October 5, 2015 • 25 mins
Redlining is a word used to describe a lot of different patterns of economic discrimination. But during the Great Depression, real estate-related discrimination included systemized grading of neighborhoods based on the races that lived there.
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Episode Transcript
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Speaker 1 (00:00):
Welcome to Stuff you missed in History Class from how
Stuff Works dot com. Hello, and welcome to the podcast
I Am Training. We answer a lot of questions on
our Facebook and our Twitter. Some of them are about
(00:21):
the show, some of them are about specific episode. Sometimes
they're about articles that we post from other sources because
we think they're interesting or relevant. And every once in
a while, usually when we've posted something that's about discrimination
in some way, I have a conversation with somebody that
starts with them saying, explain to me why, in like
(00:43):
a really angry way, And a lot of times that
conversation plays out in a way that makes it clear
the person did not actually want an explanation. They were
kind of demanding an explanation, but really thinking that we
were gonna say, oh no, you're totally right, and that's
absolutely a valid reason to discriminate against these people. Uh.
(01:04):
It's never how it goes. That's neber what we're gonna do. Uh.
And but sometimes somebody demands that I explain something to them,
and it turns out they actually genuinely did want to know. Uh.
So I keep explaining to people why when they demand
explain to me why, even though most of the time,
that's not how it works out. Today's podcast is a
(01:26):
two parter that was inspired by one of these conversations,
and it's about the history of redlining, which is a
word that's now used to describe a lot of different
patterns of economic discrimination, but in this episode's context, it's
about the Great Depression, and it's specifically about buying houses.
Like I said, we're tackling the story in two parts,
(01:47):
and first we were going to talk about the Great
Depression itself and one of its lesser known effects, which
was changes in the housing market and the way loans
to buy houses actually work. We're also going to talk
about the Homeowner's Loan Corporation, which was created by the
federal government to try to save people's homes during the
Great Depression. And then in part two, we will talk
about the darker side of this whole story, how the
(02:09):
maps that the Homeowners Loan Corporation made and the trends
that those maps were documenting were used to discriminate against
people based on their race. So it is no big secret.
I think most listeners probably know that there was a
massive stock market crash on October and that crash sparked
(02:30):
the very long, extreme financial downturn that we refer to
as the Great Depression. This was an enormous economic crisis
in which about half of the banks in the United
States actually failed. The Great depressions height in ninety three,
about one quarter of Americans were unemployed, and the effects
of this event were really quite global, particularly in Europe.
(02:53):
Financial times were difficult all over the world. A lot
of history class discussions of out the Great Depression, especially
at like the K through twelve level, focus on homelessness,
breadlines and soup kitchens, shanty towns that were called Hooverville's
Franklin D. Roosevelt's New Deal, which was a set of
(03:13):
government policies, projects, and programs that were meant to put
people back to work and also shore up the economy.
Lessons on the New Deal often stick primarily to the
Works Progress Administration, which later became the Work Projects Administration,
and the Civilian Conservation Corps, which put unemployed people to
work on the nation's infrastructure, building things like bridges, highways, schools,
(03:35):
and parks. As a side note, I worked at one
of those parks uh all of the summers that I
was in college. These projects and their real world impact
in terms of government involvement and job availability are really
easy to visualize. It's much easier to imagine previously out
of work people getting jobs building schools than it is
(03:56):
to kind of get an imaginary sense of the abstraction
of a stock market crash, and a lot of new
deal policies set the stage for later government relief programs
and services that still exist today, especially that are the
ones related to helping people that are in financial distress,
and for these reasons. All of this is usually what's
(04:18):
front and center when people talk about the Great Depression
and its aftermath, But a lot of government policies and
programs that attempted to end the Great Depression weren't quite
as tangible. For example, changes that were made to mortgage lending,
just like in the United States more recent housing market crisis,
during the Great Depression, a lot of homeowners were at
(04:39):
risk of defaulting on their mortgages, going into foreclosure, and
losing their homes. Obviously, lots of houses falling into foreclosure
is bad for the economy on multiple levels. Homeowners lose
all the money that they've invested into their homes, along
with any future returns they would have gotten as their
home increased in value. The values of the homes in
(04:59):
the s rounding area decline as the market is flooded
with foreclosures that can be purchased for cheap. The effects
then trickled down to other industries like construction and renovation,
which slowed down significantly, and a ripple effect spreads through
the rest of the economy. Plus, the trauma of losing
a home in the financial strain of having to find
new housing and relocate when already in a state of
(05:22):
financial distress directly and negatively affects the families who were
living in those houses. So the Great Depression obviously a
lot of people lost their jobs or they had to
take lower paying jobs than consequently could not pay their
regular mortgage payment. But then compounding this issue in the
nineteen thirties was the fact that at the time, most
(05:42):
mortgages were what's referred to as balloon loans. After repaying
the mortgage for three to five years at one monthly
repayment rate, borrowers had to pay off the entire rest
of the loan, which was generally for not more than
half of the of the home's value in one lumps
some There was also one of the reasons why only
(06:02):
about of people own their homes before the Great Depression.
That was a lot of money to get together for
a down payment, and that balloon payment at the end
was a scary thought. Even for borrowers who did take
that plunge. Most of the time they couldn't actually afford
this final balloon payment, so people had to refinance their
homes before that payment came due. But thanks to unemployment
(06:26):
and the bank failures and all of the other economic
stresses that were going on as part of the Great Depression,
people who needed to refinance before their balloon payment was
due either couldn't qualify for a new mortgage or they
couldn't find a lender to work with. There were also
issues with people who were in good standing and could
afford their payments, but whose mortgage lenders had failed. And
(06:46):
then there were the folks who had just lost their
jobs and couldn't afford their payments at all. So, just
as happened after the United States housing markets started its
downward slide much more recently in two thousand and seven,
the government stepped in new programs and policies were put
into place during the Great depression that were meant to
help homeowners save their homes and help new buyers afford
(07:10):
their first homes. In y three, the federal government created
the Homeowners Loan Corporation or h o l C, which
was funded to help existing homeowners refinance their mortgages to
an affordable rates they could save their houses. The Federal
Housing Administration or f h A was created a year
later and was focused on affordable mortgages for borrowers who
(07:31):
wanted to buy a home, as well as overall standards
for mortgage lending. Our main focus for this two parter
is the h O l C, and we're going to
talk about that more in detail after we have a
brief word from one of the sponsors that keeps this
show going. So to understand redlining, you have to have
a clear sense of how a mortgage works from all
(07:52):
of the aspects, including the buyer and the bank. So
we're going to talk about some mortgage basics for the
many of our list sceners who probably have never bought
a house in the United States. So, a mortgage loan
is a loan used to buy a house. This is
a secured loan, meaning that the borrower has some kind
of collateral against the value of the loan, and in
(08:13):
the case of a mortgage, that collateral is the house
that you're purchasing. If you fail to pay back a
secured loan, the lender can, as repayment, take that collateral instead.
So in other words, if you default on your mortgage,
the bank can take your house. Home ownership is generally
considered to be an investment for buyers. The idea is
(08:34):
that you buy a house and the value of the
house increases over time, so that when you sell the
house you make money, or when you die, you can
leave your house to your heirs and they inherit a
piece of property that has significant value. This is definitely
not always true, as we have seen in the more
recent mortgage crisis that we have been referencing, but that's
(08:55):
how it's supposed to work. The whole system of home
buying and the real estate industry rests on the idea
that houses increase in value over time and are a
long term investment. It's also an investment for the bank
thanks to the significant amount of interest charged with a
conventional loan, and banks take a lot of steps to
(09:15):
try to make sure they are making a wise investment.
When you purchase a house, you have to get an
appraisal to determine how much the house is worth, and
that way, if you default on your mortgage, the bank
doesn't end up with a house that's worth a whole
lot less than the money that you still owe them.
Borrowers also have to prove that they will be able
to repay their loan. Most of the time this involves
(09:36):
a credit history and a credit score, although there are
some programs now for first time and underprivileged homebuyers who
haven't had the opportunity to build a reliable credit history yet,
and these programs like at other factors. Instead, they might
look at say a person's reliability and paying their rent,
or their ability to save the difference between their current
rent payment and how much their mortgage payment would be.
(09:58):
There are also lots of other pieces to this in
modern homebuying, but those are the parts that are most
relevant to what we're talking about, and this two parter.
So during the Great Depression, when borrowers approached the Homeowners
Loan Corporation, they were trying to save their homes, and
the h o l c's job was not only to
refinance loans that were in jeopardy, but also to make
(10:19):
sure that the government didn't suffer financially as a consequence.
Federal funding was going into this program, and the borrowers
were people who had already defaulted meeting. They were considered
risky right out of the gate, so there was a
big focus on making sure borrowers could reliably pay back
the money even in the midst of this ongoing financial crisis.
Mortgage and underwriting manuals, policies, rules, and a lot of
(10:42):
other documentation went into this which got bigger and more
convoluted over time. A lot of these are things that
anyone who is black the house and recognized the day.
You know, I'm having like such flashbacks as we discussed this. Yeah,
you and I have both bought homes and we have
in through all the rigamarole, uh and seeing sort of
(11:03):
what mortgage loans evolved into over this whole process, which
is usually a much longer term than three to five
years with a giant balloon payment at then. So here
is how history and Policies of the Homeowners Loan Corporation
describes these particular loans. H o l C loans were
restricted to mortgages and default or mortgages held by financial
(11:25):
institutions in distress and secured by non farm properties with
dwelling space for not more than four families and appraised
that not more than twenty thousand dollars by the h
o l C. No loans could exceed eight percent of
h o l C appraisal, nor could any loan exceed
fourteen thousand dollars. Loans were to bear not over five
(11:49):
percent interest and were to be amortized by monthly payments
during their fifteen year life, so insummation. You had to
be in financial distress. You're house couldn't be worth more
than twenty thous dollars, and you couldn't need more than
fourteen thousand dollars. Your home also couldn't be a farm
or part of a building with more than four living units.
(12:11):
There were to be clear, also some different aid programs
in place to help farmers, but they were different from
the standard homeowners assistants. Yeah, because h OLC refinancing also
looks a lot more like a normal mortgage loan today,
like it's fifteen years, which as a whole lot longer.
It's a stable interest rate. People still do get adjustable
(12:32):
rate interest loans, but like a conventional mortgage is a
lot more often like a fixed rate loan. So this
is sort of setting the model for home buying as
it exists today, and there was an enormous demand for
the h o LC's help. The four hundred field offices
that were set up were flooded with almost two million
(12:52):
requests for aid, with a grand total of six point
to billion dollars requested. Applicants had to get credit report
and the house had to be appraised, although the h
o l c s appraisal formula generally came up with
numbers that were above the market value. The same book
estimates that a full fifth of the nation's homeowners who
(13:13):
were living in their own homes and not living on
a farm applied for h o LC refinancing. Applications came
in for Of all the properties that qualified for the program,
only about half of these were approved, though, with the
rest being withdrawn or rejected. About ten percent of owner
occupied non farm homes that were in one to four
(13:35):
unit buildings got h o LC help. In terms of
the rejections, some of them were just not eligible they
were farms, or the owners weren't actually in financial distress
or the home was part of a bigger building more
than four units than was allowed. But the single biggest
cause for rejection, according to later analysis of the available documentation,
(13:56):
was quote inadequate security. This meant that, in one way
or another, the home that needed to be refinanced was
not sufficient. But for about half that were approved, the
h o l C and by extension, the federal government,
we're backing loans for a lot of houses. With all
those houses as collateral, the h o LC became a
(14:17):
major force in the world of mortgage lending. Also, loans
weren't due to be paid off for fifteen years, so
that was, again, as Tracy said, much longer than the
three to five years that had been common up to
this point, and much closer to the way mortgages continue
to work today. So the government had some concerns about
making sure that the homes that it held as collateral
were worth the money that was owed on them. These
(14:40):
concerns were legitimate thanks to default on the refinanced mortgages
and voluntary surrenders from people who were facing default. The
h o LC owned more than two hundred thousand houses
by nineteen thirty seven in the interest of protecting its investment,
the Federal Home Loan Bank Board, which is above the
(15:00):
h o l C in the federal chain of command,
asked it to evaluate trends in home ownership in American cities.
As a result, the h o LC launched the City
Survey Program in nineteen thirty five. It worked with lenders
and real estate agents in order to assess more than
two hundred major US cities, evaluate the neighborhoods and make
(15:21):
color coded graded maps documenting each neighborhood's desirability. To do this,
assessors all over the United States looked at all kinds
of factors for each community. Mckep in mind, this was
five The communities that they were looking at were heavily segregated,
and race definitely played a factor in these assessments. So
(15:42):
kind of wrap up what we've talked about so far.
The government was wanting to protect its investments in all
of these houses that it was refinancing, and to that
end put a bunch of people to work making maps
to make sure that the neighborhoods were appropriate. We're gonna
talk about how those maths are created after a brief
(16:03):
sponsor break, So whenever we talk about segregation as it
persists today. People point out that folks like to live
around people who are similar to them, so it's easy
to see why immigrants from one particular nation might, for example,
all settle in the same neighborhood, or why neighborhoods can
diverge from one another along racial lines. And this is true.
(16:26):
It's also simultaneously true that, for roughly a century after
the abolition of slavery, neighborhood segregation was legally enforced regardless
of whether people wanted to live near other people who
were similar to them. The law made it next to
impossible to live anywhere else for a lot of social
and economic reasons. A lot of those patterns that used
to be legally enforced still exists today, even though segregation
(16:50):
itself is illegal. Originally, racially specific zoning laws were used
to enforce neighborhood segregation. Cities and states would have zoning
laws that specified, for example, that a black person couldn't
live in a majority white neighborhood. But in nineteen seventeen,
zoning based on race was declared unconstitutional by the Supreme Court.
(17:14):
This decision was called Buchanan versus Warley. Warley a black
man from Louisville, Kentucky, had bought a house from Buchanan,
a white man. However, Louisville's zoning laws prevented a black
person from living on a block where the majority of
the residents were white, and this was the case on
Buchanan's block. The Supreme Court ruled that this was unconstitutional. However,
(17:35):
the decision applied only to legal statutes. It did not
pertain to private agreements or two issues that were not
enforced by the states. This led to two changes. First,
the zoning laws themselves were revised so that instead of
specifying what race could live where, they prevented the construction
of smaller, affordable homes that lower income families, most of
(17:58):
whom were black or another acial or ethnic minority, could
afford to buy. And racially restrictive covenants, especially in majority
white neighborhoods, took the place of zoning to keep the
neighborhoods explicitly segregated. So to explain what that actually is.
Racially restrictive covenants were clauses in the deeds to people's homes,
(18:20):
primarily in white neighborhoods, that prevented white homeowners from selling
their property to black buyers. African Americans are not the
only people who have been targeted by racially restrictive covenants,
but they were the most common inclusion, and they're what's
relevant to what we're talking about in these episodes. Although
racially restrictive covenants are illegal today, they do still exist
(18:42):
in some deeds from properties that have been passed down
through inheritance rather than having been resold. So when the
city survey program started, the assessors were going into deeply
segregated neighborhoods to document everything about them, including the races
and ethnicities of people who were living there. But it
started with stuff that was a lot more basic than that.
(19:04):
The first thing was to describe the terrain. The instruction said,
quote describe or give word picture of uh quote lay
of the land, I e. Level, rolling, hilly, mentioned physical
features like slopes, bluffs, fills, gullies, streams from their assessors
(19:24):
described favorable and unfavorable influences. Favorable influences might be parks,
good schools, churches, recreation centers, good traffic, and various nice
amenities that a neighborhood might have. Detrimental influences might be
traffic that is not good, noise, graffiti, proximity to manufacturing
(19:45):
facilities or slaughter houses, the presence of apartments, flood risk,
and to quote from the instructions, quote infiltrations of lower
grade population or different racial groups. Then assess there's looked
at the types of dwellings and the neighborhood, who lived there,
what they did for a living, how much money they made,
(20:06):
how the population was or wasn't shifting include to include
more minorities, whether people owned or rented. It really went
on and on and After assessing all these factors, with
all these elements, a lot of which really are pretty
objective and related to whether a neighborhood might be considered
a nice neighborhood, all that data would go into a map,
(20:27):
and the map would sort each neighborhood into four categories.
And those categories were best, still desirable, definitely, declining, and hazardous.
The hazardous neighborhoods, almost a hundred percent of the time,
had one thing in common, regardless of what its buildings
were like, how much money it's residents made, what they
did for a living, or anything else. Almost always their
(20:51):
residents were predominantly black. So in the nineteen thirties, the
City Survey Program, which was a project of the United
States federal government, was creating maps of all of the
nation's major cities and color coding all the places where
black people lived as hazardous. Which is where we are
going to pause this episode. Next time, we're going to
(21:13):
talk about some specific examples from these maps, how and
where the maps were used, and how the practice of redlining,
which these maps either started or simply documented, depending on
who you ask, still exists today. Tracy, do you always
also have a little bit of listener mail that's maybe
not quite so uh intense, But I do, and it's
(21:35):
it's not it's not quite so intense. I have. First,
I'm gonna call this an anti correction. Okay, we have
gotten so many emails about this that I feel like
I feel compelled to clarify even though the emails that
we've been getting are not correct. So in our Child
Migrant Program episode, we read from Prime Minister Kevin Red's
(21:58):
apology speech to the child migrants, and this was an
apology for them having been removed from the settings that
were familiar to them and then denied appropriate care once
they got to Australia. We've gotten quite a few letters
from people telling us that that apology was not for
the Child Migrant Program, that it was for the Stolen Generation,
(22:21):
which were Aboriginal children who were taken from their homes
and put into residential schools to try to force them
to assimilate into white society. So those were two different speeches,
both of them delivered by Prime Minister Kevin Rud. We've
gotten a whole bunch of emails from people who have
(22:41):
said that apology didn't have anything to do with the
Child Migrant Program. I double checked. We definitely read from
the Child Migrant Program apology speech and the Stolen Generation
apology speech was a separate thing, all so delivered by
Prime Minister Kevin Rudd. So thanks to all the folks
(23:05):
who have written in. I definitely double checked. There were
definitely two different speeches. That's the thing. One thing, too,
is an actual correction. It's from David on our Facebook
and he says in the last episode, at least until yesterday,
that I think you said that Mexico obtained its independence
in eighteen twenty one, although the quote is not totally bias.
(23:25):
The Mexican War of Independence ended on September one, I
doubt you will characterize the United States obtained its independence
in eighteen seventy three as the Revolutionary War ended September
three of that year. No, the US independence is counted
from the day was declared July four, seventeen seventy six.
With the same tone, I would urge you to mention
(23:46):
that Mexico obtained its independence in eighteen ten as independence
was declared on September sixteenth, eighteen ten. And that was
from David. And I'm not completely sure whether that one
was related to our pastry war Epis Stowed or our
battle of our Siege of Behart episode. It could have
been either, but that's a valid point that I had
(24:06):
not thought about at all. Um, and I have a
feeling we have said that about other nations as well,
that they obtained their independence on a particular date, but generally,
like the day that's considered to be the nation's origin
is the day that it's independence was declared, if you know,
(24:26):
the if the war that often follows that uh ended
in the new nations favor. I had never thought of
that before, So thank you for your note, David. UM
if you would like to write to us about this
or any other subject where at history podcast at how
stuff works dot com. We're also on Facebook at facebook
dot com slash miss in history and on Twitter at
(24:47):
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tumbler dot com. We're also on pentterrist at pentriest dot
com slash miss in history, and on Instagram at miss
in history. If you would like to go to our
parent companies website, which is how stuff works dot um,
you will find all sorts of information about the mortgage
industry that exists today and all of the various tax
and legal things that come along with find a house.
(25:08):
You can also come to our website, which is missed
in history dot com, where you will find show notes
for this and all of our other episodes, lots of
cool links, an archive of episodes, every episode that we've
ever done. So you can do all that and a
whole lot more at how stuff works dot com or
missing history dot com. For more on this and thousands
(25:29):
of other topics, is it how stuff works dot com.
Welcome to Stuff you missed in History Class from how
Stuff Works dot com. Hello, and welcome to the podcast
I Am Training. We answer a lot of questions on
our Facebook and our Twitter. Some of them are about
(00:21):
the show, some of them are about specific episode. Sometimes
they're about articles that we post from other sources because
we think they're interesting or relevant. And every once in
a while, usually when we've posted something that's about discrimination
in some way, I have a conversation with somebody that
starts with them saying, explain to me why, in like
(00:43):
a really angry way, And a lot of times that
conversation plays out in a way that makes it clear
the person did not actually want an explanation. They were
kind of demanding an explanation, but really thinking that we
were gonna say, oh no, you're totally right, and that's
absolutely a valid reason to discriminate against these people. Uh.
(01:04):
It's never how it goes. That's neber what we're gonna do. Uh.
And but sometimes somebody demands that I explain something to them,
and it turns out they actually genuinely did want to know. Uh.
So I keep explaining to people why when they demand
explain to me why, even though most of the time,
that's not how it works out. Today's podcast is a
(01:26):
two parter that was inspired by one of these conversations,
and it's about the history of redlining, which is a
word that's now used to describe a lot of different
patterns of economic discrimination, but in this episode's context, it's
about the Great Depression, and it's specifically about buying houses.
Like I said, we're tackling the story in two parts,
(01:47):
and first we were going to talk about the Great
Depression itself and one of its lesser known effects, which
was changes in the housing market and the way loans
to buy houses actually work. We're also going to talk
about the Homeowner's Loan Corporation, which was created by the
federal government to try to save people's homes during the
Great Depression. And then in part two, we will talk
about the darker side of this whole story, how the
(02:09):
maps that the Homeowners Loan Corporation made and the trends
that those maps were documenting were used to discriminate against
people based on their race. So it is no big secret.
I think most listeners probably know that there was a
massive stock market crash on October and that crash sparked
(02:30):
the very long, extreme financial downturn that we refer to
as the Great Depression. This was an enormous economic crisis
in which about half of the banks in the United
States actually failed. The Great depressions height in ninety three,
about one quarter of Americans were unemployed, and the effects
of this event were really quite global, particularly in Europe.
(02:53):
Financial times were difficult all over the world. A lot
of history class discussions of out the Great Depression, especially
at like the K through twelve level, focus on homelessness,
breadlines and soup kitchens, shanty towns that were called Hooverville's
Franklin D. Roosevelt's New Deal, which was a set of
(03:13):
government policies, projects, and programs that were meant to put
people back to work and also shore up the economy.
Lessons on the New Deal often stick primarily to the
Works Progress Administration, which later became the Work Projects Administration,
and the Civilian Conservation Corps, which put unemployed people to
work on the nation's infrastructure, building things like bridges, highways, schools,
(03:35):
and parks. As a side note, I worked at one
of those parks uh all of the summers that I
was in college. These projects and their real world impact
in terms of government involvement and job availability are really
easy to visualize. It's much easier to imagine previously out
of work people getting jobs building schools than it is
(03:56):
to kind of get an imaginary sense of the abstraction
of a stock market crash, and a lot of new
deal policies set the stage for later government relief programs
and services that still exist today, especially that are the
ones related to helping people that are in financial distress,
and for these reasons. All of this is usually what's
(04:18):
front and center when people talk about the Great Depression
and its aftermath, But a lot of government policies and
programs that attempted to end the Great Depression weren't quite
as tangible. For example, changes that were made to mortgage lending,
just like in the United States more recent housing market crisis,
during the Great Depression, a lot of homeowners were at
(04:39):
risk of defaulting on their mortgages, going into foreclosure, and
losing their homes. Obviously, lots of houses falling into foreclosure
is bad for the economy on multiple levels. Homeowners lose
all the money that they've invested into their homes, along
with any future returns they would have gotten as their
home increased in value. The values of the homes in
(04:59):
the s rounding area decline as the market is flooded
with foreclosures that can be purchased for cheap. The effects
then trickled down to other industries like construction and renovation,
which slowed down significantly, and a ripple effect spreads through
the rest of the economy. Plus, the trauma of losing
a home in the financial strain of having to find
new housing and relocate when already in a state of
(05:22):
financial distress directly and negatively affects the families who were
living in those houses. So the Great Depression obviously a
lot of people lost their jobs or they had to
take lower paying jobs than consequently could not pay their
regular mortgage payment. But then compounding this issue in the
nineteen thirties was the fact that at the time, most
(05:42):
mortgages were what's referred to as balloon loans. After repaying
the mortgage for three to five years at one monthly
repayment rate, borrowers had to pay off the entire rest
of the loan, which was generally for not more than
half of the of the home's value in one lumps
some There was also one of the reasons why only
(06:02):
about of people own their homes before the Great Depression.
That was a lot of money to get together for
a down payment, and that balloon payment at the end
was a scary thought. Even for borrowers who did take
that plunge. Most of the time they couldn't actually afford
this final balloon payment, so people had to refinance their
homes before that payment came due. But thanks to unemployment
(06:26):
and the bank failures and all of the other economic
stresses that were going on as part of the Great Depression,
people who needed to refinance before their balloon payment was
due either couldn't qualify for a new mortgage or they
couldn't find a lender to work with. There were also
issues with people who were in good standing and could
afford their payments, but whose mortgage lenders had failed. And
(06:46):
then there were the folks who had just lost their
jobs and couldn't afford their payments at all. So, just
as happened after the United States housing markets started its
downward slide much more recently in two thousand and seven,
the government stepped in new programs and policies were put
into place during the Great depression that were meant to
help homeowners save their homes and help new buyers afford
(07:10):
their first homes. In y three, the federal government created
the Homeowners Loan Corporation or h o l C, which
was funded to help existing homeowners refinance their mortgages to
an affordable rates they could save their houses. The Federal
Housing Administration or f h A was created a year
later and was focused on affordable mortgages for borrowers who
(07:31):
wanted to buy a home, as well as overall standards
for mortgage lending. Our main focus for this two parter
is the h O l C, and we're going to
talk about that more in detail after we have a
brief word from one of the sponsors that keeps this
show going. So to understand redlining, you have to have
a clear sense of how a mortgage works from all
(07:52):
of the aspects, including the buyer and the bank. So
we're going to talk about some mortgage basics for the
many of our list sceners who probably have never bought
a house in the United States. So, a mortgage loan
is a loan used to buy a house. This is
a secured loan, meaning that the borrower has some kind
of collateral against the value of the loan, and in
(08:13):
the case of a mortgage, that collateral is the house
that you're purchasing. If you fail to pay back a
secured loan, the lender can, as repayment, take that collateral instead.
So in other words, if you default on your mortgage,
the bank can take your house. Home ownership is generally
considered to be an investment for buyers. The idea is
(08:34):
that you buy a house and the value of the
house increases over time, so that when you sell the
house you make money, or when you die, you can
leave your house to your heirs and they inherit a
piece of property that has significant value. This is definitely
not always true, as we have seen in the more
recent mortgage crisis that we have been referencing, but that's
(08:55):
how it's supposed to work. The whole system of home
buying and the real estate industry rests on the idea
that houses increase in value over time and are a
long term investment. It's also an investment for the bank
thanks to the significant amount of interest charged with a
conventional loan, and banks take a lot of steps to
(09:15):
try to make sure they are making a wise investment.
When you purchase a house, you have to get an
appraisal to determine how much the house is worth, and
that way, if you default on your mortgage, the bank
doesn't end up with a house that's worth a whole
lot less than the money that you still owe them.
Borrowers also have to prove that they will be able
to repay their loan. Most of the time this involves
(09:36):
a credit history and a credit score, although there are
some programs now for first time and underprivileged homebuyers who
haven't had the opportunity to build a reliable credit history yet,
and these programs like at other factors. Instead, they might
look at say a person's reliability and paying their rent,
or their ability to save the difference between their current
rent payment and how much their mortgage payment would be.
(09:58):
There are also lots of other pieces to this in
modern homebuying, but those are the parts that are most
relevant to what we're talking about, and this two parter.
So during the Great Depression, when borrowers approached the Homeowners
Loan Corporation, they were trying to save their homes, and
the h o l c's job was not only to
refinance loans that were in jeopardy, but also to make
(10:19):
sure that the government didn't suffer financially as a consequence.
Federal funding was going into this program, and the borrowers
were people who had already defaulted meeting. They were considered
risky right out of the gate, so there was a
big focus on making sure borrowers could reliably pay back
the money even in the midst of this ongoing financial crisis.
Mortgage and underwriting manuals, policies, rules, and a lot of
(10:42):
other documentation went into this which got bigger and more
convoluted over time. A lot of these are things that
anyone who is black the house and recognized the day.
You know, I'm having like such flashbacks as we discussed this. Yeah,
you and I have both bought homes and we have
in through all the rigamarole, uh and seeing sort of
(11:03):
what mortgage loans evolved into over this whole process, which
is usually a much longer term than three to five
years with a giant balloon payment at then. So here
is how history and Policies of the Homeowners Loan Corporation
describes these particular loans. H o l C loans were
restricted to mortgages and default or mortgages held by financial
(11:25):
institutions in distress and secured by non farm properties with
dwelling space for not more than four families and appraised
that not more than twenty thousand dollars by the h
o l C. No loans could exceed eight percent of
h o l C appraisal, nor could any loan exceed
fourteen thousand dollars. Loans were to bear not over five
(11:49):
percent interest and were to be amortized by monthly payments
during their fifteen year life, so insummation. You had to
be in financial distress. You're house couldn't be worth more
than twenty thous dollars, and you couldn't need more than
fourteen thousand dollars. Your home also couldn't be a farm
or part of a building with more than four living units.
(12:11):
There were to be clear, also some different aid programs
in place to help farmers, but they were different from
the standard homeowners assistants. Yeah, because h OLC refinancing also
looks a lot more like a normal mortgage loan today,
like it's fifteen years, which as a whole lot longer.
It's a stable interest rate. People still do get adjustable
(12:32):
rate interest loans, but like a conventional mortgage is a
lot more often like a fixed rate loan. So this
is sort of setting the model for home buying as
it exists today, and there was an enormous demand for
the h o LC's help. The four hundred field offices
that were set up were flooded with almost two million
(12:52):
requests for aid, with a grand total of six point
to billion dollars requested. Applicants had to get credit report
and the house had to be appraised, although the h
o l c s appraisal formula generally came up with
numbers that were above the market value. The same book
estimates that a full fifth of the nation's homeowners who
(13:13):
were living in their own homes and not living on
a farm applied for h o LC refinancing. Applications came
in for Of all the properties that qualified for the program,
only about half of these were approved, though, with the
rest being withdrawn or rejected. About ten percent of owner
occupied non farm homes that were in one to four
(13:35):
unit buildings got h o LC help. In terms of
the rejections, some of them were just not eligible they
were farms, or the owners weren't actually in financial distress
or the home was part of a bigger building more
than four units than was allowed. But the single biggest
cause for rejection, according to later analysis of the available documentation,
(13:56):
was quote inadequate security. This meant that, in one way
or another, the home that needed to be refinanced was
not sufficient. But for about half that were approved, the
h o l C and by extension, the federal government,
we're backing loans for a lot of houses. With all
those houses as collateral, the h o LC became a
(14:17):
major force in the world of mortgage lending. Also, loans
weren't due to be paid off for fifteen years, so
that was, again, as Tracy said, much longer than the
three to five years that had been common up to
this point, and much closer to the way mortgages continue
to work today. So the government had some concerns about
making sure that the homes that it held as collateral
were worth the money that was owed on them. These
(14:40):
concerns were legitimate thanks to default on the refinanced mortgages
and voluntary surrenders from people who were facing default. The
h o LC owned more than two hundred thousand houses
by nineteen thirty seven in the interest of protecting its investment,
the Federal Home Loan Bank Board, which is above the
(15:00):
h o l C in the federal chain of command,
asked it to evaluate trends in home ownership in American cities.
As a result, the h o LC launched the City
Survey Program in nineteen thirty five. It worked with lenders
and real estate agents in order to assess more than
two hundred major US cities, evaluate the neighborhoods and make
(15:21):
color coded graded maps documenting each neighborhood's desirability. To do this,
assessors all over the United States looked at all kinds
of factors for each community. Mckep in mind, this was
five The communities that they were looking at were heavily segregated,
and race definitely played a factor in these assessments. So
(15:42):
kind of wrap up what we've talked about so far.
The government was wanting to protect its investments in all
of these houses that it was refinancing, and to that
end put a bunch of people to work making maps
to make sure that the neighborhoods were appropriate. We're gonna
talk about how those maths are created after a brief
(16:03):
sponsor break, So whenever we talk about segregation as it
persists today. People point out that folks like to live
around people who are similar to them, so it's easy
to see why immigrants from one particular nation might, for example,
all settle in the same neighborhood, or why neighborhoods can
diverge from one another along racial lines. And this is true.
(16:26):
It's also simultaneously true that, for roughly a century after
the abolition of slavery, neighborhood segregation was legally enforced regardless
of whether people wanted to live near other people who
were similar to them. The law made it next to
impossible to live anywhere else for a lot of social
and economic reasons. A lot of those patterns that used
to be legally enforced still exists today, even though segregation
(16:50):
itself is illegal. Originally, racially specific zoning laws were used
to enforce neighborhood segregation. Cities and states would have zoning
laws that specified, for example, that a black person couldn't
live in a majority white neighborhood. But in nineteen seventeen,
zoning based on race was declared unconstitutional by the Supreme Court.
(17:14):
This decision was called Buchanan versus Warley. Warley a black
man from Louisville, Kentucky, had bought a house from Buchanan,
a white man. However, Louisville's zoning laws prevented a black
person from living on a block where the majority of
the residents were white, and this was the case on
Buchanan's block. The Supreme Court ruled that this was unconstitutional. However,
(17:35):
the decision applied only to legal statutes. It did not
pertain to private agreements or two issues that were not
enforced by the states. This led to two changes. First,
the zoning laws themselves were revised so that instead of
specifying what race could live where, they prevented the construction
of smaller, affordable homes that lower income families, most of
(17:58):
whom were black or another acial or ethnic minority, could
afford to buy. And racially restrictive covenants, especially in majority
white neighborhoods, took the place of zoning to keep the
neighborhoods explicitly segregated. So to explain what that actually is.
Racially restrictive covenants were clauses in the deeds to people's homes,
(18:20):
primarily in white neighborhoods, that prevented white homeowners from selling
their property to black buyers. African Americans are not the
only people who have been targeted by racially restrictive covenants,
but they were the most common inclusion, and they're what's
relevant to what we're talking about in these episodes. Although
racially restrictive covenants are illegal today, they do still exist
(18:42):
in some deeds from properties that have been passed down
through inheritance rather than having been resold. So when the
city survey program started, the assessors were going into deeply
segregated neighborhoods to document everything about them, including the races
and ethnicities of people who were living there. But it
started with stuff that was a lot more basic than that.
(19:04):
The first thing was to describe the terrain. The instruction said,
quote describe or give word picture of uh quote lay
of the land, I e. Level, rolling, hilly, mentioned physical
features like slopes, bluffs, fills, gullies, streams from their assessors
(19:24):
described favorable and unfavorable influences. Favorable influences might be parks,
good schools, churches, recreation centers, good traffic, and various nice
amenities that a neighborhood might have. Detrimental influences might be
traffic that is not good, noise, graffiti, proximity to manufacturing
(19:45):
facilities or slaughter houses, the presence of apartments, flood risk,
and to quote from the instructions, quote infiltrations of lower
grade population or different racial groups. Then assess there's looked
at the types of dwellings and the neighborhood, who lived there,
what they did for a living, how much money they made,
(20:06):
how the population was or wasn't shifting include to include
more minorities, whether people owned or rented. It really went
on and on and After assessing all these factors, with
all these elements, a lot of which really are pretty
objective and related to whether a neighborhood might be considered
a nice neighborhood, all that data would go into a map,
(20:27):
and the map would sort each neighborhood into four categories.
And those categories were best, still desirable, definitely, declining, and hazardous.
The hazardous neighborhoods, almost a hundred percent of the time,
had one thing in common, regardless of what its buildings
were like, how much money it's residents made, what they
did for a living, or anything else. Almost always their
(20:51):
residents were predominantly black. So in the nineteen thirties, the
City Survey Program, which was a project of the United
States federal government, was creating maps of all of the
nation's major cities and color coding all the places where
black people lived as hazardous. Which is where we are
going to pause this episode. Next time, we're going to
(21:13):
talk about some specific examples from these maps, how and
where the maps were used, and how the practice of redlining,
which these maps either started or simply documented, depending on
who you ask, still exists today. Tracy, do you always
also have a little bit of listener mail that's maybe
not quite so uh intense, But I do, and it's
(21:35):
it's not it's not quite so intense. I have. First,
I'm gonna call this an anti correction. Okay, we have
gotten so many emails about this that I feel like
I feel compelled to clarify even though the emails that
we've been getting are not correct. So in our Child
Migrant Program episode, we read from Prime Minister Kevin Red's
(21:58):
apology speech to the child migrants, and this was an
apology for them having been removed from the settings that
were familiar to them and then denied appropriate care once
they got to Australia. We've gotten quite a few letters
from people telling us that that apology was not for
the Child Migrant Program, that it was for the Stolen Generation,
(22:21):
which were Aboriginal children who were taken from their homes
and put into residential schools to try to force them
to assimilate into white society. So those were two different speeches,
both of them delivered by Prime Minister Kevin Rud. We've
gotten a whole bunch of emails from people who have
(22:41):
said that apology didn't have anything to do with the
Child Migrant Program. I double checked. We definitely read from
the Child Migrant Program apology speech and the Stolen Generation
apology speech was a separate thing, all so delivered by
Prime Minister Kevin Rudd. So thanks to all the folks
(23:05):
who have written in. I definitely double checked. There were
definitely two different speeches. That's the thing. One thing, too,
is an actual correction. It's from David on our Facebook
and he says in the last episode, at least until yesterday,
that I think you said that Mexico obtained its independence
in eighteen twenty one, although the quote is not totally bias.
(23:25):
The Mexican War of Independence ended on September one, I
doubt you will characterize the United States obtained its independence
in eighteen seventy three as the Revolutionary War ended September
three of that year. No, the US independence is counted
from the day was declared July four, seventeen seventy six.
With the same tone, I would urge you to mention
(23:46):
that Mexico obtained its independence in eighteen ten as independence
was declared on September sixteenth, eighteen ten. And that was
from David. And I'm not completely sure whether that one
was related to our pastry war Epis Stowed or our
battle of our Siege of Behart episode. It could have
been either, but that's a valid point that I had
(24:06):
not thought about at all. Um, and I have a
feeling we have said that about other nations as well,
that they obtained their independence on a particular date, but generally,
like the day that's considered to be the nation's origin
is the day that it's independence was declared, if you know,
(24:26):
the if the war that often follows that uh ended
in the new nations favor. I had never thought of
that before, So thank you for your note, David. UM
if you would like to write to us about this
or any other subject where at history podcast at how
stuff works dot com. We're also on Facebook at facebook
dot com slash miss in history and on Twitter at
(24:47):
miss in History. Our tumbler is miss in history dot
tumbler dot com. We're also on pentterrist at pentriest dot
com slash miss in history, and on Instagram at miss
in history. If you would like to go to our
parent companies website, which is how stuff works dot um,
you will find all sorts of information about the mortgage
industry that exists today and all of the various tax
and legal things that come along with find a house.
(25:08):
You can also come to our website, which is missed
in history dot com, where you will find show notes
for this and all of our other episodes, lots of
cool links, an archive of episodes, every episode that we've
ever done. So you can do all that and a
whole lot more at how stuff works dot com or
missing history dot com. For more on this and thousands
(25:29):
of other topics, is it how stuff works dot com.
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