Institutional racism in federally backed mortgages over the decades helped widen the racial wealth gap in the United States.
That’s one of the conclusions of a new study by a team of researchers from UC Santa Barbara and two other universities. Their findings show that the Black population was disproportionately denied federally backed loans from 1935 to 1947.
"The FHA's lending to Black borrowers was only about 2.1%, whereas the Black population at the time was 9.9%," said Wenfei Xu, Assistant Professor of Geography at UCSB. "The Veterans Administration lending to Black borrowers was 5.5%, with the same percentage of Black population statistic."
Xu co-authored a new research paper on the scope and impact of discrimination in mortgage lending. The four-year effort sifted through archival records to study what happened during a key period of homeownership expansion in the U.S.
They digitized the paper records of more than 100,000 mortgages insured by the FHA and VA and compared them with census records.
Shu said the study is more than a reflection on the past. The inability to buy homes in the 1930s and '40s meant a loss of generational wealth, which affects families to this day.
"The main source of most Americans' wealth is their house," Xu explained. "The disparity between how much wealth a homeowner has (and) how much wealth a renter has is over $350,000 today. Owning a home in the U.S. has allowed people to build wealth, so when we think about who was excluded from that process, we can think about attributing the racial wealth gap largely to this particular asset."
Xu added that the impacts were and are felt in other ways as well.
"There are the kinds of opportunities that Black residents might not have because they weren't able to live in a particular neighborhood. Maybe they don't have access to the nicer schools, the nicer parks...it's not just about wealth itself."
The researchers from UCSB, New York University, and the University of Virginia said it wasn’t just the FHA and VA responsible for the institutional racism. There were the local banks and savings and loans that dealt with the applicants. And, there were also white suburban communities which had clauses banning the sale of homes to people of color.
Xu said they were surprised to find the exclusionary mortgage practices didn’t extend to another group of people in the United States often targeted by discrimination at the time.
"There was a lot of research saying that European immigrants were also considered to be second-class minorities. People with Jewish, or Italian, or Eastern European backgrounds were generally considered less credit-worthy. Our research found that both the FHA and the VA lent to immigrants at the same rate proportional to the (white) population."
Xu said researchers are seeking more information from past decades, as they continue to study the issue.
"Now, we are trying to collect loan records from the '50s, '60s, (and) '70s, so we can get a better understanding of how these patterns changed as American suburbanization unfolded, but also as these patterns changed when the FHA was supposed to have reversed redlining practices."
The researchers say one of the lessons they’ve learned is that we need to examine the implications mortgage and housing policies may have for future generations.
