The source that I looked at was the Underwriting Manual, written by the Federal Housing Administration (FHA) in 1936. It contains instructions and regulations governing the procedures to be followed by the Underwriting Departments in Insuring Offices. It also describes techniques used by the FHA to determine whether or not mortgages are eligible for insurance. Insurance eligibility is determined by risk rating. The process of “risk rating” is extremely relevant to our discussion about housing barriers.
The famous term “red lining” comes from the FHA process of risk rating. The basic idea is that the FHA used race of occupants as one of the measurements for the value and stability of a neighborhood. Thus, neighborhoods that contained non-white inhabitants were given a low ranking (red) and thus those who lived there were deemed a risk and refused loans. The Underwriting Manual is a long and dense document, and one must dig through the text to find the few blatant racial provisions. These can be found in Section II under the heading “Risk Rating Instructions” in the subsection labeled “Protection From Adverse Influences”.
- Paragraph 228: Deed restrictions are referenced as more effective than zoning ordinances in providing protection from “adverse influences”. Racial occupancy is noted as a type of deed restriction that can have a favorable outcome if it is applied to all properties, including those in adjacent blocks.
- Paragraph 229: Geographical position is said to afford protection against adverse influences in some cases. The manual states that, “Usually the protection against adverse influences afforded by these means include prevention of the infiltration of business and industrial uses, lower-class occupancy, and inharmonious racial groups.”
- Paragraph 233: This paragraph contains some of the most racially charged language in the manual. It basically states that the Valuator needs to check out neighborhoods surrounding the property to see if there is the presence of incompatible racial or social groups as they could potentially invade the area. It recognizes that a change in racial or social occupancy leads to instability and reduced value. It is noted that once the character of a neighborhood is established, it is impossible to induce members of a higher social class to move in.
- The same paragraph mentions that value is hurt if the children of inhabitants must attend school with pupils of a far lower level of society or an incompatible racial element.
- Paragraph 284: “The prohibition of the occupancy of properties except by the race for which they were intended” is listed as an example of an effective deed restriction to supplement zoning.
- Paragraph 289: The manual states that schools should be up to the standards of the neighborhood and not be attended in large numbers by inharmonious racial groups.
Secondary Sources:
1) Charles Abrams, Forbidden Neighbors (New York: Harper & Brothers, 1955), 162.
– I found this source because in it Charles Abrams cites the FHA Underwriting manual from 1936.
2) John P. Dean, “Only Caucasian: A Study of Race Covenants,” The Journal of Land & Public Utility Economics, vol. 23 no. 4 (1947), 428-432.
-I found this article on jstor by searching the term “FHA Underwriting Manual”.
3) James A. Berkovec et al., “Discrimination, Competition, and Loan Performance in FHA Mortgage Lending,” The Review of Economics and Statistics, vol. 80 no. 2 (1998), 241-250.
-I found this article on google scholar by searching the term “FHA Underwriting Manual”.
Bibliography
-Abrams, Charles. Forbidden Neighbors. New York: Harper & Brothers, 1955.
-Dean, John P. “Only Caucasian: A Study of Race Covenants.” The Journal of Land & Public Utility Economics. Vol. 23 No. 4, 1947.
-Berkovec, James A., Glenn B. Canner, Stuart A. Gabriel and Timothy H. Hannan. “Discrimination, Competition, and Loan Performance in FHA Mortgage Lending.” The Review of Economics and Statistics. Vol. 80 No. 2, 1998.
Discussion Questions
1) In what way was the FHA’s underwriting process inherently related to race?
2) What role did the FHA play in redefining the notion of real estate as having a market value rather than a use value and how did their use of racialized language in the Underwriting Manual affect what constituted real estate value?