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PREFACE FROM 1936 FHA UNDERWRITING MANUAL
 
1. This Underwriting Manual is issued by the Federal Housing Administration. It contains instructions and regulations governing the procedure to be followed by Underwriting Departments in Insuring Offices.
2. The Manual describes the techniques used by the Federal Housing Administration to determine whether or not mortgages are eligible for insurance under Title II of the National Housing Act. Eligibility is determined by risk rating. This process consists of an examination of mortgage risk and embraces valuation.
3. The salaried underwriting staff and duly-appointed fee consultants are furnished with loose-leaf Underwriting Manuals. Each of these manuals, including contents and binder, is numbered and remains the property of the Federal Housing Administration. Copies assigned to staff members or fee consultants are listed in Washington in the name of the individual to whom assigned. They may not be destroyed or transferred and shall be surrendered upon demand of the Federal Housing Administration.
4. Revisions of this manual are issued by supplying new or substitute pages for the loose-leaf edition. Such pages indicate the dates upon which their contents become effective. They are to be inserted in their proper places as indicated by the page numbers. Page numbers correspond to the paragraph numbers.
5. In order to promote a broad understanding of the underwriting and valuation principles and procedure adopted and advocated by the Federal Housing Administration, the Underwriting Manual is made available to individuals and institutions. Such manuals are bound and contain an imprint on the cover indicating the date to which revisions have been made.
 

 

EXAMPLES OF RACIAL EXCLUSION AND SEGREGATION

In the 1934 FHA Underwriting Manual, under "Protection from Adverse Influences" paragraphs 309 - 311:

309. The points of consideration here are the factors which afford protection and preservation of the desirable neighborhood character. Numerous influences can so change the characteristics of a neighborhood that it will become entirely undesirable for residential purposes. Protection against some adverse influences is obtained by the proper zoning and deed restrictions that prevail in a neighborhood. Other unfavorable actors may exist outside of the neighborhood and cannot be controlled. Published and utilized city planning affords some assistance in preventing the occurrence of adverse influences. Sometimes the character of a neighborhood may be so well established that it is relatively free from undesirable influences although no zoning or deed restrictions or similar protection may exist. The natural geography of a neighborhood may also be such that adverse influential factors are kept out.

310. Some adverse influences may be immediately noticeable while others arise gradually or are destined to occur after a certain number of years. The estimated time of such occurrence must, therefore, be compared to the life of the mortgage to arrive at a proper rating. The more important among the adverse influential factors are the ingress of undesirable racial or nationality groups; infiltration of business or commercial uses of properties; the presence of smoke, odors, fog, heavy trafficked streets, and railroads. Nuisances which affect the entire neighborhood must be included as adverse influences.

311. All mortgages on properties in neighborhoods definitely protected in any way against the occurrence of unfavorable influences obtain a higher rating. The possibility of occurrence of such influences within the life of the mortgage would cause a lower rating or disqualification. The actual rating given must be commensurate with the degree to which the adverse influence occurrence of unfavorable influences obtain a higher rating. The possibility of occurrence of such influences within the life of the mortgage would cause a lower rating or disqualification. The actual rating given must be commensurate with the degree to which the adverse influence occurs or is likely to occur. 

 

In the 1936 version, it further elaborates in paragraphs 229, 266 & 284 :

229.The geographical position of a location may afford in certain instances reliable protection against adverse influences. If the location lies in the middle of an area well developed with a uniform type of residential properties, and if the location is away from main arteries which would logically be used for business purposes, probability of a change in type, use, or occupancy of properties at this location is remote. The Valuator should consider carefully the immunity or lack of immunity offered to the location because of its geographical position within the city. Natural or artificially established barriers will prove effective in protecting a neighborhood and the locations within it from adverse influences. Usually the protection against adverse influences afforded by these means include prevention of the infiltration of business and industrial uses, lower- class occupancy, and inharmonious racial groups. A location close to a public park or area of similar nature is usually well protected from infiltration of business and lower social occupancy coming from that direction. Hills and ravines and other peculiarities of topography many times make encroachment of inharmonious uses so difficult that protection is afforded. A college campus often protects locations in its vicinity. A high-speed traffic artery or a wide street parkway may prevent the expansion of inharmonious uses to a location on the opposite side of the street. These natural and artificial barriers are of such importance that the Valuator should make a thorough study to determine their presence and reflect such conditions in the rating of this feature. On the other hand, when a high-speed traffic artery passes directly through a desirable neighborhood area with similar development on each side of the artery, instead of offering a protection the noise and danger attendant upon its presence constitutes in itself an adverse influence. The same holds good for the presence of railroads, elevated or surface lines, and other transportation.

266. The social class of the parents of children at the school will in many instances have a vital bearing. Thus, although physical surroundings of a neighborhood area may be favor- able and conducive to enjoyable, pleasant living in its locations, if the children of people living in such an area are compelled to attend school where the majority or a goodly 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. In such an instance it might well be that for the payment of a fee children of this area could determine what is needed by the present and prospective occupants of the location and make his rating from what is present in comparison with what is needed or desirable. Where facilities are in- sufficient and such absence has a detrimental effect upon the marketability and rentability of properties situated near the location a low rating will probably result.

284 (3). Recorded deed restrictions should strengthen and supplement zoning ordinances and to be really effective should include the provisions listed below. The restrictions should be recorded with the deed and should run for a period of at least twenty years. Recommended restrictions include the following:

(a) Allocation of definite areas for specific uses such as single or double-family houses, apartments, and business structures.
(b) The placement of buildings so they will have adequate light and air with assurance of a space of at least ten feet between buildings.
(c) Prohibition of the resubdivision of lots.
(d) Prohibition of the erection of more than one dwelling per lot.
(e) Control of the design of all buildings through requiring their approval by a qualified committee and by appropriate cost limitations.
(f) Prohibition of nuisances or undesirable buildings such as stables, pig pens, temporary dwellings, and high fences.
(g) Prohibition of the occupancy of properties except by the race for which they are intended.
(h) Appropriate provisions for enforcement.

 

United States Federal Housing Administration, "Underwriting Manual, Underwriting and Valuation Procedure Under Title II of the National Housing Act."