Financing Home Ownership

Abstract

This paper traces federal housing policies related to single-family home ownership from their creation in the 1930s to the present. In particular, the article focuses on policies of the Federal Housing Administration and the Federal Home Loan Bank Board and other federal regulators of financial institutions. The theme of the article is that the original policies of FHA and the financial institution regulators either directly prohibited (FHA) lending to minorities or other residents in minority or racially mixed neighbor hoods or discouraged lending in such neighborhoods. This helped lead to a situation where these neighborhoods were starved for credit. In response to civil rights and neigh borhood movements, FHA radically reversed its policies, underwriting almost any loan in older, minority, and integrated neighborhoods, while the regulatory agencies generally made no effort to reverse existing lending practices. The result was that these neighbor hoods became inundated with FHA lending, which was often subject to fraud and abuses leading to high concentrations of foreclosures and abandonments. Thus, the federal attempts to cure the problems of inner-city housing finance actually made the situation much worse.