A History of Exclusion

How African Americans were blocked from living in most East Bay neighborhoods: an excerpt from the 2017 book "The Color of Law."


(page 2 of 3)

San Jose Public Library, California Room

Milpitas city officials and residents strongly opposed allowing black Ford plant workers to live nearby.

To solve the inability of middle-class renters to purchase single- family homes for the first time, Congress and President Roosevelt created the Federal Housing Administration in 1934. The FHA insured bank mortgages that covered 80 percent of purchase prices, had terms of 20 years, and were fully amortized. To be eligible for such insurance, the FHA insisted on doing its own appraisal of the property to make certain that the loan had a low risk of default. Because the FHA’s appraisal standards included a whites-only requirement, racial segregation now became an official requirement of the federal mortgage insurance program. The FHA judged that properties would probably be too risky for insurance if they were in racially mixed neighborhoods or even in white neighborhoods near black ones that might possibly integrate in the future.

When a bank applied to the FHA for insurance on a prospective loan, the agency conducted a property appraisal, which was also likely performed by a local real estate agent hired by the agency. As the volume of applications increased, the agency hired its own appraisers, usually from the ranks of the private real estate agents who had previously been working as contractors for the FHA. To guide their work, the FHA provided them with an Underwriting Manual. The first, issued in 1935, gave this instruction: “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 in values.” Appraisers were told to give higher ratings where “[p]rotection against some adverse influences is obtained,” and that “[i]mportant among adverse influences ... are infiltration of inharmonious racial or nationality groups.” The manual concluded that “[a]ll mortgages on properties protected against [such] unfavorable influences, to the extent such protection is possible, will obtain a high rating.”

The FHA discouraged banks from making any loans at all in urban neighborhoods rather than newly built suburbs; according to the Underwriting Manual, “older properties . . . have a tendency to accelerate the rate of transition to lower class occupancy.” The FHA favored mortgages in areas where boulevards or highways served to separate African-American families from whites, stating that “[n]atural or artificially established barriers will prove effective in protecting a neighborhood and the locations within it from adverse influences, ... includ[ing] prevention of the infiltration of ... lower class occupancy, and inharmonious racial groups.”

The FHA was particularly concerned with preventing school desegregation. Its manual warned that if children “are compelled to attend school where the majority or a considerable number of the pupils represent a far lower level of society or an incompatible racial element, the neighborhood under consideration will prove far less stable and desirable than if this condition did not exist,” and mortgage lending in such neighborhoods would be risky.

Subsequent editions of the Underwriting Manual through the 1940s repeated these guidelines. In 1947, the FHA removed words like “inharmonious racial groups” from the manual but barely pretended that this represented a policy change. The manual still specified lower valuation when “compatibility among the neighborhood occupants” was lacking, and to make sure there was no misunderstanding, the FHA’s head told Congress that the agency had no right to require nondiscrimination in its mortgage insurance program. The 1952 Underwriting Manual continued to base property valuations, in part, on whether properties were located in neighborhoods where there was “compatibility among the neighborhood occupants.”

In 1958, a white San Francisco schoolteacher, Gerald Cohn, purchased a house with an FHA-guaranteed mortgage in the Elmwood district of Berkeley. By the closing date, Cohn wasn’t ready to move in and, while keeping up his mortgage payments, rented the house to a fellow teacher, Alfred Simmons, an African American. The Berkeley chief of police asked the FBI to inquire how Simmons had managed to get into this all-white community. The bureau questioned Cohn’s neighbors in San Francisco but failed to find evidence that he had obtained his mortgage under false pretenses—in other words, that he had never intended to occupy his Berkeley home but had always planned to rent to an African American. The FBI referred the case to the U.S. attorney, who refused to prosecute because no law had been broken. The FHA, however, then blacklisted Cohn, advising him that he would be “denied the benefits of participation in the FHA insurance program” and never again be able to obtain a government-backed mortgage.

The director of the San Francisco FHA office wrote to him, “This is to advise you that any application for mortgage insurance under the programs of this Administration submitted by you or any firm in which you have ten per cent interest, will be rejected on the basis of an Unsatisfactory Risk Determination made by this office on April 30, 1959.”

In thousands of communities, FHA policy was the same, with very few exceptions: no guarantees for mortgages to African Americans, or to whites who might lease to African Americans, regardless of the applicants’ creditworthiness.

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