If the power to tax involves the power to destroy … then conversely the power to grant credit involves the power to create and divert.– Charles M. Haar, 1960
To win over skeptics during hearings on the National Housing Act, Winfield Riefler, a witness from the Federal Reserve Board, touted the fundamental safety of the mortgages the proposed Federal Housing Administration would insure: “These will be model home mortgage instruments, and not distress instruments.” He went on to explain that only high-quality lenders, borrowers who met strict credit standards, properties sure to hold their value, and a mortgage contract itself that contained all of the latest safeguards would be eligible for insurance under the new program. “The standards are designed to be the highest type.”
“Where do you draw the line?” New York Senator Robert Wagner responded. “What is eligible and what is not?” The text of the proposed legislation offered only vague guidance. After the National Housing Act was signed into law in August 1934, officials of the newly established FHA faced the gargantuan task of writing rules that would allow the agency to function as Riefler had promised. Importantly, they had to specify just what kinds of borrowers, what kinds of lenders, and what kinds of properties would be of the quality that the government deemed insurable.
To some extent, all public policy must contend with questions of access and exclusion. Whether by deliberate design aimed at “target populations” or by happenstance as formal policies and regulations interact with on-the-ground conditions (producing, for example, policy drift), policies contain barriers that can systematically make them easier or more difficult for some groups to access than others. This quest to develop policy standards (not to mention the quest for standards at the firm or market level), then, can have major consequences for the distribution of opportunities in a society. Yet political scientists often overlook that side of policy-making, focusing instead on the factors that precipitate a policy's passage.
This chapter has two aims. The first is to examine howgovernment mortgage policies have delimited access to mortgage credit over time and, in particular, to understand whyit was that certain decisions about access were made (or not made) in the phase of implementation, leading to easier access for some groups of Americans, or some types of housing, but not others.