Thursday, January 4, 2018

Mortgages and Blockbusting

My awareness of racial discrimination in housing has grown over time, mostly in the past 20 years. I was oblivious to it, as only a white person can be, through all my 28 years of education, living in Levittown, New York, as a young child, and as an adult buying two houses, one with an FHA loan. Everyone had access to what I had access to, right?


I think I first learned that VA mortgages were given only to white veterans when I saw a Science Museum of Minnesota exhibit on race about a dozen years ago. That exhibit also described the "racial covenants" used in places like Levittown to exclude black families. Covenants were common clauses in deeds or neighborhood association contracts that specifically said houses could only be sold to "white Caucasians."

Since then I've come to know about redlining through realtor "steering" (as shown in this Bill Moyers documentary) and through overt discrimination in lending at the FHA, as described in Ta-Nehisi Coates's staggering article, The Case for Reparations.

Now I am reading The Color of Law: A Forgotten History of How Our Government Segregated America by Richard Rothstein. His point is that this discrimination was not de facto, as we all were taught (if we were taught anything): it was de jure, created and enforced by government actions, and it only ended — if it truly has ended at all — fairly recently.

This discrimination has effects on black families to this day, because they were not allowed to take advantage of the biggest boom years for accumulating family wealth through housing.

So far (about a third of the way through the book) the biggest surprise for me is that the whole system of mortgages I am familiar with did not exist for anyone until the New Deal. Before then, mortgages required a 50 percent down payment and consisted of interest-only payments until suddenly, after five to seven years, the borrower had to pay off the principal. How accessible was that format for the average family? It wasn't.

Under FDR, this changed, and agencies like the FHA came into being. Mortgage payments were spread out to periods like 15 and 20 years, and more importantly, were amortized, so that borrowers paid part of the interest and part of the principal each month so that over time they built equity in their homes. This has obvious advantages for the regular people who buy houses, but like the other cornerstones of the New Deal (Social Security and the minimum wage, for instance), black people were excluded from it.*

Barred from FHA loans and later VA loans, black families instead had to use the old kind of loan or sign a contract for deed with the previous owner. Neither allowed for accumulation of equity, and missing just one payment meant eviction. (Not to mention that black families were charged substantially higher prices for houses than white families.) Housing shortages for black families — directly caused by other racist policies at federal and state levels and locally enforced covenants — contributed to overcrowding in the few areas available to them, and a host of other ills that are with us to this day.

The other thing the book makes clear is that "white flight" out of neighborhoods was not only based on the racist preferences and anxieties of the white homeowners, as I described in an earlier post. The white homeowners may or may not have fled on their own, but they were helped along by "blockbusting" practices by realtors and speculators, similar to the way a person can start a cattle stampede:
Practiced across the country..., blockbusting was a scheme in which speculators bought properties in borderline black-white areas; rented or sold them to African American families at above-market prices; persuaded white families residing in these areas that their neighborhoods were turning into African American slums and that values would soon fall precipitously; and then purchased the panicked whites' homes for less than their worth.

Blockbusters' tactics included hiring African American women to push carriages with their babies through white neighborhoods, hiring African American men to drive cars with radios blasting through white neighborhoods, paying African American men to accompany agents knocking on doors to see if homes were for sale, or making random telephone calls to residents of white neighborhoods and asking to speak to someone with a stereotypically African American name like "Johnnie Mae." Speculators also took out real estate advertisements in African American newspapers, even if the featured properties were not for sale. The ads' purpose was to attract potential African American buyers to walk around white areas they were targeting for blockbusting. In a 1962 Saturday Evening Post article, an agent...claimed to have arranged house burglaries in white communities to scare neighbors into believing that their communities were becoming unsafe.

Real estate firms then sold their newly acquired properties at inflated prices to African Americans, expanding their residential boundaries (pages 95–96).
This manipulation and sheer sociopathy, on top of the de jure practices of the federal government, is among the biggest surprises for me in the book so far. I don't know how many more surprises I can take, but I'm only on page 115.


* Agricultural work and domestic labor were both exempted from Social Security and minimum wage laws. Guess who did almost all of that work?

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