After the Great Depression, Franklin D. Roosevelt established the FHA as a way of improving homeownership rates by helping people become able to pay for homes, to improve the quality of housing standards, and to help with employment in the housing industry. The primary method for this was insuring mortgage loans. What this means is that the FHA would assess a mortgage that a bank or another lender would be giving a buyer and then determine whether or not to back the mortgage based on a variety of factors. Essentially, FHA insurance meant that the FHA had concluded that a mortgage was a reliable investment. With this assurance, people were able to buy homes with a lower down payment than ever before, dramatically increasing people's ability to purchase homes. Additionally, as a result of the government supporting loans, loans became less risky, and so interest rates went down.
But things became complicated when introducing the valuation system. Ideally, the risk assessment system would be a method of fairly assessing whether or not neighborhoods and buyers could be depended on to return on investment. But far from being fair, the FHA's grading system singled out minority-majority neighborhoods as always being inferior to white neighborhoods and refused to insure the vast majority of them. Thus, while white neighborhoods were benefiting from the new FHA policies, minority communities like North Lawndale were falling deeper and deeper into poverty and becoming targeted by speculators.
