In 1968, Congress passed the Housing and Urban Development (HUD) Act. The act banned redlining, which had made it difficult or impossible for people of color to borrow money to buy housing in their neighborhoods. Combined with de facto and de jure exclusion of African Americans from new, White-only suburbs, redlining created a segregated and exploitative housing market for Black people, a major factor in the inner-city uprisings of the 1960s.
The HUD act provided incentives for private industry and real estate companies to create housing markets for African-Americans. Proponents argued that this would integrate cities and suburbs and give African Americans a stake in the system. As Keeanga-Yamahtta Taylor describes in “Race for Profit,” something very different happened.
The real estate industry had been deeply involved in the exclusion of Blacks from the suburbs and resisted the idea of “forcing” Whites to accept Black people as neighbors. Their excuse (itself a racist one) was that racial mixing in housing lowered property values. This resistance caused the Johnson and Nixon administrations to aim the new housing programs at the inner city. At the same time, subsidies for rent for people on welfare were cut and buying a subsidized house often became easier than getting a rent subsidy.
The result was “predatory inclusion.” Instead of people of color being completely excluded from the means of acquiring wealth — homeownership being a principal way of doing that in the United States — they were included in a way that prevented them from realizing the full financial benefits of inclusion, if they benefited at all. Federal programs allowed financial institutions (in this case, mortgage banks) to make extraordinary profits off poor people, a phenomenon that has reappeared in both the education and housing markets since that time.
In the mid-1960s, mortgage-backed securities were just being invented. Because the loans were designed to be sold to investors after closing, mortgage banks could make subsidized loans on inner-city properties without regard to whether the houses were liveable or worth the amount of the mortgage, or whether the buyers were able to maintain and pay for the properties.
Taylor’s description of how the real estate industry and mortgage banks, together with Nixon’s FHA, worked to con poor Blacks on welfare into buying derelict houses is an example of the operation of racialized capitalism at its worst.
Families on welfare were targeted for guaranteed FHA loans on houses that had been assessed and approved by cursory “windshield inspections,” but were actually unlivable, lacking heat or even plumbing, with holes in the floor and infestations of rats. When buyers were unable to make repairs and stopped paying their mortgages, the houses were foreclosed, with the full amount due paid by the federal government, leaving the buyers worse off than before. Foreclosed houses were often flipped within a few months, continuing the process.
This con only worked for a few years. As the number of FHA-guaranteed foreclosures rose in the inner city, newspaper exposés showed how people were being conned into buying houses they couldn’t afford. Federal investigations showed that a number of FHA inspectors were being bribed to approve houses, and a number of government employees were indicted. Eventually, in 1973, Nixon declared a moratorium on FHA loans for buying inner-city homes, though later the programs were revived in a new form.
Taylor points out that there was one city, Milwaukee, where the programs worked, because the FHA office there checked assessments on houses, provided funding for needed repairs and required loan applicants to take homeownership classes. However, the director of that program was fired for not reaching the high numeric targets set by head of HUD George Romney (Mitt Romney’s father).
The high rate of foreclosures in the rest of the country was not taken as evidence for the need for closer government regulation of the real estate industry or for the inherently predatory nature of capitalism; instead, it was seized upon as evidence that “inner-city residents” (aka Black people) did not have the capability to benefit from home ownership programs. This became part of the discourse that argued for reducing welfare benefits and cracking down on “welfare” fraud.
In her book, Taylor mostly focuses on the FHA and its close ties to the institutionalized racism in the real estate industry, as well as the conflicts in the Nixon administration between Romney, who initially seemed to have a sincere interest in promoting racial integration, and Nixon, who was building a political base among the “silent majority” in the suburbs and never had any interest in racial equality. While the story is compelling, and certainly an illustration of “predatory inclusion,” it doesn’t really explain how and why the programs were put into place without adequate safeguards, at least against the level of corruption that occurred, which suggests some deliberate (and no doubt racist) complicity on the part of FHA management.
Nevertheless, this is an important contribution to understanding how government anti-poverty and anti-racism programs go off track when they attempt to work through capitalist enterprises, and how programs that are supposed to work against racism and poverty can actually be used to intensify exploitation.
Read the full Dec. 4 - 10 issue.
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