Editing Federal Housing Administration (section)

=== New Deal origins ===
Amid the [[Great Depression]], a period marked by numerous [[National Mortgage Crisis of the 1930s|bank failures]], there was a substantial decline in both the availability of home loans and the rate of home ownership. During this era, the majority of home mortgages were characterized by short-term durations, typically spanning from three to five years. These mortgages lacked [[Amortization schedule|amortization features]] and often featured [[Balloon payment mortgage|balloon payment structures]]. Additionally, the [[loan-to-value]] (LTV) ratios for these mortgages generally remained below sixty percent.<ref>Monroe 2001, p.&nbsp;5</ref> This situation posed a significant obstacle for many working and middle-class families, rendering home ownership financially unattainable. During the banking crisis of the 1930s, all lenders were compelled to call in their outstanding mortgages, leaving no room for [[refinancing]]. Consequently, numerous borrowers, who were now unemployed and grappling with financial hardships, found themselves unable to meet their mortgage obligations. This unfortunate circumstance led to a substantial number of homes being foreclosed upon, which, in turn, precipitated a sharp decline in the housing market.

Banks, in the process of [[foreclosure]], acquired the collateral in the form of foreclosed homes. However, the depressed property values at that time meant that these assets had limited value. In response to these challenges, a comprehensive restructuring of the federal banking system took place in 1934. This overhaul culminated in the enactment of the [[National Housing Act of 1934]], which gave rise to the Federal Housing Administration (FHA). The FHA was established with the specific aim of regulating the interest rates and terms associated with insured mortgages.

Prior to the establishment of the FHA, the prevailing mortgage landscape featured predominantly balloon mortgages, which necessitated substantial lump-sum payments at the conclusion of relatively short mortgage terms, typically spanning 5 to 10 years. Moreover, prospective homebuyers were required to make substantial down payments, often ranging from 30% to 50% of the property's value. With the advent of FHA-insured loans, the down payment requirement was significantly reduced, with borrowers now only needing to provide as little as 10% down. Furthermore, the mortgage repayment period was extended, spanning from 20 to 30 years.

In 1934, following its establishment, the FHA enlisted the expertise of [[Homer Hoyt]] as Chief Land Economist. His role was pivotal in formulating the initial underwriting criteria for FHA-insured mortgages, a process that ultimately led to the development of the Redlining policy.<ref name=":32" />

==== Appraisal criteria and race discrimination ====
{{See also|Redlining}}

It is important to note that these innovative lending practices were, in some regions, exclusively available to white Americans. These practices effectively expanded the pool of white Americans who could manage both the initial [[down payment]] for a house and the ongoing monthly mortgage payments. Consequently, this expansion significantly enlarged the market for single-family homes.<ref>{{Cite book |last=Garvin |first=Alexander|author-link=Alexander Garvin|title=The American City: What Works, What Doesn't. 2nd Edition.|isbn=9780071373678|publisher=[[McGraw-Hill Professional]]|location=New York|year=2002}}</ref> The FHA employed a specific methodology for assessing the appraisal value of properties, relying on eight distinct criteria. It instructed its agents, known as "appraisers," to allocate more funding to projects with higher appraised values, up to a predetermined maximum limit. Among these criteria, the two most pivotal were "Relative Economic Stability," accounting for 40% of the appraisal value, and "protection from adverse influences," contributing an additional 20%.

In 1935, the FHA furnished its appraisers with an Underwriting Manual, which included the following directive: "If a neighborhood is to retain stability it is necessary that properties shall continue to be occupied by the same social and racial classes. A change in social or racial occupancy generally leads to instability and a reduction of values." Appraisers were further instructed to assign superior property and zoning ratings in areas deemed to have "protection against some adverse influences." The manual characterized these adverse influences as "infiltration by inharmonious racial or nationality groups."<ref>{{Cite journal |date=2019 |title=UNDER WRITING MANUAL UNDER WRITING AND VALUATION PROCEDURE UNDER TITLE II OF THE NATIONAL HOUSING ACT FEDERAL HOUSING ADMINISTRATION |url=https://www.huduser.gov/portal/sites/default/files/pdf/Federal-Housing-Administration-Underwriting-Manual.pdf |journal=Federal Housing Administration Under Writing Manual |volume=HA Form NO.2019 |pages=439}}</ref> Due to the FHA's appraisal criteria, which stipulated a whites-only occupancy requirement, racial segregation became an integral component of the federal mortgage insurance program. This occurred because the FHA often classified properties in racially mixed neighborhoods or those in close proximity to black neighborhoods as high-risk, effectively endorsing and enforcing racial segregation as an official requirement.<ref>{{Cite book |last=Rothstein |first=Richard |author-link=Richard Rothstein |title=[[The Color of Law: A Forgotten History of How Our Government Segregated America]] |isbn=9781631492860|publisher=[[Liverlight Publishing]] |location=New York |oclc=959808903|year = 2017|page=[https://books.google.com/books?id=SdtDDQAAQBAJ&pg=PT51 PT 51]}}</ref>