JCN and the Rise of City Planning—Part III: Early Housing Legislation
Photo of a 1939 redlining map of Kansas City, taken from Mapping Inequality
In June of 1934 as part of the New Deal, Congress passed the National Housing Act, forming the Federal Housing Administration (FHA). Franklin D. Roosevelt had invited Nichols to be a member of the committee that created the FHA, and the FHA later promoted Nichols’ deed restrictions. Something akin to Nichols’ cloak-and-dagger practices can be observed in the text of the Underwriting Manual, which was added in 1938 as a guide to providing a borrower with a mortgage loan (or not). What I find particularly striking is the relatively unchecked power present within these two texts. The first line of the National Housing Act read, “The President is authorized to create a Federal Housing Administration, all of the powers of which shall be exercised by a Federal Housing Administrator…who shall be appointed by the President” (emphasis added). [1] Further down the page, the authors continued,
The Administrator may establish such agencies, accept and utilize such voluntary and uncompensated services, utilize such Federal officers and employees…as he may find necessary, and may prescribe their authorities, duties, responsibilities, and tenure and fix their compensation, without regard to the provisions of other laws applicable to the employment or compensation of officers or employees of the United States. [2]
Similarly, the Underwriting Manual provided underwriting staff with an enormous amount of power in determining who received a mortgage loan. The authors of the manual both stated and implied their goal to be objective throughout the risk rating process, but they also admitted their failure to achieve this. In some cases, they were explicit about this failure, but overall, the process itself left ample opportunity for inequitable practice. The structure of the rating system presented in these paragraphs is over-generalized and biased toward the opinions held by the underwriting staff despite claims of “reasonableness.”
Here, I present five paragraphs of the Underwriting Manual, accompanied by an illustrative grid. All excerpts were taken from Part II, Section 6 of the manual and pertain to mortgage risk rating. While portions of the Underwriting Manual make explicit mentions of race and promote racist policies, I have chosen sections devoid of the mention of race to show how cloak-and-dagger practices (e.g., euphemistic or coded language) can be employed in such documents.
I have scanned the text for words and phrases that suggest sound logic or objective practice but allow for something else entirely. This obscuring language can be identified not only by its appeal to objective practice but also by its failure to provide any notion of practical (ethical) execution. In this same line of thought, I have searched the text for general appeals to reason as they assist in the crafting of this façade.
601. Mortgage risk rating is the process of thoroughly analyzing the major factors of risk undertaken in the making of a mortgage loan and the rating of the mortgage in accordance with the risk involved in the loan transaction or in connection with the insurance of the mortgage. Risk rating is made necessary by the terms of the National Housing Act. It provides a uniform method for determining whether or not a dwelling mortgage is eligible for mutual insurance under Title II of the National Housing Act. In addition, it serves as a basis for the classification of mortgages in accordance with their quality as investments. [3]
Paragraph 601, the first paragraph in “Methods in Mortgage Risk Rating,” sets up the “face” of the remaining text with two specific phrases. In the first sentence, risk rating is defined as a “process of thoroughly analyzing the major factors of risk in the making of a mortgage loan” (emphasis added). The authors further support this initial comment by mentioning a “uniform method.” The first phrase suggests that the method in question is sound, while the second assumes and suggests that this sound method is applied equally to each case. Certainly, given the known use of redlining that originated from these documents, it is clear that a uniform method was not applied.
612. It cannot be presumed that the relative importance given to the various factors has been determined with the ultimate degree of accuracy. However, reasonableness is held as the objective, and it is anticipated that future research and experience will enable a greater degree of accuracy. Certain weights have been ascribed to the elements of risk considered in the risk rating system. The nature of these weights should be thoroughly understood by the men who use the system. The widths ascribed were fixed by a large number of experienced mortgage men. At the present time the introduction of the weights into the system may be compared with the fire insurance rate system adopted many years ago and gradually corrected through the years as the relative importance of the risk factors became known. Experience to date indicates, however, that the weights used in the risk rating system are sufficiently correct to obtain results which are reasonable and justified. [4]
Some context is first needed to explain the “various factors” referenced in the first sentence. Risk evaluation was broken into four categories: the rating of the property, location, borrower, and the overall mortgage pattern. The “various factors” referred to the smaller elements rated in each category, such as “Structural Soundness” of the property, “Relative Economic Stability” of the location, “Social and Economic Characteristics” of the borrower, and the “Ratio of Loan to Value” in consideration of the mortgage pattern rating. Ratings of these smaller elements, or “various factors,” were compiled into the overall ratings for each category.
In Paragraph 612, the authors first admit that the actual analysis may not meet the standards mentioned in 601, but they claim that “reasonableness is held as the objective.” However, there is no criteria or explanation given of what “reasonableness” actually entails. The very wording, reasonableness being “held,” implies that some person or group of persons is doing the holding. Does this mean that it is generally held as belief, or that specific persons or groups will judge the reasonability of the ratings? At the same time, it suggests that reasonability holds the same meaning for each member of the underwriting staff. This language allows for any member of the underwriting staff to argue for their “reasonable” ratings. Without clarification, what would be unreasonable? At the time of this document and the following decades, denying mortgage loans to people of color was well within the bounds of “reason.”
Then, not only were staff members’ ratings comprised of these “various factors,” but these factors were weighted differently. The authors stated that the weights were assigned by “a large number of experienced mortgage men.” These men were private actors (refer to Part II for a discussion of housing as public vs. private) with the power to influence legislation that could benefit them and their industry. In addition to coming to some trusted consensus, these men were experienced. While I do not doubt the validity of a majority vote, or the benefit of experience, without further explanation or support, this statement acts as the empty promises already seen in 601. Sound logic is suggested without proof of that logic in practice. The paragraph ends with a somewhat euphemistic admission. The system is claimed to be “sufficiently correct to obtain results which are reasonable and justified” (emphasis added).
617. The risk rating system is designed to guide the judgment of Underwriting Staffs, to attain a degree of accuracy, and to secure a degree of controlled uniformity. The system requires the exercise of good judgment at every step in the procedure. It is not a formula which can be applied without discrimination. [5]
622. In the processing of an application for insurance, each feature is given a rating. Each risk feature is either an individual risk factor or comprised of a number of correlated factors which can be analyzed separately but treated as a unit. For example, the feature, Sufficiency of Utilities and Conveniences, requires consideration of the extent and adequacy of street improvements, public utilities, and municipal services. The resulting risk contributed by the presence, absence, cost, or quality of any of these is reflected in the rating of the entire feature. [6]
Paragraph 617 seems to speak for itself for the most part. As a grad school professor of mine once said, discrimination is “baked into the cake.” While “discrimination” is used in a different sense here, it points to the fact that the authors acknowledged the subjectivity (or “bias” and “racism”) inherent in the task of risk rating.
Paragraph 622 first discusses the nature of the “various factors” mentioned earlier. Some are individual, but some are comprised of multiple contributing components that are given one general rating. This grouping process assumes that certain factors are more important, meaning individual factors are significant enough to be rated on their own while less significant factors are grouped and undeserving of an individual rating. Thus, grouped factors carry a single number, let’s say a 3, when one of the internal factors of that group may deserve a 1 and another may deserve a 5. The overall designation of a 3 negates the potential importance of these individual ratings.
The rating grid [7] is directly relevant to Paragraphs 626 and 627. The grid shows the specific factors considered in the rating of a borrower. The overall rating numbers are listed at the top while the individual factors are weighted differently, as seen by the smaller numbers in each box. An “X” is placed in the box that correlates with the staff member’s numerical rating—“Reject”, 1, 2, 3, 4, or 5. The smaller number within that box is then written in the right-hand “Rating” column. For example, if the applicant in question received a 5 in Social and Economic Characteristics, this would have correlated to a rating of 15. The ratings were then added to provide the “Total Rating of the Borrower” at the bottom right.
627. In rating the individual risk features, the risk rating system requires differentiation between six degrees of excellence or poorness of conditions. First, differentiation must be made between a condition that results in risk so great as to warrant rejection of the insurance application. Above this, differentiation must be made between conditions ranging from “poor but acceptable” on up the scale of excellence through “fair” and “good” to “excellent.” These designations are presented here simply to indicate that the system recognizes that risk measurements are relative. The terms themselves are not used on the forms because they would convey implications beyond the simple idea of rating as suggested by the use of the figures 1, 2, 3, 4, and 5. Each feature is rated by placing an X mark opposite it in the grid. Every feature must be rated but not more than one such mark is made for any one feature. A feature rating in the Reject column indicates that conditions relating to it are such that insurance of the mortgage should be refused. A 1 column rating would indicate a very poor condition just above the reject margin. A 5 column rating would indicate that excellent conditions pertain to the feature. Intermediate ratings would cover the range in between. [8]
The qualifiers of condition mentioned in this paragraph—fair, good, excellent—are not accompanied by any standard of what actually constitutes a particular condition. The authors stated that the “system recognizes that risk measurements are relative,” and there is an attempt to remedy this by translating these qualifiers of condition into numbers: “The terms themselves are not used on the forms because they would convey implications beyond the simple idea of rating as suggested by the use of the figures 1, 2, 3, 4, and 5.” In this way, the numbers are stand-ins for subjective ratings. But the equivalency of certain qualifiers to certain numbers is later explained—1 equaling a poor condition, 5 as equivalent to excellent—showing that the number is indeed simply an objective face put on the subjective ratings. They are demonstrated to be the same thing. If the only way to understand the numbers is to know what condition they relate to, and without a given standard of what constitutes “poor” or “excellent” conditions, how does one make objective ratings?
Overall, the text continually implies two distinct parties, the underwriting staff members and the borrower or applicant who is at their mercy. It is the relationship between these two groups that can translate the subjectivity present within the text into unfair practices, particularly for a person of color seeking homeownership. The text assumes the “reasonableness” of the staff member and their ability to apply a method uniformly. However, regardless of one’s ideas on race and class, belonging to a certain demographic is likely to shape one’s opinions on the measures found within the risk rating system. The euphemistic or misleading language used in the text defends these biased ratings under the guise of reason. It is easy to fall into unfair practices when the system of risk rating allows, indeed relies upon, such subjectivity. More insidious than this accidental “falling,” it is easiest to get away with unfair practices when it can be done under the protection of the law.
The analyses of the speeches of Nichols and his contemporaries, along with the Underwriting Manual, provide observable processes of obscuration, or cloak-and-dagger practices and language. Nichols’ appeals to idealism and simultaneous lack of inclusivity, like the Underwriting Manual’s appeals to reason, provide a front that may be used to advantage some and disadvantage others. As these executions of private motive take place, they are accepted for their self-proclaimed, outward appearance of public welfare. What is ethically at stake when public and historical discourses accept the civically oriented tone of such texts without acknowledging the effects of their allowances? Of great concern are the injustices that may occur when private interest excels without limit under the camouflage of public intent. Often, early city planning rhetoric and housing legislation operated linguistically as fair and even utopian promises of equitable, reasonable practice but failed to provide a measure by which to check the actual practices that took place. Furthermore, these texts appealed to fair and equitable practice among White homebuyers, as Black, Jewish, Asian, Latinx, and Native American homebuyers were not considered within the ideal.
These two texts and others fostered inequitable practices, and much like the rhetoric of Nichols and his contemporaries that I discussed in Part II, they gave precedent to later regulation and discourse. The veiling of private motives by appeals to public interest has continued to the present through ineffective legislation and practices such as contract-selling and sub-prime lending that work around fair housing legislation to disadvantage people of color. Without an understanding of the ways in which this cloaking may take place, legislators and even public opinion fails to recognize the existence of this practice in a contemporary context, and as a result, discrimination and oppression continue. It is imperative that the use of obscuration or an objective front be scrutinized to provide for a truly fair future for housing (and education, voting, income, healthcare, and policing). In Part IV, I discuss the continuation of cloak-and-dagger practices, from redlining to contract selling, mass incarceration and its effects on housing, urban renewal and gentrification, an ongoing discriminatory lack of green investment, and parallels outside of housing.
Notes
[1] National Housing Act of 1934 (Washington DC: Congress, June, 1934), 1246.
[2] National Housing Act of 1934, 1246.
[3] Underwriting Manual (Washington DC: Federal Housing Administration, February, 1938), 601–603.
[4] Underwriting Manual, 611–613.
[5] Underwriting Manual, 616–619.
[6] Underwriting Manual, 621–625.
[7] Underwriting Manual, 625–627.
[8] Underwriting Manual, 625–627.
