NARRATION: When Sonoo Thadaney-Israni bought a house in this neighborhood in Californias Silicon Valley, she found something disturbing in the fine print of her home deed.

SONOO THADANEY-ISRANI (LADERA RESIDENT): The language that I read basically said the only people allowed to live in this community, in these homes are white, unless youre a servant.

NARRATION: The subdivision is called Ladera, and the racist covenants were attached to the deeds of all 500-some homes here. The rules are no longer enforceable or even legal. But theyve been on the books since the neighborhood was laid out 70 years ago. And they help illustrate how so many of Americas suburbs ended up segregated.

SONOO THADANEY-ISRANI: It hurts, it hurts to be told, Youre not welcome. Forget welcome. Youre not allowed.

LESLIE WAMBACH: It so offended me. I thought, well, this has to be offending everyone who buys property here.

NARRATION: So some of Laderas residents set out to understand how this happened. And it turned out these relics of segregation grew out of a historical moment more often remembered for progressivism and inclusion.

ARCHIVAL (DEMOCRATIC NATIONAL CONVENTION, 7-2-32):FRANKLIN D. ROOSEVELT: I pledge myself, to a new deal for the American people.

NARRATION: The New Deal programs launched between 1933 and the end of the Second World War transformed society. But Black Americans reaped far fewer benefits from these programs than white Americans.

DARRICK HAMILTON, (PROFESSOR OF ECONOMICS, THE NEW SCHOOL): The New Deal expanded government capacities in a way that provided economic rights for people, the right to capital, the right to a job, the right to health care, the right to old age pension. What was problematic is that that right was not inclusive.

NARRATION: One of the clearest examples of this came when New Deal agencies began insuring affordable home loans. Before backing the loans, agencies mapped communities across the country, dividing them into zones judged to be higher or lower risk for banks. Records show a key factor federal mapmakers used to determine this perceived risk was race. This practice called redlining largely cut people of color off from affordable borrowing.

DARRICK HAMILTON: Its not a case that you just had these bigoted bankers and these bigoted homeowners; the federal government was culpable. Black people by design were excluded from this benefit.

NARRATION: Its exactly what happened in Ladera. In the late 1940s a mixed-race group of about a hundred families banded together to build cheap homes near Stanford University. Workers, teachers, and professors, including the novelist Wallace Stegner, formed a cooperative to buy and transform a tract of hilly ranch land into an affordable suburb named Ladera. But the project soon stalled.

RICHARD ROTHSTEIN (AUTHOR, THE COLOR OF LAW): No bank would give them the loan to build these homes. The banks wouldnt do it because the Federal Housing Administration wouldnt insure their loans because, of these hundred members of the cooperative, three were African Americans.

NARRATION: At the time, the Federal Housing Administration explicitly recommended that race restrictions be used in new suburban developments. Its lending manual even included instructions for banning buyers who werent the race for which new homes were intended.

RICHARD ROTHSTEIN: The segregation that this program alone created is responsible for much of the racial inequality we have in this country today.

NARRATION: Unable to find financing, the Ladera cooperative disbanded and sold the land to a private developer, who built Ladera as a whites-only community. By the 1950s, this mix of federal policy and private discrimination left few options for Black Americans seeking homes in this part of California.

PAM JONES (BELLE HAVEN RESIDENT): My dad got involved with the Palo Alto Stanford Branch at the NAACP. They were proving that there was housing discrimination. And it was notorious here. Very subtle, but it was notorious.

My dad could easily pass for white. My mom was brown skinned. You knew who she was. It was actually something that was very painful for my mother, because my dad would go to rent an apartment or to buy property. Theyd say, Wonderful. Hed say, Let me bring my wife. And as soon as she came back with him, they would say, No, this is no longer available.

ELWYN RAINER (BUSINESS OWNER): When my parents came here from Alabama they figured, okay, this is a nice area, we dont have to worry about our kids getting lynched. Theres not open racism. But they didnt factor in that there was a slew of hidden racism.

NARRATION: About nine miles from Ladera, Elwyn Rainers family opened up this service station in one of the only areas open to Black American property buyers, now known as East Palo Alto.

ELWYN RAINER: The African Americans were guided to this area, any houses on the other side of the freeway were considered to be out of their price range or the interest rate alone would kill that dream of them owning a house because they couldnt afford it. Its like they say youre on the wrong side of the tracks. For us, it was the wrong side of the freeway.

NARRATION: For decades, East Palo Alto and neighboring Belle Haven were unincorporated communities without a city government, where housing shared space with heavy industry, and residents enjoyed few of the amenities available to the majority-white suburbs, like Palo Alto, Menlo Park or Ladera.

CARLOS ROMERO (EAST PALO ALTO CITY COUNCILMEMBER): We had roads that were, that were, you know, badly paved. We had many, many a neighborhood that did not have sidewalks. We had a school district that was grossly underfunded. You know, we were walking in the middle of the street instead of walking on sidewalks, we were, had bad lighting, we had bad water. We didnt even have a citywe didnt have a place where we could go and complain even.

NARRATION: Today, East Palo Alto is 70 percent Black and Latino; the median family income is $83,000; half the households rent, and more than 10 percent of families live in poverty. Compare this to Ladera. Seventy five percent white; the median family income stands just below $200,000. The poverty rate is one percent and nobody rents.

PAM JONES: And it doesnt take a rocket scientist to figure that one out, you know, what thats really all about.

INTERVIEWER: And whats it all about?

PAM JONES: Well, its about race.

DARRICK HAMILTON: What is critical to note is that awhite asset-based middle class didnt simply emerge, it was structured, and it was structured largely through home ownership. It was structured largely through policy that facilitated white people to acquire homes that appreciated over their lifetime that could be passed on down to future generations as well.

NARRATION: The considerable gap in education and income between Americas Black families and white families has slowly narrowed since the civil rights era. But the gap in wealth what families own has been a different story.

DARRICK HAMILTON: Throughout American history the racial wealth gap has been dramatic. For every dollar held by a typical white family at the median, the typical Black family has had about a dime. So this asset-based, wealth-based white middle class, it was generated from New Deal and postwar policies was never extended to Black people.

NARRATION: And economists say one of the most significant factors creating the wealth gap between white and Black Americans is home ownership. Much of a middle class familys net worth is determined by the value of their home and whether you or your ancestors could buy one in the first place.

DARRICK HAMILTON: A home also facilitates your ability to generate wealth to do other things. You can finance an expensive college degree. With wealth, if you want to change jobsyou can pursue your dreams. A home provides access to neighborhood resources. A home provides access toin the American context, with public schooling, good schools.

SONOO THADANEY-ISRANI: My fathers family was a group of seven that lived in one room. So when I look at the opportunities my children had by living in this neighborhood, function of purely geography, that zip code, its a huge amount of privilege to have grown up in this neighborhood.

NARRATION: Theres no quick fix for the inequality thats grown out of residential segregation but researchers say its worth considering what history can teach us.

DARRICK HAMILTON: The problems that exist today, whats important to note, theyre not insurmountable. The New Deal was about jobs. It was about income. It was about pension. It was about health. There are certain enabling goods and services that people need in order to thrive. Thats a reality. And just like government facilitated in the past, they can facilitate it today, only this time they can do it in a way that is inclusive.

NARRATION: In the meantime, a group of volunteers in Ladera gathered enough signatures to formally strike the whites-only language from all 534 deeds in the subdivision.

LESLIE WAMBACH: We didnt have a statue of Robert E. Lee in our neighborhood. But we did have this. And we had the power to get rid of it.

SONOO THADANEY-ISRANI: And I would say that if the pendulum had to go from, You are not allowed, to taking them down, we now need to say, You are welcome.