Predatory Inclusion

Fletcher Williams III, Closed-In. 2016, reclaimed Wood, shingle. 31 × 25 × 5
Fletcher Williams III, Closed-In. 2016, reclaimed wood, shingle. 31 × 25 × 5". Courtesy of the artist.

In August 1967, nearly two weeks after an uprising in Detroit prompted the first deployment of federal troops in an American city since the Civil War, dozens of demonstrators burst into the chamber of the House of Representatives chanting, “Rats cause riots!” Days earlier, Congress had rejected a two-year, $40 million bill to exterminate rats in inner cities across the United States. The protesters sat in the gallery of the hall for twenty minutes, repeating the slogan “We want a rat bill!” at ever higher volumes. The previous attempt at passing the bill had not merely been voted down but had been ridiculed in the process. A Virginia Republican mocked the legislation to howls of laughter from other white representatives, saying, “Mr. Speaker, I think the ‘rat’ smart thing for us to do is to vote down this rat bill, ‘rat’ now.” One of his colleagues mocked it as another “civil ‘rats’ bill.”

No laughing matter for the people who lived in the inner city, rats were the most visceral example of the unequal living conditions forced onto Black people in midcentury America. In the 1960s, African American media regularly reported on rat attacks on the most vulnerable members of Black urban households: children. Loraine McTush, a single African American mother, complained to a Chicago Defender reporter that she stayed up most nights because of rats — the rats crawling in her bed, which made her nervous, and the rats in her children’s beds, which terrified her: “They . . . get into the bunk beds, and so I sit up all night. I am miserable and afraid.” McTush received an eviction notice shortly after her story appeared in the newspaper.

In 1967, the Washington Post columnist Jimmy Breslin went to East Harlem and interviewed a Puerto Rican couple, Ebro and Cathy Marrero, about the condition of their building. Two rats darted out of the kitchen into the bathroom during the interview. Breslin asked why they did not just put poison down. “The children,” the father explained. “You cannot have traps and poison around with babies.” The mother went on to explain how she and her husband protected their kids from the rats: “Our baby is only three weeks, we keep him in bed with us. The other two, we have the crib set up high. No rats come there so far. But you still can’t leave the baby alone.” Breslin described the sound of rats scratching through the kitchen wall as something “you carry . . . with you for the rest of your life. It is something that is heard by people in every poor neighborhood in every city in the nation.”

In August 1965, in the first few days after the rebellion in the Watts neighborhood of South Central Los Angeles, while the last fires still smoldered, a reporter interviewed two Black teenagers about why the riots had happened. “We live in a two-bedroom apartment,” one of them said. “The rent is too high and rats, they are big. You open the back door and one of them jumps over your foot from the back porch. But we still have to live here.”

In February 1966, Jet magazine reported on the reaction to a shocking death in Chicago:

Incensed with bitter anger over the death of a baby boy, Andre Adams, who was feasted upon and had his right eye eaten out by rats as he lay in his crib, members of a 1,000-member West Side Chicago organization threatened to storm the offices of Mayor Richard J. Daley and other public officials and deliver live rats there.

One activist recalled the prior summer’s deadly riot — “Remember Watts?” — before describing, in grisly detail, the infant’s remains: “When he lay in his crib, you could see the holes where the rats had chewed. The little finger of his right hand was tied on with a string.” Chicago health officials disagreed, claiming the child had died of malnutrition but nevertheless conceding that rats had fed on the baby’s corpse. Dr. Martin Luther King Jr., who spoke at the hastily organized protest, reminded the crowd that this death was “why we’re here fighting slums in Chicago.” Noting the similarities between racism in the South and in urban ghettos in the North, King declared, “This is as much a civil rights tragedy as the murder of Mrs. [Viola] Liuzzo,” a white housewife who had been killed protesting for civil rights in Alabama.

The rat infestation in Black neighborhoods was profound. It was estimated that by the end of the 1960s there were more than ninety million rats in the United States, mostly in urban areas. When African American children in a Chicago neighborhood were given a vocabulary test and asked to identify various familiar objects, more than 60 percent of the children misidentified a teddy bear as a rat. The growing presence of rats in Harlem prompted activists to create a “Rats to Rockefeller” campaign to draw attention to the deteriorating conditions in tenements overwhelmingly populated by Blacks. In New York City as a whole, more than forty-one thousand tenements built before the turn of the century housed over a million people. Ten thousand of those buildings existed in such a corroded state that the city’s housing and buildings commissioner referred to them as “horror houses.” “Rats to Rockefeller” was organized by the housing activist Jesse Gray, who suggested parents keep a baseball bat handy to ward off rats. He made clear the urgency of the campaign: “I’ve seen kids try to pet them. They don’t know what they are. The rats are getting bolder. You can sit in the living room of some houses and watch them march across the floor.” Three years later, it was Gray who led activists into the chamber of the House demanding action on the issue.

From the 1930s until the late 1960s, US housing policies were caught between innovation and regressive racial attitudes that produced a multi­tiered approach to public policy: homeownership and development for white residents, public housing or extractive and predatory tenancy for African Americans in the wake of urban renewal practices. The economy generated out of Black isolation helped to ingrain these practices in such ways that even when housing options began to expand for African Americans, they were still constrained within the segregation paradigm. The absence of options outside the urban ghetto left Blacks easily coerced into paying high prices for substandard housing. Ironically, it was only when these conditions boiled over that the federal government was finally forced to open homeownership opportunities to city-bound African Americans.

By the end of the 1960s, the National Advisory Commission on Civil Disorders — known as the Kerner Commission after its chair, Illinois governor Otto Kerner Jr. — had left no doubt that substandard housing was a recurring factor in the annual bout of riots that roiled American cities. Identifying segregation at the root of raging Black communities, the commission’s findings called for a historic change in American housing policy. In the spring and summer of 1968, after the release of the Kerner Commission’s final report, federal fair housing legislation was passed, and a landmark Supreme Court decision in Jones v. Mayer removed any doubt that housing discrimination was illegal. Recalling the 1866 Civil Rights Act and the Thirteenth Amendment, the justices held that “when racial discrimination herds men into ghettos and makes their ability to buy property turn on the color of their skin, then it . . . is a relic of slavery.”

The passage of the Housing and Urban Development Act in August 1968 buttressed the antidiscrimination edicts with a mandate to produce ten million units of new and rehabilitated housing within a decade. The HUD Act was intended to construct record quantities of housing where there had been historic shortages since the World War II era; federal fair housing was to allow for housing choices beyond segregated ghettos.

Section 235 of the 1968 Fair Housing Act (as the Civil Rights Act of 1968 came to be known) also marked a turn in the history of American housing policy. Mortgage insurance in the “city core” opened up the possibility of homeownership through affordable and conventional means to African Americans for the first time. Families making between $3,000 and $7,000 a year could buy homes for as little as $200 down and monthly payments of 20 percent of their income. The federal government paid the additional costs and subsidized interest payments beyond 1 percent. At a time when interest rates regularly topped 6 to 7 percent, this subsidization was quite generous. Families could purchase homes for up to $15,000, unless they were in a high-income area, where the amount increased to $20,000.

For decades, federal officials had relied on public housing to shelter poor and low-income people. But by the end of the 1960s, public housing had become politically untenable, with endless jousts over its maintenance, location, and inhabitants. Housing for the poor suffered from a mixture of government neglect and shrinking tenancy, a result of the horrific conditions endured by residents and the constant pressure for such housing to exclude anyone other than the poorest residents. The HUD Act changed this by creating a system by which poor and low-income people could supposedly purchase their own homes.

Federal officials turned to private property, hoping for a cheaper program with smaller outlays and the social stability that they claimed would come with property ownership. As with any partnership, the private sector had its own expectations, including the infusion of subsidies and federal mortgage guarantees in a moment of uncertainty within the housing market. Private sector actors welcomed the pioneering role of HUD and the Federal Housing Administration in forging a risk-free venture in the new urban housing market.

Placing homeownership at the heart of the nation’s low-income housing policies ceded outsize influence and control to the real estate industry over dwellings intended to serve a disproportionately African American market. Real estate’s wealth was largely generated through racial discrimination. Its profitability was contingent on “best practices” that actively encouraged racial segregation, and the public policies that grew from the partnership between property assessors, brokers, bankers, and federal policymakers reflected the logic of the housing market. Even when the policies were in response to prolonged social protest, as was the case in the 1960s, the outcomes still reflected terms that were favorable to private sector actors.

Those terms were often inescapable. As the Philadelphia Inquirer described it at the time, “Most of these families . . . really wanted to rent, rather than buy, but they were given limited choices. Most are black or Puerto Rican. Many are women — separated, divorced or widowed — who are raising their children alone.” Many were coerced into a purchase. Francetta Jenkins, a 26-year-old mother of three from Philadelphia, complained that she was “looking for a house to rent” when she ended up buying a house for $4,330 instead. Even though the house was in rough shape, she was assured that it was “FHA-approved” and that she “didn’t have anything to worry about.” Ralph Rivera was also “looking to rent.” “I went to the real estate man thinking he has houses to rent and he said, ‘I don’t rent, I sell.’”

In 1967, 24 percent of families receiving Aid to Families with Dependent Children (AFDC, formerly ADC) had no running water, 30 percent lacked enough beds to accommodate their families, and 46 percent had gone without milk at least once in the previous six months. A 1969 report on housing conditions for Black mothers receiving AFDC explained why so many would rush into just about any new housing opportunity. It was estimated that half of welfare recipients lived in “housing that is deteriorated, dilapidated, unsafe, unsanitary, and overcrowded,” and 60 percent of AFDC families were living in similar conditions. For mothers on welfare in particular, conditions were even worse — and so they were easy targets.

The depth of racial segregation was so complete that white people could not see what the Black housing market looked like.


The possibility of buying a home — the cornerstone of the American dream — represented so many new opportunities, from living in a better neighborhood, to having a long-term investment, to having autonomy over one’s life outside the scrutinizing and scornful gaze of public housing officials. An AFDC counselor in Philadelphia explained that Section 235 housing was “a way for people to move to a better neighborhood. . . . They were afraid of gangs. They wanted to get out of their old neighborhoods.” An attorney with the Legal Aid Society for the City and County of St. Louis described how women on welfare fleeing the crumbling Pruitt-Igoe housing projects ended up in the Section 235 program: “They were desperate to get out. They would take anything that was available. And for people like them, renting possibilities just did not exist and still don’t.”

One St. Louis broker sent twelve thousand postcards to potential Section 235 buyers. A disproportionate number of the cards were sent to AFDC mothers living in the Pruitt-Igoe towers. According to a 1973 study of FHA buyers in St. Louis, once in the office of the real estate broker, “the buyer was shown pictures of available houses and they were assured that the homes had been renovated and were FHA-approved.” Salesmen would follow up with visits to the projects and “offer assurances of a nice house and FHA-approved deal.” In its aggressive pursuit of new clients, one real estate company went so far as to employ a social worker from the state division of the Department of Welfare to recruit buyers. The implications were clear: “With ready access to financial information of welfare clients, this [social worker] was able to compile a list of potential buyers who would be eligible for Section 235 assistance. [The social worker] was also able to steer his clients toward his second employer [the real estate company].” In the wake of the demolition of Pruitt-Igoe and the crumbling of other public housing developments, the possibility of homeownership was a risk worth taking.

In Detroit, HUD-FHA sold as many as thirty thousand subsidized or low–down payment homes a year. One real estate ad in the Detroit Free Press targeted poor women receiving AFDC: “Attention ADC Mothers — No Money Down.” More than five thousand women responded. Within the first three years, more than ten thousand of these houses were sold to women receiving AFDC in Detroit — women like Alice Mundy. The East Edith Corporation had purchased a “small, sagging house” on Detroit’s east side for $3,000 before selling it to Mundy one year later for $9,750 with an FHA-approved loan. With her house in appalling condition, including everything from “rat infestation to holes in the ceiling,” Mundy called the city to complain. Instead of sanctioning the real estate company, the city fined Mundy because as the owner of the property she was responsible for its condition. She would eventually lose her house when she could not afford the fines accrued from violations of the city’s housing code.

Mundy was far from alone. Annie Jeminson’s old apartment in Detroit public housing “smelled bad and it felt bad.” Explaining her decision to try homeownership, she said, “I have never had the chance to live in a house in Detroit, so when I saw the ad I decided to call.” A real estate broker from Montgomery Real Estate Company showed her one house, insisting that it was the only one available, even when Jeminson asked to see others. “It looked like a nice house,” Jeminson said. “I don’t know nothing about houses but, the walls were nice. They just painted them. He took me down to the little basement. The power was off so . . . he lit a match and said the furnace was in a corner. I believed him.” Jeminson signed several papers and sought advice from a free legal aid clinic regarding the purchase. The lawyers assured her that the house was fine. Still, she was wary enough of the real estate agent that she asked him to make a list of all the defects, with a promise that they would be fixed by the time she moved in. The agent signed and returned the list but made none of the repairs. Jeminson bought the house for $11,800, only to discover later that the realty company had purchased it for $5,000 two months earlier. Once she and her three children moved in, the company told her the house was now her problem.

Annie Jeminson had sunk all her savings — $375 — into the closing. She was poor and it had taken her years to raise that money. There was nothing left over for the major repairs that were necessary to make the house habitable. Despite what the agent had said, the house did not have a furnace, which meant facing the Detroit winter without heat or hot water. There were rat dens all over the basement. The doors were difficult to open and close, and the windows did not open at all. According to Jeminson, her living room had “one wall . . . [that] was damp and running with moss and water and ice.” These conditions led to serious health problems for her youngest daughter, 3-year-old Sandra, requiring her to be hospitalized.

Despite all this, the FHA in Detroit approved the house for mortgage insurance. After conferring once more with attorneys at a legal aid clinic, Annie Jeminson was advised to stop paying her mortgage in order to force foreclosure proceedings so that she could get out of the house. She and her children moved out in October 1972, before the cold weather took hold again. The Jeminsons moved back into a cramped apartment, leaving behind Annie’s savings but bringing with them the debt of a foreclosed house. In spite of everything, Jeminson did not view her brief stint as a homeowner as an entirely negative experience. She missed the neighborhood where she’d briefly been, in some way, a homeowner: “The neighbors were so friendly. It was nice feeling you belonged somewhere. I would have stayed in that house. I would have kept making the payments if only it would have had heat and hot water.”

Jeminson’s story was not at all unusual. Nationally, 44 percent of the homes purchased in the existing-housing market through a homeownership program were bought by women, a disproportionate number of whom were African American. Fifteen percent of the homeowners in the existing-housing market were receiving welfare assistance. The Free Press found that 41 percent of the homes sold to mothers receiving AFDC ended up in default, on their way to foreclosure. (This figure was based on a study of only the eleven most active mortgage companies in Detroit; as with most aspects of the FHA’s failure, the details are missing.) Twenty-one mortgage firms in Detroit held over one thousand mortgages that were in default. In some firms, more than half of the mortgages were in default. According to the Free Press, real estate speculators were making “handsome profits” by flipping houses and using FHA insurance and the favorable terms of its housing programs. The profit as a percentage of investment was a usurious 59 to 69 percent. This was certainly a part of the political economy — and calculation — of the program.

In St. Louis, the homes sold to low-income and poor families were, according to the 1973 study of the city’s FHA buyers, full of defects “so fundamental [as] to suggest that there had been little or no renovation.” Of the 283 HUD houses in the city that had been foreclosed, 101 “were declared unworthy of repair.” That determination was based on simple math: bringing the houses into conformity with FHA standards would cost more than half of “the stated resale price.”

Yet the idea that it was Black renters and owners who were destructive and careless was so deeply ingrained in the popular consciousness that leveling the charge was almost effortless. HUD went so far as to produce a 15¢ pamphlet, called Simplified Housekeeping Directions for Homemakers, for women in subsidized housing on how to clean one’s home. The pamphlet included visual instructions on “how to dust furniture” and “how to keep trash cans clean,” among other instructions.

Harry B. Wilson Jr., the author of the St. Louis study, wrote that “the most startling fact revealed in post-foreclosure files is that HUD decided to demolish more than one-third of the houses it acquired after foreclosure.” This was evidence of severe structural deficiencies with the housing, not issues of cleaning or hygiene. “The claim the owners made fictitious allegations about defects in their homes seems ridiculous in view of the condition in which HUD found one-third of these houses,” Wilson wrote. “Similarly, the response that ignorance of household skills accounted for the defects is absurd.” Yet according to his notes, Wilson was “frequently taken into confidence by HUD employees” who were formerly in the “home building, real estate, or mortgage industries” and told that “those people just don’t know how to take care of a home.”

In the very first congressional investigation of Section 235, investigators reported that a “common assertion made by mortgagees, real estate brokers, mortgage bankers, and the FHA” was that Section 235 houses were in good shape, but they were sold to the wrong “type of people” — people who were “so abusive to the property as to render [it] uninhabitable in a short period of time.” This sentiment wasn’t confined to the ranks of brokers and HUD employees. Congressperson Henry Reuss, a Democrat from Wisconsin, spoke bluntly in favor of maintenance funds as the “only way to develop homemaking skills in these people.” Another congressperson proclaimed that he had “observed that the families apparently are too lazy or too indifferent to even pick up a paintbrush and make normal repairs.” These opinions were perfectly in step with comments made by HUD secretary George Romney when the first investigations into the HUD-FHA low-income homeownership program had begun. In a 1970 hearing, Romney had insisted that “in the case of the lower income families, you have many . . . who haven’t had the responsibility of homeownership previously, and there is, therefore, a greater tendency on their part to not undertake the work necessary to maintain the home.”

The Mortgage Bankers Association (MBA) placed the entirety of the blame on the new homeowners’ bad habits: “Usable houses are also being abandoned because people do not take care of them — because in many cases they do not know how to take care of them.” Secretary Romney, the congresspeople at the hearing, and the men of the MBA did not sound much different from the real estate speculators and bankers who blamed Black families for the condition of the housing, all while getting rich from selling them homes.

Blaming the poor served a purpose. HUD officials desperately wanted to keep the narrative from becoming one of federal officials signing off on criminally defective houses — a task made much easier by the fact that the story of negligent and lazy poor people failing to perform basic maintenance was so readily available. Where the story of poor Black people as willing culprits would not fit, the description of them as overwhelmed and ignorant and devoid of common sense was pursued instead. In testimony before a congressional hearing, Romney was asked about a case in Newark in which the buyer, like so many others, had been duped by a shady real estate speculator. Romney cut off the questioner and blurted out, “You know, Mr. Congressman, it is amazing what goes on. Some of these people . . . some of these people that buy homes never go in to inspect the home. . . . I just can’t personally understand how people in all aspects of this situation could be doing what they have [been] doing. You wouldn’t think of buying a home without going in and looking at it.”

It was inconceivable to the white men testifying in congressional hearings or editorializing in the pages of Mortgage Banker how anyone could pay $12,000 for a house riddled with code violations ranging from a leaking roof to a flooded basement. The depth of racial segregation was so complete that white people could not see what the Black housing market looked like. And even for those who did know it existed, they could count on the fact that the majority of the white voting population — steeped in centuries of racism and looking on from the other side of the divide — did not.

As Philadelphia resident and mother of seven Mary Sims put it, “When I first heard about the FHA-235 program, I thought it was too good to be true. I know the government never gave Blacks anything for nothing, but I had hopes because you can’t get a decent apartment anymore.” The desperation for housing in a rental market overwhelmed with damaged and substandard properties made these women vulnerable to the housing scams that pervaded government programs. A mother of ten, addressing a conference on social welfare in Virginia, talked about the desperate living conditions she faced in her rented apartment. After she and her children moved from her mother’s home into a four-room apartment across the street, she noted:

With ten children we were cramped, but that was not the worst problem. . . . The water pipes were always breaking, and this meant no water, and leaks. The floor round the commode was rotted from the water, it leaked so often. . . . The mantelpiece fell over into the front room, all in one piece. If my baby had been there it most likely would have killed her. That is when I began to feel that I just had to move. I had asked the rent lady to fix these things, all along. She always said she would, if I gave her the rent, but she never did.

Women receiving AFDC experienced a 3.5 percent foreclosure rate — 150 times higher than the foreclosure rate on conventional mortgages, but still a small percentage of program participants. The overall percentage of foreclosed-on participants who were also on welfare was a smaller portion of the program, but it received disproportionate news coverage. The coverage gave the impression that welfare recipients were the primary recipients of HUD help in becoming homeowners — a perception that helped to arouse suspicion about the program at a time when welfare use more generally faced greater scrutiny. Regardless of what the experts insisted, the problems faced by Sims and Annie Jeminson and Alice Mundy had less to do with their lack of sophistication than with the lack of ethics among real estate brokers, mortgage lenders, and FHA appraisers.

The pitiful conditions and the abusive attacks on poor, disproportionately Black women did not go without notice or response. When the congressperson Shirley Chisholm addressed a thousand people at an NAACP event in Andover, Massachusetts, in 1972, she delivered a blistering assessment of the federal agency’s predatory inclusion:

The FHA, marked by a legacy of racism and profiteering in the administration of previous housing programs, has knowingly tolerated the development of federally financed slums, the perpetuation and acceleration of segregated housing patterns, and the gouging of the poor by speculators, builders, and bankers who all pocket federal dollars for violating federal laws. FHA has turned an official back to the victims of blockbusting and profiteering, it has tolerated corruption in its own ranks, and it has sanctioned a policy of “separate and unequal” in its administration of subsidized programs. These are strong words, and facts stand behind them. [The FHA] is both industry oriented and industry controlled.

The focus on maintenance, counseling, and the morality of poor mothers consciously deflected attention away from the larger and systemic problem of the FHA’s relationship with its private partners in the real estate and banking industries. As John Herbers of the New York Times argued that same year, “The Federal Housing Administration has been permissive with the private interests involved, permitting them to take advantage of consumers. . . . Charges are beginning to be heard that the housing industry is becoming like the defense industry, dependent on government support and thus less efficient than industries in private competition.”

Between 1971 and the fall of 1972, HUD’s Office of the Inspector General, the FBI, and the Justice Department initiated more than four thousand investigations into charges made by FHA-assisted low-income homeowners. These federal investigations and criminal indictments — which implicated federal officials, real estate operatives, and members of the banking and finance industry — made clear that AFDC mothers and other poor people should not have been a focal point of blame for HUD’s existing-housing crisis.

The cases involved not only low-ranking FHA staff but also high-ranking officials. There were allegations of fraud surrounding directors in St. Louis, Miami, and New Orleans. In the latter two cities, the directors received thirty-day suspensions without pay because they had accepted preferential loan terms on their own residences. There were even rumors that three hundred pending indictments were being held until after the 1972 presidential election. By the end of 1972, forty-eight people had been imprisoned and another eighty-four individuals were on probation for crimes committed in connection with the homeownership programs.

These numbers did not reflect the depth of the problem. Federal investigators from HUD’s Office of Audit also exposed how regional and local offices did not always refer cases that were in need of criminal investigation. These cases were to be remanded to the FBI, but in a December 1971 report sent to Romney, the audit office found that the “operating officials in the field offices had not referred any of these subjects to [them] for investigatory action.” The criminal indictments from around the country demonstrated that housing speculation and profiteering at the expense of poor people could not be dismissed as lowbrow crime carried out by con artists and “fast-buck” thieves; rather, it involved sophisticated networks of actors from “lowly appraisers and prominent FHA chiefs” to “rich realtors and middle-level bureaucrats,” in the words of a 1974 Washington Post article.

Perhaps the first indication that HUD’s issues with real estate speculation and fraud went far beyond local hustlers and “suede-shoe” swindlers came with federal charges against the powerful Dun & Bradstreet credit agency in New York City. In 1972, the agency was charged with twenty-four counts of bribery, fraud, and conspiracy. According to a UPI report, Dun & Bradstreet played a critical role in an expansive plot to sell “depressed-area homes by real estate speculators to low-income blacks and Puerto Ricans,” with the hope that they would default on their loans quickly. After a few months, when a homeowner fell into foreclosure, it was not uncommon for the same house to be quickly resold under the same dubious terms to another unsuspecting family. In total, forty individuals — including seven FHA employees and a public official — and ten corporations were indicted for bribery and fraud involving foreclosures of 2,500 homes, which cost the FHA insurance fund $200 million.

The Dun & Bradstreet scheme worked in a fashion similar to housing fraud scams in other cities: in order to secure a large loan for purchase of a property with an inflated price, a speculator convinced a prospective homeowner to sign a blank credit report, which was then taken to a mortgage bank. A mortgage banker in on the conspiracy would take the blank report to the people at Dun & Bradstreet, who would give the homeowner a favorable credit report that allowed for an even larger loan. The mortgage company would then pay off an FHA employee to inflate the value of a property for sale and confirm its good condition. If a house were to be found in obvious disrepair, a crooked contractor would sign false papers claiming repairs had been made. The intricacy of the fraud resulted in a five-hundred-count indictment against multiple parties across the New York housing industry. As a result, HUD suspended the eighty-seven offices of Dun & Bradstreet from doing any further business with the agency for an undisclosed period of time. The federal prosecutor Anthony Accetta understood the long-term effects of this fraud: “I don’t see how anyone who is Black or Puerto Rican could have faith in the white system after being shaken down like this and then losing his house two months later.”

In Philadelphia, mortgage companies rewarded speculators who brought in new clients no matter what unscrupulous methods were used. One company, the United Brokers Mortgage Company (UBMC), took real estate speculators who met mortgage-bank-determined quotas for recruiting unsuspecting poor homeowners on all-expenses-paid cruises. UBMC had real estate agents compete with one another for a spot on a cruise based on achieving a predetermined number of sales. A letter sent to brokers by UBMC reminded them, “The contest is now almost over for the trip to Barbados. Get on the bandwagon and make that last effort to join us in this fabulous vacation.”

Corruption was so well integrated into the normal workings of the FHA in Philadelphia that even an elected official, William Wilcox, secretary of community affairs for the state of Pennsylvania, complained that it “seem[ed] as though the forces of government were arrayed in an alliance with the speculators . . . to victimize the poor.” Wilcox contrasted the treatment of poor African Americans in Philadelphia with that of wealthy white people and the public developments in their neighborhoods. He noted that in the affluent neighborhood of Washington Square, a consultant was hired by the city to make sure each house being rehabilitated was up to standard. Conversely, “in most cases, poor black men and women [were] given [no] real protection against fraud and abuse.” By the summer of 1972, 133 individuals had been indicted, including 80 real estate brokers; 12 FHA employees, including the regional director of the FHA; and 11 contractors. Several of the real estate speculators indicted worked for UBMC and had been invited on cruises.

It wasn’t just HUD-FHA employees who were taking advantage of the situation. Even a US senator, Edward Gurney, a Republican from Florida, was indicted for conspiracy, fraud, and making false statements to the grand jury that ultimately charged him. Gurney was a stalwart Nixon supporter who sat on the Watergate Senate committee, so his legal troubles intersected with the President’s. The first sitting senator in fifty years to be indicted for a crime, he was charged with depositing bribes — upward of $233,000 — from builders and developers into a slush fund used to finance his reelection campaign and pay for other personal expenses. Developers and builders eager to secure contracts for subsidized Section 235 housing paid a kickback to jump the line of those waiting for the opportunity to build the subsidized developments. Gurney was eventually acquitted of five of seven charges, and a jury deadlocked on the additional two charges. Nevertheless, Gurney was forced to resign in 1974 after bowing out of his reelection campaign. In the end, he blamed his assistant and claimed his only crime was being “careless, unobservant, and too trusting.”

On August 4, 1970, Liza Mae Perry, Ida Mae Foster, Ada Coleman, and Sandra Cook of Seattle had their lawyer write a letter of complaint to the FHA. They had all purchased homes in Seattle using the Section 235 subsidy, but instead of basking in the pride of new homeownership, they had found, as their lawyer wrote, that “the 235 program was not all it had been held up to be. Instead of the peaceful security of a decent and sanitary home, they found themselves beset with a nightmare of leaking and stopped-up plumbing, sparking electrical switches, flooded basements and innumerable other defects.”

Perry, Foster, Coleman, and Cook would end up as the lead defendants in a class action lawsuit that demanded reimbursement for money spent to repair their homes and that attempted to force HUD to change its approach to its existing-housing program. All four women were AFDC recipients who “were so happy and excited about finally getting a home of their own.” All were told that the homes had been “FHA-approved.” But after they moved in, the houses quickly began to fall apart. The suit raised questions about how properties in such disrepair could be sold with a positive FHA appraisal. All four homes in question in the Seattle class action lawsuit had been inspected by the city of Seattle within weeks of purchase, whereupon they were declared unfit to live in and subsequently condemned.

In Denver, Carol Currie, Carol Barber, Barbara Brown, Virginia Roberts, and Joyce Christenson told similar stories of buying “FHA-approved” homes that had fallen into deep disrepair shortly thereafter. Letters from legal aid attorneys were pouring in from around the country: Seattle, Spokane, and Everett, Washington; St. Louis; Denver; Philadelphia; Paterson, New Jersey; Saint Paul, Minnesota; and elsewhere. In Kansas City, Missouri, Thelma Herring, Lenora Richards, Queen Thompson, Madie Trotter, and Enola Vaughn were poor Section 235 homeowners receiving welfare. They, too, were threatening to sue HUD-FHA, with the help of legal aid, because of the dismal condition of their homes.

Mounting complaints made their way into local newspapers and eventually to the desks of various representatives, all within a single short year of the 1968 HUD Act being set in motion. George Gould, an attorney representing a group of poor women from Philadelphia, was invited to address a subcommittee of the House of Representatives about the HUD homeownership programs. His words described the torment of many:

Thousands of families in Philadelphia are now living in FHA insured houses, which the Philadelphia Department of Licenses and Inspection aptly describes as ‘unfit for human habitation.’ . . . The inspection[s] of these properties by the FHA were atrocious. Conflicts of interest prevailed at every level. Although the purchasers were ignored, FHA made sure that the economic interests of the speculator and mortgage companies were well protected.

As a result of the pressure created by the threat of litigation, HUD was forced to acknowledge that it had helped facilitate the sale of faulty properties in its existing-housing program. In the Housing and Urban Development Act of 1970, Congress amended the National Housing Act by including a new provision, listed as Section 518(b), which allowed Section 235–subsidized homeowners to be reimbursed for damages in the amounts that they had paid to have repairs done in their homes. This was a victory for the thousands of poor women, many of whom were welfare recipients, who had been coerced into buying damaged homes out of desperation for better housing.

Sarah Porcher, a mother of four and cochair of Concerned 235 Homeowners, summed up the feelings of many when she spoke at a June 1972 rally in front of the FHA offices in Philadelphia: “The abuses of FHA have been exposed time and time again. . . . By law we are entitled to have our homes repaired, but how many of our homes have been repaired? How many of us live in the ‘decent homes’ we were promised? Hundreds of us 235 homeowners still live in run-down shacks that get shoddy repairs at best.” Porcher’s home had twenty-seven defects, which had cost her $1,000 to repair before she found out about Section 518(b). Several months after Gould filed a new class action lawsuit in Philadelphia, FHA officials issued new regulations regarding subsidized and unsubsidized low-income homeowners that were applicable only in “eastern Pennsylvania.” The mounting pressure from grassroots homeowner activists, the relentless coverage from city newspapers, and the lawsuit filed by Gould forced HUD-FHA to adjust — if only locally.

The new FHA rules for Philadelphia made mortgage companies financially responsible for defective houses sold with FHA mortgage insurance. If a mortgage company signed off on a mortgage for a defective house, then the company, not the FHA, would be responsible for reimbursing the homeowner or providing a grant to pay for the repair. The new rules required that all properties be thoroughly inspected for defects prior to purchase, which meant that mortgage companies assumed responsibility for correcting legitimate complaints and ensuring that contractors completed the work for which they were responsible. In addition, the seller was responsible for explaining and documenting how each defect in a house had been repaired before settlement.

Gould liked the direction the new rules were heading in, but had some reservations: “It does show FHA is finding the strength and guts to stand up to the mortgage companies,” he told the Philadelphia Inquirer. “But I don’t think it is the answer.” He explained further: “This fails to put FHA on the line. The whole problem is to get good inspections. I think FHA has to be held responsible for that. I don’t think it’s fair to try to just put it all on the mortgage companies.” For Gould, the FHA was still shirking its responsibilities as a public agency by clinging to its hands-off approach. “This is typical of FHA in not recognizing that they are responsible for some of these things,” he said.

By 1974, the experiences of the four women from Seattle had been multiplied thousands of times as complaints and legal action against HUD-FHA mounted. The stories of low-income homeowners, predominately women, from across the country were critical for multiple reasons. Foremost was the willingness of Perry, Foster, Coleman, and Cook — and many others like them — to make their deplorable housing situations publicly known, which acted as a catalyst in exposing the malfeasance, corruption, and fraud pervasive in HUD-FHA’s transactions in its subsidized and unsubsidized, existing and new housing programs. The public proclamations of these disproportionately African American and almost always poor women offered a counternarrative to HUD and Romney’s popular argument that these homeowners were ultimately responsible for the poor condition of their homes. Their demands and their willingness to file lawsuits and fight for their rights as homeowners threatened to upend the preconceived notions of these women as undeserving, unprepared, and unsophisticated.

Still, some analysts insisted that the failure of HUD’s homeownership programs was proof positive that poor people were ill equipped for the responsibilities of homeownership. It was easy to extrapolate the implications, to get more specific: low-income African Americans were not capable homeowners. While others pointed to HUD’s obvious mismanagement of its programs as the real culprit in their demise, the fundamental lessons of HUD’s experiment were muddled by economic sensibilities, including the commitment to private property and the centrality of homeownership to the American economy, which would remain pervasive long after the retreat from the postwar racial liberalism of the 1970s.

The assumption that a mere reversal of exclusion to inclusion would upend decades of institutional discrimination underestimated the extent to which the housing economy was organized around race and property. Discriminatory differentials were embedded in the US housing market, based on a combination of historical and continuing practices within the real estate, housing, and banking industries — abetted by the failure of the federal government, in any historical period, to enact rigorous regulatory compliance with civil rights laws. Even when the terms were created to make homeownership possible for poor and working-class Black people, their economic disadvantage was impossible to overcome. Racial difference and antipathy are not unintended consequences of the market; they constitute it.

Adapted from Race for Profit: How Banks and the Real Estate Industry Undermined Black Homeownership, to be published by University of North Carolina Press in October 2019.

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