Innovation & Wealth › Mass production & the consumer age › The New Deal
Redlining and federal mortgage exclusion
1934–1968· Event· Society: who gained, who lost
Well documentedSolid records, texts or physical evidence.
US federal housing agencies graded Black and immigrant neighborhoods as bad risks, steering mortgages away from them for decades.
See it on the Innovation & Wealth map →What happened
From 1935 to 1940 the Home Owners' Loan Corporation mapped 239 cities, grading neighborhoods from A (green, 'best') to D (red, 'hazardous'); Black neighborhoods were nearly always red. The Federal Housing Administration, created in 1934, insured the new long-term, low-down-payment mortgage, but its underwriting manual treated racial mixing as a risk and recommended restrictive covenants. Insured loans flowed to white suburbs such as Levittown, largely bypassing Black buyers. The 1968 Fair Housing Act banned the discrimination; the 1977 Community Reinvestment Act followed.
Impact on society and the economy
Home equity became the main middle-class asset, so exclusion helped create today's racial wealth gap. White suburban owners and builders gained; Black families and city neighborhoods lost.
Think of it like
Like an appraisal standard that marks a whole submarket unlendable: values fall, and the low rating proves itself.
How we know
The HOLC maps, digitized by the University of Richmond's Mapping Inequality project, FHA underwriting manuals, and studies linking 1930s grades to lower homeownership and home values decades later.
Still debated
Historians debate how much the HOLC maps themselves caused harm versus FHA rules and lenders' existing practices, since the maps were not widely shared.
Connections (3)
▸The New Deal set up housing programs that enabled Redlining and federal mortgage exclusionWell documented
The connection
The New Deal rescued housing: the Home Owners' Loan Corporation refinanced about a million mortgages, and the FHA insured a new kind of loan, long-term, low-down-payment and fully paid off by monthly installments. But both agencies' appraisal rules treated Black and mixed neighborhoods as high risk, so programs that created mass homeownership excluded most Black families.
When and how
US cities, 1933–1968; the HOLC (1933), the FHA (1934), their appraisers, and local real-estate brokers who helped grade neighborhoods.
How we know
The FHA's Underwriting Manual (1936 and 1938 editions), the HOLC maps, and later federal civil-rights reports document the policies.
Debates
Scholars debate whether federal officials invented these racial rules or adopted the real-estate industry's existing standards; Richard Rothstein's The Color of Law (2017) argues the segregation was deliberate government policy.
▸Redlining and federal mortgage exclusion shaped who could buy in Levittown and the suburban boomWell documented
The connection
The Federal Housing Administration, which insured mortgages, treated Black or mixed neighborhoods as risky and recommended racial covenants in new subdivisions. Levitt built Levittown with FHA and VA backing and put whites-only clauses in early contracts. White veterans bought with no money down; Black veterans, equally eligible for GI Bill loans, were turned away.
When and how
Long Island, New York, 1947–1950s. The Supreme Court's 1948 Shelley v. Kraemer ruling made racial covenants unenforceable, but Levitt kept refusing to sell to Black buyers.
How we know
Levittown lease and deed clauses, FHA underwriting manuals, Levitt's own public statements, and later court cases document the exclusion.
Debates
Levitt said he could solve a housing problem or a racial problem but not both; whether integration really would have cost him white buyers is debated.
▸Redlining and federal mortgage exclusion was echoed by 'reverse redlining' in US housing bubble and subprime mortgagesMostly agreed
The connection
Redlining had denied credit to Black neighborhoods. In the 2000s lenders flooded many of the same areas with costly subprime loans, called 'reverse redlining.' Black and Latino borrowers were far more likely to get high-cost loans, even with similar credit, so foreclosures concentrated there. Countrywide (2011) and Wells Fargo (2012) paid $335 million and $175 million to settle steering charges.
When and how
Cities such as Baltimore, Memphis, Cleveland and Detroit in the 2000s; Baltimore and Memphis sued Wells Fargo in 2008–09; the Justice Department settled in 2011–12.
How sure are we?
Federal mortgage data, settlement records and studies such as Bayer, Ferreira and Ross (2018) show higher-cost loans for minority borrowers with similar credit.
Debates
How much of the gap reflected discrimination versus differences in wealth, credit and broker access, and how much of the post-2008 drop in Black wealth it explains.