Does FHA Discriminate Against Certain Borrowers

Performance Property Real Estate Question

Q: I read that FHA had a racist lending policy.  Is that true? Theresa, Montclair, NJ

A: The Federal Housing Administration (FHA) operated the National Housing Act of 1934 that provided federal guarantees on mortgage loans to home buyers.  From the very beginning, FHA limited federal housing mortgage loan assistance to White buyers denying mortgage loan assistance to Blacks.  In fact, this Whites-only federal mortgage loan subsidy was codified in FHA’s manual.  For decades, FHA refused to insure houses for Black people living in predominantly Black neighborhoods and also refused to insure houses in White neighborhoods that were deemed “too close” in proximity to Black neighborhoods.  For example, in 1940, the FHA denied insurance to a private builder in Detroit because he was planning to build a housing development near a predominantly Black neighborhood.  When the builder constructed a concrete wall between the Black neighborhood and where he planned to put the new development, FHA then agreed to insure the homes in his new development.  Thanks for your question, Theresa.

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