Theodor de Bry’s 1590 engraving of Secoton, from John White’s watercolors. Public domain.
The National Housing Act of 1934 insured home mortgages so lenders would write longer loans with smaller down payments.
A stretched household that could not meet even the smaller down payment, or that lived on a street lenders would not touch, stayed outside the new mortgage.
A household with a steady wage and a house on a street the underwriters liked could buy with a loan that paid down a little each month instead of coming due in a lump.
A lender that made an insured loan shifted the default risk toward the government insurance, and still followed manuals that treated Black and mixed neighborhoods as places not to lend.
Before this, many home loans were short, covered only part of the price, and had to be refinanced or paid off in full when the term ended.
Insurance made the long mortgage a normal product for the borrowers who qualified.
The same rules that made lenders feel safe also steered credit away from Black and mixed streets, so the modern mortgage and the excluded block were built in one office.
National Housing Act of 1934; Jackson, Crabgrass Frontier (1985)