Nationality and Neighborhood Risk at the Origins of FHA Underwriting

Abstract

Histories of the emergence of federally sanctioned mortgage underwriting in the United States have made racial discrimination a central theme. Yet their emphasis on systematic favoritism for whites over blacks tells only part of the story. This article examines how a broader, waning concept of race that encompassed nationality as well as skin color influenced the practice of locational risk rating at the Federal Housing Administration. Using qualitative and quantitative methods to examine the construction of "neighborhood risk" reveals how, from the introduction of the agency's underwriting standards, raters depended on a more nuanced population classification scheme in evaluating urban areas. The evidence presented here about the differential treatment of nationality groups points to new directions for studies of housing policy in the United States.

The Effects of the 1930s HOLC “Redlining” Maps

“…19 Similarly, Krimmel (2017) uses a difference-in-difference approach along borders and finds an effect of redlining on housing supply and population density between 1940 and 1970. Anders (2019) uses the same 40,000 population cutoff design as ours and finds that cities with redlining maps experienced higher rates 16 See Jackson (1980) and Light (2010) for discussions of how FHA risk maps and underwriter instructions were created. The 1934 FHA manual includes race as one of the underwriting standards to be applied to new loans: "The more important among the adverse influential factors (of a neighborhood's character) are the ingress of undesirable racial or nationality groups…All mortgages on properties in neighborhoods definitely protected in any way against the occurrence of unfavorable influences obtain a higher rating.…”

“…See http://archives.ubalt.edu/aclu/pdf/Plex48.pdf. 17 Light (2010) highlights "ample evidence" to support the influence of the HOLC appraisal methods and maps on the FHA's practices. Footnote 85: "FHA records indicate the agency kept the HOLC security maps on file in connection with the construction of its Economic Data System… and comments from Federal Home Loan Bank Board general counsel Horace Russell on how the FHA 'was fortunate in being able to avail itself of much of the [t]raining and experience in appraisal and the development of appraisal data by Home Owners Loan Corporation' underscores the two agencies' close ties."…”

The Long-Run Effects of the 1930s Redlining Maps on Children

“…7 Michney (2021) describes several examples of the HOLC maps being shared with private actors as well as with local and regional managers (p. 15-16), although he concludes that the maps were largely kept confidential from private actors. 8 See Light (2010), Woods (2012), Hillier (2013), Michney (2021) and Fishback et al (2021).…”

Tabulating Home Owners' Loan Corporation Area Description Sheet Data

“…Given the well-documented history of anti-Asian and anti-Hispanic racism in the US, especially in the realm of housing, it is not altogether surprising that areas where these populations lived would receive lower neighborhood grades, on average, than the places where their European counterparts lived (Lee 2019;Nightingale 2012;Shah 2001). Indeed, as Light (2010) and Woods (2012) both document in Los Angeles, HOLC appraisers and other housing officials of the time were especially concerned about areas with "'heavy concentration[s]` of people of Mexican ancestry" (Woods 2012(Woods : 1047.…”