Riots, Real Estate, and Selective Memory
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by Beryl SatterWall Street's subprime mortgage assault on Black America threatens to wipe out a generation of African American equity, but it's not the first time. The FHA-HUD scandals of the 1970s laid waste to Black neighborhoods in cities across the nation, causing far more damage and urban instability than the “riots” of the previous decade. It appears that few things are more destructive than felonious capital.
Riots, Real Estate, and Selective Memory
by Beryl Satter
This article previously appeared in The Defenders Online, a publication of the NAACP Legal Defense and Educational Fund
“The 1970s FHA-HUD Scandal, and not ‘the riots,’ bore well over the lion’s share of responsibility for the decayed buildings and vacant lots that scar urban minority communities.”
Ask any American over the age of fifty about “the riots,” and a clear image comes to mind. The time is the 1960s, the place is the urban north, and the rioter is an African American, hell-bent on arson and looting. Ask the same American about the massive mortgage frauds of the 1970s, which left black urban communities across the nation in ruins, and you’ll get a blank stare.
This is not surprising.
The story of that era’s devastating mortgage frauds is fully recounted in only a single, out-of-print book (Brian D. Boyer’s excellent 1973 study Cities Destroyed for Cash). Historians refer to them, if they refer to them at all, with the clumsy phrase “the FHA-HUD Scandal of the 1970s.”
Yet if hard numbers mean anything, the 1970s FHA-HUD Scandal, and not “the riots,” bore well over the lion’s share of responsibility for the decayed buildings and vacant lots that scar urban minority communities.
Take Detroit, for example. In the 1967 riot, 2,509 buildings were looted and burned. In comparison, the FHA-HUD scandals of the 1970s were responsible for the abandonment and ruin of ten times that number – approximately 25,000 properties. The scandals, moreover, clearly foreshadowed today’s subprime mortgage crisis that is similarly hitting black families in grossly disproportionate measure. In both the 1970s and the late 1990s and early 2000s, minority communities that were vulnerable because of decades of state-sanctioned racial discrimination in the granting of credit were suddenly promised a “chance at home ownership.”
“The scandals foreshadowed today’s subprime mortgage crisis.”
Unfortunately, in both periods, African Americans were instead entrapped in predatory loans – loans designed not to enable home ownership, but to ensnare the borrower in the highest possible debt, thereby enriching the lender.
Here’s how it worked back in the 1970s. That decade’s FHA-HUD Scandal involved the mass corruption of the Federal Housing Administration’s new mortgage insurance policy. After decades of refusing to insure mortgages in areas with black residents no matter what their economic status, in 1968 the FHA went to the other extreme and told mortgage companies that if they would loan in low-income minority neighborhoods, the FHA would guarantee those loans 100%.
Speculators immediately exploited the new policy by buying slum properties, and then bribing someone to appraise the properties at, say, quadruple their real value. Speculators might buy a house for $5000 but get a corrupt FHA appraiser to say it was worth $20,000. Once they had that appraisal, they could easily sell that property for $20,000. So what if the price seemed high? The mortgage lender couldn’t lose — after all, $20,000 was the property’s appraised value, and more importantly, the FHA insured the loan 100%.
“African Americans were instead entrapped in predatory loans – loans designed not to enable home ownership, but to ensnare the borrower.”
All that the speculators needed was someone to buy the building. They enticed buyers by emphasizing the low down payment rather than the high final cost. People eager to buy on such terms were easy to find. They were usually black or Latino, and often low income. Given the desperate housing shortage facing low income families during that decade of massive inflation, an offer of a home of one’ s own for $200 down was often irresistible.
The speculators made the procedure quick and easy. They did all the paperwork, routinely falsifying the buyers’ income to make it look like they could carry the overpriced loan. The lenders didn’t ask any questions about these loan applications because the mortgages were fully insured; the creditworthiness of the borrower was therefore of no relevance. Since mortgage companies also made profits through the exorbitant service fees they charged for FHA loans, they made money on every sale, with no risk whatsoever.
The ones left out of the profit merry-go-round were the low-income home buyers. Take Beulah Perkins, a young African-American wife and mother. In 1971, she got an FHA-insured mortgage that enabled her to purchase an $18,000 home in Chicago for $200 down. Once she moved in, she found gaping holes in the living room walls. A section of the kitchen wall had been knocked out. There were holes in the living room floor. The windows were installed improperly, which made the house difficult to heat. The basement flooded with every rain. There were numerous code violations. In addition to her high monthly mortgage payment, Perkins found herself responsible for thousands of dollars in repair bills. Yet her home had passed an FHA inspection.
By 1972, similar abuses of FHA programs were being reported in Boston, New York, Newark, Philadelphia, Wilmington, Miami, Detroit, St. Louis, Seattle, Los Angeles, and Lubbock, Texas.The New York Times noted that FHA-guaranteed loans were being given on “substandard” buildings that lacked “such essentials as adequate heating and plumbing.”The confluence of inflated mortgage payments and high repair costs meant that the low-income buyer never had a chance. The repossessed buildings sometimes ended up back in the hands of the speculators, who started the cycle anew.
“The creditworthiness of the borrower was therefore of no relevance.”
While the scandal meant ruin for low and moderate-income home buyers, it meant huge profits for those in the game. In Chicago, the FHA paid out at least $42 million dollars to real estate speculators and corrupt mortgage firms by 1975. In Brooklyn, such operators received $250 million from the FHA. In Detroit, which was the city hardest hit by the scandal, a shocking $375 to $500 million dollars in FHA insurance was paid out. As journalist Brian Boyer observed, in return for this immense payout to Detroit mortgage brokers and speculators, the U.S. government received “a deserted slum and the concomitant problems of rampant heroin addition and the highest big city murder rate in the U.S.A.”
The companies exploiting FHA policies were not marginal. In New York top officials of three of the largest mortgage lenders in the region were convicted of housing fraud in 1975. In Brooklyn alone, the U.S. Attorney’s office produced a five hundred-count indictment demonstrating that “real estate speculators, brokers, lawyers, appraisers and bribed FHA employees conspired in the scheme” to get FHA insurance on slums sold at inflated prices.
By 1975, Justice Department investigations into “allegations of collusion, kickbacks, bribery and falsification on Federal statements of a building’s worth” in cities across the nation had led to charges against 752 defendants and the conviction of almost 500 people. There were ongoing investigations in seventeen cities. Yet informed observers believed that the corruption uncovered thus far was “merely the tip of the iceberg.”
For all of this, community groups did not want to end the FHA program. They simply wanted basic safeguards enacted. Their suggestions for reining in unscrupulous mortgage companies, however, were ignored. As Chicago Tribune reporters explained in 1975, “[M]ortgage companies have so much influence in the HUD and FHA administration that it has become impossible to act against even the most unscrupulous companies.” Consequently, the Tribune noted, the “drain of public money into the coffers of unscrupulous businessmen is a continuing process….”
Beryl Satter is an Associate Professor of History at Rutgers University and is the author of the new book Family Properties: Race, Real Estate, and the Exploitation of Black Urban America.
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Regrets
Upon reflection, again, I as a white person can see the persecution of blacks, all minorities, by the u.s. and want to express understanding but cannot begin to fully share the horrors perpetrated. I'm sorry my comment may have invited the 'colon cleanse' crap.
Playing the Fool Again
I am someone over fifty and I remember the FHA-HUD scandal of the seventies like it was yesterday. The subcrime heist of the 21st century is just a replay of the FHA-HUD crime spree of the seventies (only on a larger scale). This is another shinning example of this nation waging a constant never ending WAR on Black Folks. And we wonder why so many of us are still living impoverished lives. I know that there are many many things that we as a people need and can do BETTER at. But it is extremely difficult to do better when all of your best efforts are being maliciously train wrecked ALL THE TIME!!! Some of the folks that got caught up in the FHA-HUD crime wave have spent the last thirty years trying to recover from the hit they took. The same thing is going to happen for those who have been pasted and wasted in the subcrime criminal enterprise now. They will spend the rest of their lives in poverty or near poverty trying to recover (Can you hear me now Mr. Cosby!!!). I will almost bet you money that some poor saps got scraped by both!!!
The same financial gangsters that were involved then are the same ones perpetrating today, the FIRE sector (Finance Insurance Real Estate) and speculators. Crimes don’t NEVER STOP for these Thugs. The FHA-HUD bum rush was just another capitalistic con game ran on people of meager means using the institutions that are supposed to serve us to SCREWED US!!! That is what is at the core of the subcrime debacle. People of modest means were played like whole fools while the entire FIRE sector (Finance Insurance Real Estate) got filthy stinking Rich and then BAILED OUT when the bubble burst. Every body made money up and down the line and the unsuspecting/under informed home buyer got torched and scorched and still has not gotten any help yet (Don’t hold your breath thinking home owners will get any help any time soon). The only difference this time is that they went after everybody. The only time that the FIRE sector or any other sector of government/business is interested in doing business with Black People is when they have figured some bent and twisted way to suck us into some social/economic Black Hole of destruction and make God awful stupid money while doing it (Think the current Health Reform BullSh*t).
Peace
S Murph
No Excuse
Regardless of the lending practices, this article seems to suggest that the RIOTS were OK. Fact is, behavior like this riot is what keeps us alienated and looked down upon. People of every race were subject to predatory lending practices. Lets not play like we were the only ones. Get real.
Predatory lending = rioting
People of every ethnic group were and are not subject to predatory lending practices. There is a clear and consistent historical pattern of financial aparthied directed solely at African-American communities. African Americans, as America's most despised out-group, are the perpetual targets of the hold and release scam. First, withhold access to capital creating demand, then release capital to thirsty consumers, but first poison the well so that the water destroys instead of nourishes.
The "riots" we should be focused on are the systemic, government sanctioned ones that encourage looting and other predations against African-American communities.
The primary defense against this continual and systematic predation is the establishment and closely guarded maintenance of our own financial infrastructure: banks, credit unions and informal capital pools. Such infrastructure is the reason why some ethnic groups (Cubans, Koreans & South Asians) are largely shielded from official US fraud and thievery while others (African-Americans & Mexican-Americans) are more prone to abuse.
As to the riots, it is important to remember that African-American alienation and being "looked down upon" is a river that runs through our experience in America, from colonial times to the present with no interruption.
THIS ARTICLE IS NOT ABOUT RIOTS. GET REAL.
This system of winners and LOSERS is predatory by nature. Black people have continued to be it's main prey. Let us not pretend like we are all sharing the same pain.
I think only system is
I think only system is responsible for that.....we need a revolution to change it Colon Cleanse
Come on home to WV
I agree completely that black people are historical prey, along with native americans, hispanics, muslims, but here in WV us whites are in pretty bad shape.
We are poor, illiterate, evicted from the houses we can't afford, and shot and killled regularly by rabid dog police, who are exonerated with the warning, to US they presume to "protect", "next time when a cop says stop you stop," or we will shoot you in the back.
Sometimes we are sharing the same pain.