Homeownership Policies in the United States

1 Important Homeownership Policies

In this lesson, we will look at several federal policies that impacted homeownership in United States.  These programs played a crucial role in expanding homeownership opportunities and shaping the landscape of housing in the United States throughout the 20th century.

Objectives

  1. Learn about the major homeownership policies in the 20th and 21st century
  2. Understand how these major policies impacted segregation across the U.S. 

Lectures

Key Takeaway:

  • The Federal Housing Administration (FHA), established in 1934, which aimed to increase homeownership by providing mortgage insurance and promoting affordable loans.
  • The Servicemen’s Readjustment Act, created in 1944 to assist veterans in obtaining home loans with favorable terms.
  • The Community Reinvestment Act (CRA) of 1977 encouraged banks to invest in low-income communities and support affordable housing initiatives.

 

The 1934 National Housing Act and the Creation of the Federal Housing Administration

The 1934 National Housing Act aimed to revive the housing market during the Great Depression by establishing the Federal Housing Administration (FHA). The FHA provided insurance to mortgage lenders, encouraging them to extend loans with lower down payments and longer payment periods. This allowed more families to buy homes, which stimulated economic growth. The Act also granted funds for public housing construction and initiated slum clearance programs.

Innovative for its time, the Act tackled a multifaceted problem through various policies that addressed mortgage lending practices and housing construction efforts. However, it was criticized for perpetuating segregationist housing practices and excluding minority groups from affordable homeownership opportunities.

Purpose and Goals of the 1934 National Housing Act

This act was created to address the housing crisis and provide affordable housing options for lower-income families.

Establishing the Federal Housing Administration (FHA)

The establishment of an institution that would regulate and support the housing market surged as a solution to deal with the prevailing financial crisis. The Federal Housing Administration (FHA) was created with a purpose to alleviate the Great Depression’s housing crisis by providing mortgage insurance to lenders. Instead of lending directly, the FHA insured private lenders against the risks associated with lending to home buyers, creating accessibility to affordable mortgages for low and middle-income earners, contributing significantly to the growth of the U.S. housing market.

The FHA established mandatory financial standards on loan amounts, terms, and interest rates that led to safer investments for mortgage companies. The institution enforced construction codes and regulations, ensuring high-quality homes for buyers. Additionally, FHA provided increased construction employment opportunities in a time when jobs were scarce.

 

Providing Mortgage Insurance

The 1934 National Housing Act aimed to promote affordable housing across the country. As a part of this act, the government started providing mortgage insurance, ensuring that people with low or moderate incomes could get access to home loans.

  • This insurance covered up to 80% of the loan amount and motivated private lenders to provide mortgages.
  • The government’s insurance also reduced the risk for lenders and encouraged them to offer flexible repayment terms.
  • It enabled borrowers to put down a smaller down payment and reduced the cost of borrowing money.
  • The program added stability to housing finance systems by limiting defaults, foreclosures, and losses from real estate investments which in turn stimulated consumers’ expenditures and formed provisions in business regulations.

While providing mortgage insurance, the 1934 National Housing Act also ensured that all homes financed through this program met specific livability standards set by the Federal Housing Administration (FHA).

 

Encouraging Home Ownership

The National Housing Act of 1934 aimed to promote property ownership through different mechanisms. The act provided affordable loans, ensured low-interest rates, and introduced mortgage insurance for homeownership guarantee. It was an attempt to encourage more people to own their homes and invest in their future by providing financial support at a crucial time.

Moreover, the act also encouraged banks and lending institutions to make long-term loans rather than solely focusing on short-term benefits and profits. This led to a shift in the lending industry’s focus towards supporting long-term investment plans for individuals, communities, and families. The act had far-reaching consequences that reshaped not only the housing market but wider economic structures too.

Additionally, the act helped increase public confidence in homeownership by creating a more secure environment for those who sought financial support from federal agencies. This increased confidence further stimulated the demand for housing, which eventually led to economic growth as government funding boosted employment opportunities across various sectors.

 

Impact of the 1934 National Housing Act

To understand how the 1934 National Housing Act impacted you, delve into its various benefits. Increased home ownership, reduced foreclosures, and stimulated housing market are some of the aspects that will be explored.

Increased Home Ownership

The National Housing Act of 1934 was a turning point for American homeownership, as it stimulated growth in the sector. The act created government-backed mortgages enabling people to buy homes with small deposits and lower interest rates.

Government-Backed Mortgages

A government-backed mortgage is a loan insured by one of three federal government agencies: the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA) or the Department of Veterans Affairs (VA).

For each loan type, the backing agency insures the loan amount, protecting the lender in the event a borrower can’t repay the debt. The arrangement significantly reduces the risk to lenders and may make it easier for them to offer lower interest rates or low or even no down payment requirements.

As a result of this change, an increasing number of individuals were able to own their homes. This led to an increased sense of stability for families, as well as economic growth through construction jobs and other related industries.

While the National Housing Act impacted homeownership significantly, its ramifications extended beyond mere housing. Homeownership created a sense of community and belonging that led to higher education levels amongst children who grew up in such homes.

 

Reducing the Rate of Foreclosures

The National Housing Act of 1934 significantly impacted the foreclosure rate in America by introducing new policies that aimed to stabilize the housing market. One of the key measures taken was the creation of the Federal Housing Administration, which insured mortgages offered by private lenders, greatly reducing the risk associated with lending to homeowners. This reduced the number of foreclosures as homeowners were now able to obtain more affordable mortgages and had a safety net in case of financial difficulties.

Furthermore, this act established standardized building codes for all new construction, ensuring better quality homes for homeowners. The introduction of appraisals also helped in scrutinizing property valuations, establishing genuine property values in local markets, altogether benefiting homeowners by providing fair prices.

 

Stimulating the Housing Market

The National Housing Act of 1934 had a profound impact on the real estate industry, supercharging the housing market and stimulating demand for residential properties at a time when the country was emerging from the Great Depression. The legislation created a path for homeownership through the introduction of government-backed loans, enabling many families to obtain homes that previously seemed out of reach. Consequently, the high demand propelled growth in new construction projects and further stimulated economic recovery.

 

 

Criticism of the 1934 National Housing Act

Racial and Ethnic Discrimination

The 1934 National Housing Act had discriminatory policies based on ethnicity and race. The Act supported the creation of segregated communities, where people were restricted to certain areas on the basis of their skin color, religion or language. This caused minority groups to be pushed into overcrowded, underserved neighborhoods with inadequate living conditions and little access to resources.

 

 

 

These segregationist practices were perpetuated by the Federal Housing Authority (FHA), which implemented strict zoning regulations that prevented Black Americans from obtaining mortgages in many parts of the country. Additionally, the FHA’s guidance required appraisers to value homes based on race and ethnicity, thereby further diminishing opportunities for minorities. Such exclusionary actions further impeded the ability of these groups to attain economic success. 

Racial Covenants

Racial covenants are agreements between property owners that restrict the sale or rental of a property to certain racial or ethnic groups. These covenants were often used in the United States to prevent African Americans and other minorities from buying homes in certain neighborhoods.

The FHA’s underwriting manual stated that “If a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes.” This meant that banks were less likely to approve loans for homes in neighborhoods where African Americans or other minorities lived.

Racial covenants and the FHA’s underwriting manual had a devastating impact on African Americans and other minorities. They made it difficult for these groups to buy homes, which led to a decline in homeownership rates and a decrease in property values in minority communities.

Racial covenants were outlawed by the Fair Housing Act of 1968, but their effects are still felt today. African Americans and other minorities continue to have lower homeownership rates and lower property values than white Americans. These communities also have less access to loans and other financial services.

There are a number of things that can be done to address the legacy of racial covenants and the FHA’s underwriting manual. One important step is to provide financial assistance to minority communities. This can help to improve homeownership rates and property values. Another important step is to increase access to loans and other financial services. This can help to improve economic opportunity in these communities.

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Image: Advertisement for Ansley Park, Atlanta’s first neighborhood with a racial deed restriction

Check out the Mapping Prejudice Map that shows racial covenants across Minneapolis, Minnesota

Redlining

Redlining is a discriminatory practice in which banks, insurance companies, and other financial institutions refuse to offer services to people who live in certain neighborhoods. These neighborhoods are often low-income and minority neighborhoods.

Redlining was created in the 1930s by the Home Owners’ Loan Corporation (HOLC), a federal agency that was created to help homeowners refinance their mortgages during the Great Depression. HOLC created maps of the United States that divided neighborhoods into four categories:

  • A: The best neighborhoods, where mortgages were considered to be a safe investment.
  • B: Still good neighborhoods, but with some risk.
  • C: Still decent neighborhoods, but with more risk.
  • D: The worst neighborhoods, where mortgages were considered to be a very risky investment.

HOLC’s maps were used by banks and other financial institutions to make decisions about whether or not to offer loans to people who lived in certain neighborhoods. Neighborhoods that were labeled as “D” were often redlined, meaning that banks and other financial institutions refused to offer loans to people who lived there.

Redlining had a devastating impact on low-income and minority communities. It made it difficult for people to buy homes, which led to a decline in property values and a decrease in investment in these communities. Redlining also made it difficult for people to get loans for businesses, which led to a decline in economic opportunity.

Redlining was outlawed by the Fair Housing Act of 1968, but its effects are still felt today. Low-income and minority communities continue to have lower homeownership rates and lower property values than white communities. These communities also have less access to loans and other financial services.

 

Overall, racial inequality was embedded in the policies of housing during this era. Many of the effects are still visible in cities today.  

Read: Redlining Was Banned Decades Ago, but Its Effects on Black Communities Can’t Be Erased

Lack of Oversight

The National Housing Act of 1934 lacked effective supervision. The government chose to leave lending decisions to private banks, which resulted in a lack of standards and poorly constructed homes. This led to concerns about defaults and foreclosures, particularly in lower-income areas.

The absence of oversight made it difficult for the government to ensure that housing standards were met by lenders who received federal funds for mortgage loans. As a result, many people were unable to obtain suitable housing due to a lack of quality control, leading to widespread dissatisfaction with the program.

In reality, there was no recourse for borrowers who found themselves facing foreclosure when they fell behind on their payments. The National Housing Act failed to provide mechanisms for accountability or legal protections for those in need. This lack of protection was evident later when some borrowers lost their properties due to unforeseen circumstances, such as job loss or illness.

To improve this situation, regulators should have established stricter guidelines and provided assistance tailored towards the needs of individual communities. Implementing training programs for mortgage lenders could also help reduce potential defaults and foreclosures. Additionally, providing homeowners with robust legal safeguards would protect them from predatory lending practices and mitigate some of the risks inherent in home finance.

 

Subsidized suburban development

The 1934 Housing Act also had a significant impact on suburban development. The FHA’s mortgage insurance program was primarily aimed at single-family homes in suburban areas, which were seen as more desirable than urban areas. This led to a boom in suburban development, as developers could obtain FHA-insured mortgages to build new homes and sell them to buyers who could also obtain FHA-insured mortgages.  

Read: The Other “Subsidized Housing” Federal Aid to Suburbanization, 1940s-1960s

 

The Servicemen’s Readjustment Act of 1944 (GI Bill) and Its Impact on Housing 

The Servicemen’s Readjustment Act of 1944 was a law that aimed to provide educational, employment, housing and healthcare benefits to American veterans who were returning from the Second World War. The Act is also known as the GI Bill of Rights and had provisions like free college tuition, low-interest mortgages, and small business loans for veterans. Such benefits helped millions of ex-servicemen successfully transition into civilian life after their military duty.

The most significant benefits available under the act included educational assistance, loan guarantees for homes and businesses, and employment opportunities. These benefits were critical in enabling veterans to rebuild their lives and establish financial security after experiencing the hardships of war.

 

The 1944 Servicemen’s Readjustment Act provided surviving veterans with a wide range of benefits which included Home Loan Benefits.

  • Eligible veterans were given opportunity to purchase homes with zero down payment.
  • Low-interest rates are available to veterans on the purchase or improvement of homes.
  • Veterans were given access to foreclosure protection, which means loans cannot be foreclosed within two years of deployment.
  • Veterans can also receive loans to purchase farmland, as well as make improvements to their homes.
  • VA also provides assistance in refinancing existing loans and even in accommodating veterans suffering from disability to make the necessary home improvements.
  • Prior to the act, it was challenging for veterans to acquire loans, but the 1944 Servicemen’s Readjustment Act made it easier.

 After WWII, homeownership rates increased significantly.  

Graph that is labeled "Home Ownership Rate: 1900-2010." The graph is a red line that increases exponentially at 1940 until 1960 where it levels off.  It then increases again in the 2000s.

However, the GI Bill was not available to all soldiers. To pass the Bill, John Rankin of Mississippi, known for his inflammatory racist language, pushed to make the handouts from the GI Bill determined by states rather than federally mandated. Ultimately, southern states denied most Black veterans access to GI benefits. 

Read “How the GI Bill’s Promise was Denied to a Million Black WWII Veterans

Homeownership has been the driving force for wealth creation in America over the past 60 years. It offers several advantages over renting: mortgages payments can essentially be locked in for 30 years, while rents will rise steadily over that time; the mortgage interest deduction gives families a significant tax break each year; and home values have risen faster than inflation. In addition, a home is an asset that is easily passed from one generation to the next. By denying Black veterans access to the GI Bill, the federal government denied Black families access to intergenerational wealth building.  These benefits compound and grow with time. The result is that today’s white families in America have an average of $139,300 in wealth, compared to $12,780 for the average Black family. 

 

Fair Housing Act of 1968

 The Fair Housing Act of 1968 is a federal law that prohibits discrimination in housing based on race, color, religion, sex, familial status, and national origin. The law was passed in response to the widespread discrimination in housing that existed at the time.

The Fair Housing Act prohibits discrimination in all aspects of housing, including:

  • The sale, rental, and financing of housing
  • The advertising of housing
  • The terms and conditions of housing
  • The provision of housing services

The Fair Housing Act also prohibits discrimination in housing-related activities, such as:

  • The provision of housing assistance
  • The processing of housing applications
  • The evaluation of housing applications

The Fair Housing Act is enforced by the U.S. Department of Housing and Urban Development (HUD). HUD can investigate complaints of housing discrimination and can take enforcement actions, such as issuing fines or ordering changes in policies or practices.

The Fair Housing Act has been successful in reducing discrimination in housing. However, discrimination still exists, and HUD continues to receive complaints of housing discrimination.

Here are some of the specific ways that the Fair Housing Act fights against discrimination:

  • Prohibits discrimination in housing: The Fair Housing Act prohibits discrimination in all aspects of housing, including the sale, rental, and financing of housing. This means that landlords, real estate agents, and lenders cannot discriminate against potential tenants or buyers based on their race, color, religion, sex, familial status, or national origin.
  • Provides enforcement mechanisms: The Fair Housing Act gives HUD the authority to investigate complaints of housing discrimination and to take enforcement actions, such as issuing fines or ordering changes in policies or practices. This means that people who have been discriminated against in housing have a way to seek justice.
  • Educates the public: HUD also works to educate the public about the Fair Housing Act and about their rights under the law. This helps to ensure that people are aware of their rights and that they know how to file a complaint if they believe that they have been discriminated against.

 

Community Reinvestment Act and Its Effect on Lending Practices

The Community Reinvestment Act (CRA) is a United States federal law that was enacted in 1977. The law is designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. The CRA does not require banks to make loans to anyone who does not meet their credit standards, but it does require them to assess their lending practices and to make a good-faith effort to meet the credit needs of their communities.

The CRA has had a significant impact on lending practices. In the years since the law was enacted, banks have made billions of dollars in loans to low- and moderate-income borrowers. The CRA has also helped to reduce racial disparities in lending. A study by the Federal Reserve Bank of Boston found that the CRA has helped to increase homeownership rates among African Americans and Latinos.

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The CRA has been criticized by some who argue that it is too burdensome on banks and that it encourages banks to make risky loans. However, the law has also been praised by many who believe that it is essential to ensuring that all Americans have access to credit.

The CRA is a complex law with a long history. It has been amended several times since it was enacted, and it continues to be debated today. However, there is no doubt that the CRA has had a significant impact on lending practices in the United States.

Here are some of the specific effects of the CRA on lending practices:

  • Increased lending to low- and moderate-income borrowers: The CRA has led to an increase in lending to low- and moderate-income borrowers. According to the Federal Reserve, the share of loans made to low- and moderate-income borrowers increased from 25% in 1977 to 45% in 2017.
  • Reduced racial disparities in lending: The CRA has also helped to reduce racial disparities in lending. According to the Federal Reserve, the denial rate for mortgage loans to African Americans and Latinos declined from 25% in 1977 to 12% in 2017.
  • Increased investment in low- and moderate-income communities: The CRA has also led to increased investment in low- and moderate-income communities. Banks that are subject to the CRA are required to provide evidence of their lending and investment activities in low- and moderate-income communities. This has helped to spur economic development in these communities.

The Subprime Mortgage Crisis and Its Aftermath

The subprime mortgage crisis was a financial crisis that began in 2007 and lasted until 2010. The crisis was caused by a number of factors, including:

  • Easy access to credit: During the early 2000s, lenders loosened their lending standards, making it easier for people to qualify for mortgages, even if they had poor credit. This led to an increase in subprime lending, which is lending to borrowers with poor credit.
  • Rising housing prices: During the early 2000s, housing prices were rising rapidly. This made it seem like a good investment to buy a home, even if you couldn’t afford the monthly payments.
  • Financial deregulation: In the 1990s, the government began to deregulate the financial industry. This allowed banks to take on more risk, which made them more likely to make subprime loans.
  • Lack of oversight: There was a lack of oversight of the subprime mortgage market. This allowed lenders to make risky loans without being held accountable.

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When the housing bubble burst in 2007, many borrowers who had taken out subprime loans were unable to make their monthly payments. This led to a wave of foreclosures, which in turn led to a decline in the value of homes. This decline in home values caused many banks to lose money on their investments in subprime mortgages.

The subprime mortgage crisis had a devastating impact on the U.S. economy. It led to a recession, the loss of millions of jobs, and the collapse of several major banks. The crisis also led to a loss of confidence in the financial system, which made it difficult for businesses to get loans and invest in new projects.miansufi-housing-feature-21.webp

 

Efforts to Stabilize the Housing Market

In response to the crisis, the government took a number of steps to stabilize the housing market. These efforts included:

  • The Troubled Asset Relief Program (TARP): TARP was a $700 billion program that was designed to buy toxic assets from banks and other financial institutions. This helped to stabilize the financial system and make it easier for banks to lend money.
  • The Home Affordable Modification Program (HAMP): HAMP was a program that was designed to help homeowners who were struggling to make their mortgage payments. The program offered a variety of options to help homeowners, including reducing their monthly payments, extending the length of their loans, or forgiving some of their debt.
  • The Home Affordable Refinance Program (HARP): HARP was a program that was designed to help homeowners refinance their mortgages. The program allowed homeowners to refinance their mortgages even if they had negative equity in their homes.
  • The Neighborhood Stabilization Program (NSP): NSP was a program that was designed to help communities that were struggling with foreclosures and declining property values. The program provided funding for a variety of activities, including demolition of foreclosed properties, rehabilitation of vacant properties, and economic development initiatives.

 

Five Facts About Homeownership Programs in the United States:

  • The National Housing Act of 1934 created the Federal Housing Administration (FHA) to help revive the housing market during the Great Depression.
  • ✅ The Servicemen’s Readjustment Act of 1944, also known as the GI Bill, provided veterans with federally guaranteed home loans with no down payment.
  • The Fair Housing Act of 1968 prohibited discrimination in the sale, rental, and financing of housing based on race, religion, national origin, or sex
  • The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created the Consumer Financial Protection Bureau to regulate financial institutions and protect consumers from predatory lending.
  • The Housing and Economic Recovery Act of 2008 established the Federal Housing Finance Agency to regulate Fannie Mae and Freddie Mac and address the subprime mortgage crisis.

FAQs about Important Homeownership Policies

How did the Great Depression impact U.S. housing policies?

he housing market collapsed during the Depression, as many people lost their jobs and were unable to afford to pay their mortgages. This led to a sharp increase in foreclosures and evictions. In response, the federal government created a number of new housing programs, including the Federal Housing Administration (FHA) and the United States Housing Authority (USHA). These programs helped to stabilize the housing market and make it easier for people to buy homes.

What is the Home Owners’ Loan Corporation (HOLC) and what is its significance?

The Home Owners’ Loan Corporation (HOLC) was a New Deal program created in 1933 to help homeowners refinance their mortgages during the Great Depression. The HOLC insured mortgages, which made it easier for banks to lend money to people who wanted to buy homes. The HOLC also created maps of the United States that divided neighborhoods into four categories. HOLC’s maps were used by banks and other financial institutions to make decisions about whether or not to offer loans to people who lived in certain neighborhoods. Neighborhoods that were labeled as “D” were often redlined, meaning that banks and other financial institutions refused to offer loans to people who lived there.

What is the Community Reinvestment Act (CRA) and why is it important?

The CRA is based on the principle that banks have a responsibility to serve the communities where they are located. The CRA encourages banks to make loans to low- and moderate-income borrowers, to invest in community development projects, and to provide financial services to underserved communities. 

The CRA has been credited with helping to improve access to credit in low- and moderate-income communities. The CRA has also been credited with helping to revitalize these communities and to promote economic development.

 

Quick Check

When was redlining outlawed?

1934 National Housing Act

Response text to display when this answer is selected.

Community Reinvestment Act

Used to address the inequities that still remained due to decades of redlining

Fair Housing Act of 1968

Correct

Civil Rights Act of 1964

Answer reply text

Check Answer

 

 

 

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