VA Housing Loans and Race

Investing News

The U.S. Department of Veterans Affairs, which is commonly referred to as the VA, offers home loan programs to help qualified individuals and families buy, build, or improve a home or they can refinance an existing home loan.

While federal law requires VA lenders to abide by Fair Housing laws, that wasn’t always the case. Black veterans are routinely denied mortgages and some of the other benefits provided to vets under the GI Bill. We review the history of racism within this part of the lending industry and where it stands now.

Key Takeaways

  • The GI Bill provided returning World War II veterans with certain benefits, including education grants, unemployment insurance, and low-interest mortgages.
  • Black veterans received a disproportionate share of dishonorable and blue discharges, all of which made them ineligible for GI Bill benefits.
  • Redlining and overtly racist covenants prevented many Black individuals, including veterans, from getting mortgages and/or moving into suburbs.
  • Decades of racism in the U.S. housing and lending industries have widened racial gaps in education and wealth.

What Is the GI Bill?

The Serviceman’s Readjustment Act, which is commonly known as the GI Bill of Rights or the GI Bill, was signed into law by President Franklin D. Roosevelt in 1944. It provided a variety of benefits to returning World War II veterans, including:

  • Tuition grants (for vocational school and college)
  • Low-interest mortgages
  • Small business loans
  • Job training
  • Privileges in the hiring process
  • Unemployment insurance

Amendments added full disability coverage and the construction of more VA hospitals. Further legislation extended benefits to all qualifying veterans, not just those who had served in World War II.

Black World War II Veterans Denied Benefits

While the bill promised prosperity to veterans returning from the war, many Black veterans missed out. One problem was that the GI Bill was available only to veterans who were honorably discharged. Black veterans were given a disproportionate share of dishonorable discharges and so-called blue discharges, which were neither honorable nor dishonorable.

Black veterans who qualified for the GI Bill faced other roadblocks. For example, those who applied for unemployment insurance were denied benefits if any type of work was available—even if those jobs provided less than subsistence wages.

It was also difficult to find facilities that allowed Black veterans to take advantage of GI Bill education programs. In Indianapolis, Black veterans enrolled in a vocational program at a segregated high school were unable to study plumbing, electricity, and printing because only white students were permitted to use the equipment.

Nearly 75 years after receiving a blue discharge, World War II veteran Nelson Henry, Jr.’s discharge was upgraded to honorable. He died less than a year later at the age of 96.

Racism Shaped the Bill

While the implementation of the GI Bill inherently favored white veterans, fear of Black advancement shaped the bill from the beginning. Some lawmakers were afraid that Black veterans, bolstered by public sympathy toward veterans, would advocate against Jim Crow laws. In response, those lawmakers did what they could to prevent Black veterans from using the GI Bill and getting ahead in society.

Former Rep. John E. Rankin of Mississippi, who was chair of the House Veterans Committee and a known racist, insisted that individual states run the program—not the federal government. He also tried to exclude Black people from unemployment insurance altogether.

While he ultimately lost that fight, unemployment benefits were still doled out inequitably. Postmasters in the South were even accused of preventing unemployment forms from being delivered to Black veterans, presumably to keep them from filing for benefits.

GI Bill Provisions

Guaranteed Mortgages

One of the provisions of the GI Bill was to make low-interest mortgages and small business loans available to veterans. These guaranteed loans were intended to help veterans become homeowners and build wealth.

But because of discrimination in housing and lending, Black veterans were often denied mortgages. The legal and discriminatory practice known as redlining was often to blame, as were overtly racist covenants that prevented Black people from buying homes in White suburbs.

Fewer than 100 of the 67,000 GI Bill mortgages in New York and northern New Jersey helped support home purchases made by non-whites.

VA Housing Loans

The bill also guaranteed low-interest loans, but the VA didn’t administer the program. That made it easy for white-run banks to deny mortgages to Black people.

Keep in mind that only a few years earlier, federal agency Home Owners’ Loan Corporation (HOLC) deployed examiners to grade neighborhoods around the country on their “perceived level of lending risk.” This was based on input gathered from local appraisers, bank loan officers, city officials, and real estate agents.

The HOLC created color-coded maps, with each color representing the neighborhood’s lending risk. They were rated as follows:

  • Green: Best
  • Blue: Still Desirable
  • Yellow: Definitely Declining
  • Red: Hazardous

Neighborhoods whose residents were predominantly Black or members of other minority groups were always colored red. That’s how the term redlining came into existence. According to Mapping Inequality, “Conservative, responsible lenders, in HOLC judgment, ‘would refuse to make loans in these areas [or] only on a conservative basis.’”

Fair Housing Act

For decades banks denied mortgages and loans to Black and minority families who lived in redlined areas—and it was legal for them to do so. The Fair Housing Act of 1968 put an end to the practice.

The Fair Housing Act prohibits discrimination based on race, color, religion, sex, national origin, handicap, or familial status during any part of a residential real estate transaction. It applies whether you rent or buy a home, get a mortgage, seek housing assistance, or take part in other housing-related activities.

Housing discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau (CFPB) or with the U.S. Department of Housing and Urban Development (HUD).

VA Housing and Fair Housing Laws

A VA loan is a mortgage offered through the U.S. Department of Veteran Affairs. The program is available to active and veteran service members and their families, including surviving spouses. The loans are backed by the VA, but issued through private lenders. The VA offers several types of mortgages:

Federal law requires VA lenders to obey Fair Housing laws. This applies to each and every single part of the housing process, including the selling and lending processes. Being denied a rental, home, or loan based on race, religion, sex, national origin, family status, and/or disability is a violation of federal law.

The GI Bill Today

The original GI expired in 1956. By that point, nearly half of World War II veterans participated in an education or a training program.

The term has since been used to describe different programs and initiatives that are designed to assist war veterans and, in some cases, their family members, to pay for education, training, and housing fees.

The two primary programs are:

  • The Post 9/11 GI Bill: If you’ve served at least 90 days of active duty since Sept. 10, 2001, and received an honorable discharge, you can use the Post 9/11 GI Bill. The program covers up to 100% of tuition and provides up to $1,000 toward your monthly rent. If you have unused education benefits, you may be able to transfer them to your spouse or children. Benefits expire 15 years after you’re discharged from active service before Jan. 1, 2013. The passing of the Forever GI Bill granted permanent benefits to those whose service ends after Jan. 1, 2013.
  • Montgomery GI Bill: If you’ve served at least two years of active duty and have a high school diploma or GED, you can use the Montgomery GI Bill. The education benefit provides up to $61,000 to cover programs such as college or technical courses, flight training, apprenticeships, and job training.

What Is the GI Bill?

The GI Bill was signed into law by Franklin D. Roosevelt in 1944. The goal was to provide veterans returning from World War II with a number of benefits to help them integrate back into civilian life, including education grants, low-interest mortgages, loans for small businesses, and vocational training. The original bill expired in 1956 but there are still programs in place under the GI Bill that are available for veterans to access.

How Did Racism Shape the GI Bill?

A number of lawmakers tried to use the bill to prevent Black veterans from accessing its benefits. Much of this stemmed from fears that Black Americans could be poised to advance in the country. A large number of Black veterans received blue or dishonorable discharges, which disqualified them from receiving the benefits that were only available to those with honorable discharges. Furthermore, some lawmakers called for states to administer and manage programs rather than the federal government and many Black veterans were effectively prevented from applying for and receiving unemployment benefits.

When Was the GI Bill Established?

The GI Bill was established in 1944 when it was signed into law by President Franklin D. Roosevelt. The original version of the bill expired in 1956.

Does the GI Bill Still Exist?

The GI Bill that was signed into law in 1944 expired 12 years later. But there is an amended and modified version that still exists today. Veterans have access to housing, education, and training services through two primary programs known as the Post 9/11 GI Bill and the Montgomery GI Bill.

The Bottom Line

While the GI Bill was arguably a great success for White Americans in the postwar years, it was a different story for veterans of color. For them, the bill—and its inequitable implementation—only furthered gaps in education, wealth, and civil rights between Black and White Americans. Today, however, VA lenders are required by law to adhere to Fair Housing laws, which prevent discrimination against protected classes, including race, color, religion, sex, national origin, handicap, and familial status.

Despite Fair Housing laws, discrimination still exists in housing and lending. If you believe you have been discriminated against by a builder, broker, lender, owner, salesperson, or appraiser, report the activity to your local VA Office. After you fill out VA Form 26-8827, your local office will investigate the complaint.

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