The Color of Money: Black Banks and the Racial Wealth Gap

by Mehrsa Baradaran

The FHA did more to shape American life than any other government agency created during the New Deal. It is also unparalleled in the injustice its policies wrought on the black population. The FHA was created by the National Housing Act of 1934 and was supplemented and expanded through the 1944 Servicemen’s Readjustment Act (the GI Bill), administered by the VA. Between 1934 and 1968, the FHA and VA programs operated to open a spigot of mortgage lending that flowed through the banking system.18 The FHA did not lend money itself, but it created a large insurance fund backed by the U.S. Treasury that would guarantee all approved mortgage loans, which shifted the bulk of the risk of loan default from banks to the government.19 By creating a buffer to absorb default risks, this new government infrastructure opened the floodgates