NEW EVIDENCE ON REDLINING BY FEDERAL HOUSING PROGRAMS IN THE 1930s.pdf (file not included in this release)
This research paper, published by the National Bureau of Economic Research (NBER), provides a critical reassessment of federal “redlining” practices during the 1930s. By analyzing over 16,000 individual loans from Baltimore, Peoria, and Greensboro, the authors challenge the traditional narrative that the Home Owners’ Loan Corporation (HOLC) maps were the primary cause of mortgage discrimination.
The Core Argument: FHA vs. HOLC
The paper establishes that the Federal Housing Administration (FHA) was the primary architect of systematic redlining, rather than the HOLC. While popular scholarship often blames the HOLC’s color-coded maps for racial inequality, this study finds that:
- HOLC was relatively inclusive: The HOLC was a temporary emergency program that refinanced distressed mortgages to prevent foreclosure. It loaned broadly across all neighborhoods, including those it later rated poorly, and its lending to Black homeowners was roughly proportionate to their share of homeownership.
- FHA was systematically exclusionary: From its inception, the FHA avoided insuring mortgages in low-income, urban, and Black neighborhoods. It focused instead on new construction in suburban areas, often requiring restrictive racial covenants to ensure a project was “economically sound”.
- FHA predated HOLC maps: The FHA’s exclusionary lending patterns were established well before the HOLC completed its famous maps. The FHA relied on its own block-level data and research rather than waiting for HOLC’s assessments.
Key Programmatic Differences
The authors highlight that the two agencies had distinct legislative mandates that shaped their impact on racial geography.
| Feature | Home Owners’ Loan Corporation (HOLC) | Federal Housing Administration (FHA) |
|---|---|---|
| Primary Goal | Refinance existing distressed loans to prevent foreclosure. | Create a permanent system of mortgage insurance for new loans. |
| Target Area | Broadly distributed across existing urban neighborhoods. | Focused on new construction in outlying/suburban areas. |
| Racial Impact | Provided many loans to Black borrowers (within existing segregation). | Almost entirely excluded Black borrowers and their neighborhoods. |
| Risk Criteria | Aided borrowers in “hard straits” through no fault of their own. | Required loans to be “economically sound” and protected from “neighborhood change”. |
Significant Findings and Evidence
- The Greensboro “Red Line”: Researchers discovered a rare FHA map of Greensboro with a hand-drawn red line. Almost every FHA-insured loan in the city was located on the “preferred” side of that line, providing direct evidence of FHA-specific redlining.
- The Morgan Park Exception: In Baltimore, the FHA did insure a small cluster of Black homeowners in the Morgan Park neighborhood. This neighborhood was a rare “upper-crust” Black community with suburban-style housing and its own restrictive covenants barring White residents, which satisfied the FHA’s rigid criteria for “racial stability”.
- Information Sources: The FHA utilized sophisticated “Real Property Inventories” (RPIs) and block-level data created by New Deal relief programs to evaluate neighborhood risk long before HOLC maps were available.
- Lender Influence: Private lenders were more influenced by FHA’s “yardstick” for insurance eligibility than by the secretive HOLC maps, which the government actively tried to keep confidential.
Conclusion on Legacy
The authors conclude that the long-term legacy of federal redlining and the resulting wealth gap for Black Americans should be attributed more to the FHA’s independent actions and permanent insurance system than to the HOLC’s static maps. While the HOLC documented existing prejudices, the FHA institutionalized them into the modern mortgage market.