How the FHA encouraged segregation

[aegsm76]

Originally Posted by jfrog

Terrible article to have to sift through for one interesting fact. About 99% of what it claimed was just a rant about how bad they thought that rule was and trying to act like everything would have been hunky dory without that rule. Not so. Let's not rewrite history so fast! The reason for the rule was a risk to the loan whether we now want to admit it or not. It was a risk whether blacks paid more for houses at that time or not. Why? Because it made the community less desirable to more people than it made it desirable to, especially in the 1930's. If a home for whatever reasons starts out more desirable and then loses desirability for any number of reasons the bank may not be able to resale the property for what was owed on it in the case of a default and that is precisely the risk the rule was looking to avoid.

Now suppose there's a 5% chance that not having that rule in place will mean many many loans in many communities will devaluate as the program continues and some of those loans are bound to default. What if all those loans that defaulted devalued because of the lack of such a rule. It could have been devastating. Why take that chance especially at that time?

jf - it was not the private market that did this. If that had happened and they could have justified it with market analysis, then so be it.
However, it was the government program that did this, to keep and promote segregation.
That is what I find reprehensible.

[jfrog]

Originally Posted by aegsm76

jf - it was not the private market that did this. If that had happened and they could have justified it with market analysis, then so be it.
However, it was the government program that did this, to keep and promote segregation.
That is what I find reprehensible.

Doesn't matter. When you are in the business of insuring mortgage loans (whether government or private) you can't take on the risk that your policy or lack of policy could systematically lead to all your properties losing value when defaults will inevitably happen. We are talking about a chance for a loss in the hundreds of billions that was easily mitigated. Personally in the 1930's I'd put the chance of that large loss happening as very high without that policy.

In other words, without that policy there would be no mortgage loan insurance program because it would have been seen as costing way to much.