a valuation issue.

“The value attributed to the property is not dependent upon the homogeneity of racial, religious or ethnic characteristics of the neighborhood…and the lack of such homogeneity in a neighborhood does not cause a diminution of value.” (See: “Agreement Set In Rights Case Against Lenders,” The Washington Post, Jan. 26, 1980)

We have come a long way as a society — but the policies of long ago still impact us today. Many of us are the beneficiaries of inherited wealth, wealth which often stemmed in part from the ability of parents and grandparents to buy homes. Those who in past generations were barred from such ownership have far less to pass along, and thus far less ability to help future generation rise out of poverty.

For additional information, see:

Discrimination Hobbles Present Ownership Opportunities, Realty Times, September 12, 2006

Would You Choose A Mortgage With A Higher Rate?, Realty Times, March 16, 2004

Check out these FHA resources for more information

This entry was posted on Monday, September 3rd, 2007 at 4:48 am and is filed under FHA. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.