Federal Housing Administration

The Federal Housing Administration was formed in 1934 and exists to this day. It was, as The Living New Deal explains, created as part of the Federal Housing Act, which aimed to “encourage improvement in housing standards and conditions, to provide a system of mutual mortgage insurance, and for other purposes.”       

   Roosevelt saw it as critical that fear of home loans generated by the recent housing market crash wouldn’t cause the industry to stay shattered long after the economy recovered. As The Living New Deal explains, he was already confident his government’s introduction of the idea of long term, low interest loans would fix most of the issues present in the previous housing crash, but he knew he needed to win back trust in the market. Thus he established the Federal Housing Administration, which insured banks against losses on mortgage loans.

   This was a resounding success, convincing banks to go back to loaning and enticing lenders with low interest rates. There was, and still is, however, a big issue with the Administration, as The Fair Housing Center of Greater Boston explains. As insurers, the Administration was in the business of risk management. They handled this, as the Center says, by creating a risk metric for properties, and incentivizing banks to make loans for lower risk properties. While this made sense financially, the metrics biased the loan market heavily against primarily poor and African American lenders, as many of their investments were considered “high risk”. This occurrence, known as redlining, made it even harder for those who were already struggling to receive financial aid, and many economists argue it was and still is a large source of furthered inequality in the United States.


“National Housing Act (1934)”, Living New Deal, The Living New Deal, n.d., livingnewdeal.org/glossary/national-housing-act-1934/

“National Housing Act (1934)”, The Fair Housing Center of Greater Boston, The Fair Housing Center of Greater Boston, n.d., livingnewdeal.org/glossary/national-housing-act-1934/

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