In Conversation with Beryl Satter on Family Properties
What was the impetus for researching this story?
It began with my curiosity about my father, Mark J. Satter, who died when I was six years old. My mother used to tell me that my father had been a prominent person, but she never really explained what he had been famous for—the most I got was that he was an attorney who had been on the side of black people. At the same time, I couldn’t help but notice that my relatives were angry with him. They felt that he’d impoverished his own wife and children in order to crusade for the rights of outsiders, and they couldn’t forgive him for it. I decided to find out what he’d accomplished, which was the only way I could to judge for myself who was right—my mother, who spoke well of him, or my relatives, who condemned him.
There was also this mystery about my father’s properties. He had owned four apartment buildings on Chicago’s West Side, in what is now an entirely black area. My older brothers insisted that these buildings had bankrupted him, but I couldn’t get a clear explanation for how or why. I sensed that there was a complicated relationship between my father’s political activism and his properties. So when I started researching the book, one of the first things I tried to find out was what had happened to those buildings.
What shocked you the most in your research?
Most of my father’s clients were African Americans who got in trouble when they tried to purchase property. I had a vague idea about how "blockbusting" worked, but until I started investigating my father’s cases I had no idea how brutally the system was stacked against black people who wanted to buy a home. I learned that speculators routinely bought properties from whites at close to market value, and then sold them to blacks—usually only weeks later—for double to quadruple market value. For example, one of my father’s clients bought a building from a speculator for $14,000, not knowing that the speculator had recently purchased the property for $4,300.
Just as shocking as the outrageous price inflation were the conditions of these sales. Speculators sold properties "on contract," which means, more or less, on the installment plan. Black buyers would make a down payment and monthly payments thereafter—they were also responsible for taxes, insurance, and maintenance. But under a contract sale, the buyer could not get ownership until the property had been paid off in full. If the buyer missed even one payment, the seller was free to evict the buyer and keep everything that the buyer had invested in the house to that point. For example, one of my father’s clients bought a building for $9,950 from a speculator who had recently purchased it for $3,500. My father’s client had paid off $8,500 of that debt—plus another $2,300 in improvements—when he was evicted from the property. When you consider that approximately 85 percent of the properties that were sold to black Chicagoans were sold "on contract"—and that there were close to a million black people in Chicago by the early 1960s—you get a sense of the scale of the exploitation. In 1958, my father charged that speculators were draining Chicago’s black community of $1 million a day, and the evidence I’ve turned up supports that estimation.
Did contract sellers target one particular type of buyer, or was any black Chicagoan who hoped to purchase a home forced to deal with contract sellers?
Some middle-class and professional black Chicagoans were able to buy single-family homes with mortgages. They purchased property in well-maintained neighborhoods from which the white population had fled so quickly that by the time blacks moved there, they were buying in what were now all-black communities. Working-class black Chicagoans had far more limited options. They rarely got mortgages and were largely forced to buy on contract. But just because they held working-class jobs does not mean that they were not creditworthy. The contract sellers liked to say that their practices helped people with poor credit purchase a home. In fact, many if not most of those who bought homes on contract had extremely stable work histories. For example, one of my father’s clients, Artiste Bowan, a war veteran and post office worker, had a credit rating of "excellent." Nevertheless, he was denied a mortgage loan and so ended up purchasing a property on contract for $21,000, from a white contract seller who had recently purchased it – with borrowed money – for $8,000.
Some who bought on contract were born and raised in Chicago, as were William Coleman, a janitor, and his wife Wilma, who bought a code-violation-ridden property for $12,000 that was actually worth about $3000. They lost the suit they brought against their contract seller in part because they were literate, Chicago-born individuals who, the judge lectured, should have known to inspect their property and to read the fine print of their contract. Many contract buyers were migrants to the city, which is not surprising given the demographics of black Chicago – between 1940 and 1960, the black population rose from approximately 280,000 to about 815,000, which means that by 1960, almost 2/3 of the city’s black population were migrants. But migrants, too, usually had long, stable work histories by the time they bought properties on contract. For example, Joeanna Williams and her sister Mary Lee Stevenson moved from Mississippi to Chicago in the early 1940s and quickly found work in a laundry. By the mid-1950s, they had about fifteen years of steady work experience behind them, and had saved enough to make sizable down payments on the overpriced buildings they purchased on contract. In short, most blacks who bought on contract were individuals with steady working class jobs. But instead of getting a lift from purchasing property, they were immensely burdened by the inflated prices and harsh terms they were forced to accept.
Without the discriminatory practices of the Federal Housing Administration (FHA), would the real estate exploitation of blacks in Chicago have been possible?
It would not have been anywhere near as widespread. The Federal Housing Administration, which was created in 1934, insured the mortgages that banks or savings and loans made to individuals who wished to purchase property. Not surprisingly, the FHA would only insure mortgages in neighborhoods that it viewed as economically stable. The problem was that, according to the FHA, communities containing even a small number of black residents were likely to go down in value—irrespective of the economic level of the black residents or the condition of their property. The FHA therefore refused to insure mortgages in racially "changing" neighborhoods. The FHA’s racially biased mortgage insurance policy meant that if a black person moved to a white neighborhood, that entire neighborhood would be "redlined," or denied mortgage loans by most banks. This could doom a neighborhood, and it was a primary reason for white people’s resistance to having black neighbors. The FHA’s policy guaranteed that most black people who hoped to move out of jam-packed ghetto neighborhoods would be unable to get mortgage loans—not just in Chicago but across the nation. They were forced to buy on contract if they wanted to buy at all.
In the book you dispel many of our commonly held notions about how the black slums were created and the causes of white flight. Can you talk a little about both of those subjects?
Conservatives claim that African Americans simply did not know how to maintain their properties. Liberals instead blame white racism—they argue that if white people hadn’t fled racially changing neighborhoods, today we’d have stable, integrated urban neighborhoods instead of segregated black slums. Both views are incorrect. Urban neighborhoods decayed because of discriminatory FHA policies. Mortgage redlining meant that African Americans were forced to buy from white speculators at grossly inflated prices. If they bought on contract—as was typical in Chicago and many other cities—they knew that they could not miss a payment without losing their homes. Therefore they did whatever it took to make those payments. Husbands and wives both worked. They deferred maintenance. They subdivided their properties, crammed them with tenants, and charged their tenants hefty rents.
Black people made huge sacrifices in order hold on to their homes. But their white neighbors didn’t understand this. They observed black people overcrowding and neglecting their properties. Overcrowded neighborhoods meant overcrowded schools; in Chicago, officials responded by "double-shifting" the students (half attending in the morning, and half in the afternoon). Children were deprived of a full day of schooling and left to fend for themselves in the after-school hours. These conditions helped fuel the rise of gangs, which in turn terrorized shop owners and residents alike. In short, whites fled these neighborhoods not because they were irrational racists but because they were upset about overcrowding, decaying schools, and crime. They also understood that the longer they stayed, the less their property would be worth. But black contract buyers did not have the option of leaving before their properties were paid for in full—if they did, they would lose everything they’d invested in that property to date.
Your father wanted desperately to be a good landlord. Was he?
My father understood the forces that were dragging down Chicago’s West Side, where his properties were located. He also understood that once a community reached a certain level of decay, there was little an individual could do to save his property. He understood, but he was powerless to stop it. He poured his money into maintaining his buildings, but after a certain point it became nearly impossible to find either honest building managers or responsible tenants. His building managers stole from him. Some of the tenants they let in refused to pay rent; some severely vandalized the property. The repair bills got higher and higher until they wiped him out financially. I saw some of these bills in my father’s probate file. I would have had more evidence of the care he took of his buildings, except for the fact that after my father’s death, my brother Paul systematically destroyed cartons of property records. He did this, he told me, because he believed that the stress of trying to maintain the properties had killed our father.
There are lines in Herman Melville’s novel Pierre that perfectly express the tragedy of the final years of my father’s life. Melville wrote that "in tremendous extremities human souls are like drowning men; well enough they know they are in peril; well enough they know the causes of that peril;—nevertheless, the sea is the sea, and these drowning men do drown."
How did contract selling come to an end?
Contract selling stopped in the early 1970s, when speculators found an easier way to exploit minority home buyers. The scheme—later known as the 1970s FHA-HUD scandal—was based on the FHA’s new mortgage insurance policy. After decades of refusing to insure mortgages in areas with black residents no matter what their economic status, in the late 1960s 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 percent. Speculators took advantage of the new policy by buying slum properties and then bribing someone to appraise the properties at, say, quadruple their real value. For example, speculators might buy a house for $5,000 but get a corrupt FHA appraiser to say it was worth $20,000. Once speculators had that appraisal, they could sell that property for $20,000—not on contract but with an FHA-insured mortgage. After all, the lender had nothing to lose, since the FHA insured the loan 100 percent.
The speculators then lured low-income, minority buyers into purchasing these overpriced slums by stressing the low down payment, not the high final cost. 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 check, since it didn’t matter whether or not the borrower could afford the mortgage; in fact, the lender made more money if the buyer defaulted, because then it could collect 100 percent of the loan money, plus interest and fees, immediately (from the FHA’s insurance pool) rather than over the course of thirty years. So the speculator made a killing by selling slum property at vastly inflated prices, and the lenders made a killing by charging high rates on the loans and, in case of default, getting the loan, interest, and fees reimbursed in record time. The victims were the minority home buyers, who usually lost the properties, and the federal government, which by the 1970s lost billions in grossly inflated insurance payments.
Has Chicago recovered from wounds that contract selling inflicted on the city?
Not entirely. Aging properties, particularly on Chicago’s West Side, that were sold on contract, repossessed, and then resold over and over again, eventually became so decayed that the city was forced to tear them down. This is a primary reason why, if you go to parts of the West Side today, you will find whole city blocks with only a few properties standing. Conventional wisdom blames "the riots" for this devastation, but that is not true. Demolition by the city, along with arson-for-profit schemes by contract sellers who finally ran out of people to sell to, are the real reasons.
It’s also worth noting that exploitative contract selling stripped many black Chicagoans of their savings during the same years that whites of a similar class background were getting an enormous economic boost from FHA-insured mortgages, which enabled them to purchase fairly priced homes in the suburbs. In contrast, many black Chicagoans either paid grossly inflated prices for their homes or lost their properties altogether. Things like this have an exponential effect over time. Home-owning suburban whites can pass their property on to their children, or use it to finance their children’s education or to help their children with down payments on their own new homes (until quite recently, that is). Black parents who, as a result of discriminatory federal policies and exploitative contract selling, never owned their own property, can’t do any of this for their children. The difference in home-ownership rates is a primary cause of the wealth gap between blacks and whites today.
Do black Americans still deal with the same types of problems and injustices today?
Unfortunately they do. Many of the same dynamics that encouraged contract selling in the 1950s and 1960s—and the exploitation of the FHA’s new, poorly thought-out mortgage insurance policies in the 1970s—are at play in today’s subprime mortgage crisis, which is hitting blacks and Hispanics even harder than whites. Now, as then, minority communities remain underserved by commercial banks, and subprime lenders eagerly filled this vacuum. We have mounting evidence that minority communities were systematically targeted; residents of neighborhoods where minorities had managed to purchase homes report being "bombarded" by mortgage brokers and home-improvement contractors pressuring them to take out subprime home equity loans. I think we’ve all read newspaper stories describing the results—elderly people, usually black or Hispanic, who had owned their property in full but now stand to lose everything, all because they were convinced to sign loan documents whose harsh terms they didn’t fully understand.
Is the racial real estate exploitation that went on in Chicago connected to the current subprime lending crisis more broadly—as it effects whites as well as blacks?
I think it is. The link between the subprime lending crisis and the 1970s FHA-HUD scandal is especially clear, since in both cases lenders happily made loans—irrespective of borrowers’ ability to pay—because they could sell (or be reimbursed for) those loans at a profit, whether the borrower defaulted or not. A deeper connection lies in housing speculators (or mortgage companies) peddling credit not to help people realize their dreams but to entangle them in terms and conditions so harsh that they are unlikely to be met. The goal in both periods was not to sell a property but to ensnare the borrower in the highest possible debt—a debt that was then, in both periods, quickly sold at a profit to other investors.
I’d like to add that there seems to be some confusion about relationships among income, race, and creditworthiness. One can be low income but creditworthy (as were millions of white working-class families that got loans for moderately priced properties in the 1950s). One can have a high income yet not be creditworthy at all. And of course, race bears no relationship whatsoever to an individual’s creditworthiness. We need to bear this in mind when we hear peddlers of subprime mortgages claiming that they were only trying to help "low-income or minority" people purchase homes. If that had been their goal, they would have structured loans based on the borrowers’ ability to pay, and on terms that were fair and clear. Instead, since their goal was to make the biggest possible loan at the highest possible rate of interest, they ignored borrowers’ ability to pay. This is an important point, since even President Obama implies that reckless borrowers were as much to blame for today’s crisis as corrupt lenders. This is untrue. Lenders didn’t make these irresponsible loans in order to do the borrowers a favor. They made the loans because they were hugely profitable, and they preyed on moderate- and low-income people who—like the vast majority of us—believed the advice of their lender and were not savvy enough to decipher the arcane language contained in their loan forms.
What do you think President Obama’s mortgage bailout should include to be successful?
I’m a fan of Sheila C. Bair, the head of the FDIC. Back in the fall of 2007 she said that in cases where borrowers were current on their payments, lenders should simply freeze all adjustable rate mortgages at their low, "starter" interest rate and convert the loans to a standard, fixed-rate mortgage. This would have saved millions of homes from foreclosure without a "bailout" of any sort. But as we’ve seen, lenders won’t take steps to keep people in their homes without a carrot or a stick, and I think it’s good that President Obama’s plan includes both: government subsidies if lenders are willing to reduce borrowers’ monthly payments to affordable levels, as well as the threat (at least) of giving bankruptcy judges the power to reduce monthly payments on delinquent mortgages—an action that would put pressure on lenders and hopefully convince more of them to renegotiate their borrowers’ loans.
I’m also a fan of Judge Christopher A. Boyko, a federal judge in Ohio who threw out fourteen foreclosure cases because the investors who brought the cases could not prove that they owned the properties in question. As his ruling showed, if the bundling of mortgage loans into securities has made it hard for borrowers to figure out who their lender actually is, it has also made it difficult for the investors to prove what properties they actually own. For example, a recent study showed that 40 percent of creditors who foreclosed on their borrowers were unable to show proof of ownership of the properties they were attempting to reclaim. I hope President Obama can find some way to use this fact to further pressure lenders to modify their loans.
Your story deals with charged racial and ethnic issues—for example, you describe slum landlords, many of whom were Jewish, challenged by African Americans who were aided by white Catholics. What role does religion and ethnicity play in your story?
Within every racial, religious, or ethnic community there will always be some who prey on others’ vulnerabilities, and others who fight for justice. This is human nature and has nothing to do with race or religion. I describe Jews who were contract sellers, and other Jews—including my father—who were among those contract sellers’ most impassioned opponents. There were some Catholics who attacked black families that moved to their neighborhoods, and others who drew upon Catholic networks to fight for the rights of black homeowners. There were African American slumlords who exploited their tenants, and African Americans who risked everything they had in order to win fair loan terms, not just for themselves but for their neighbors as well.
People will always draw upon the resources of their own culture or traditions to justify their actions—for good or ill. Religious or cultural norms only provide general templates for behavior. It’s up to the individual to craft from those traditions a means of justifying their behavior in the world. This is why, in my book as in the world today, people who are on the side of justice align themselves across lines of race or religion—as do people who fear social change. For example, right now people who wish to maintain or impose second-class citizenship on gay men and lesbians—be they conservative Catholics, evangelical Protestants, or some segments among Orthodox Jews—work together toward this end, while progressive cross-faith efforts are equally likely.