By Beryl Satter

Just over a half century ago my father, attorney Mark J. Satter, wrote an editorial about the “Million Dollar a Day Cost of Being Black” that exposed how real estate speculators were draining the wealth of Chicago’s black population. He had learned of these scams from his clients, African Americans who had been grossly overcharged by real estate agents.

In the 1950s, speculators combed white neighborhoods, purchasing property from whites and then reselling them to blacks—at double to quadruple market value. Even worse, they sold these overpriced properties “on contract,” that is, on the installment plan. Black buyers made a down payment and were responsible for taxes, insurance, maintenance, and interest, but could lose the property if they missed even one payment. They were forced to accept such brutal terms, since in Chicago as nationally, most banks refused to loan to them; if they wanted to buy at all, they had to buy from speculators.

Given the speculators’ inflated prices, missed payments were common, which meant that speculators often evicted their black buyers and resold their properties over and over, growing rich off the life savings of black Chicagoans while impoverishing whole sections of the city. This, not white flight, is why many black neighborhoods in Chicago, and throughout the country, turned into slums.

In my father’s view, the heart of the problem was a tragic fact: the professional bulwarks of a stable community—bankers who loaned, realtors who guided, and attorneys who advised—all turned into predators when the client was black. Instead of enabling home ownership, he wrote, the mortgage banker “arbitrarily and capriciously refuses to make loans to Negro people.” Instead of looking after their clients’ interests, the real estate broker and the attorney conspire against them to grab “a commission for themselves of two and three times the very cost of the houses involved.”

I’ve been reminded of my father’s cases quite often lately. Although we like to think that racial injustices of the scale that my father battled in the 1950s are safely behind us, recent reports tell a different story. The NAACP has filed a suit charging Wells Fargo and over a dozen other banks with ensnaring black borrowers in harsh loans, despite having income and down payments identical to those of whites.

The city of Baltimore has also filed suit against Wells Fargo for pushing sub prime loans on black homebuyers. The company unfairly burdened minority borrowers by increasing their debts, often by as much as percent. Its policies pushed black borrowers into foreclosure at high rates, and cost Baltimore tens of millions of dollars to repair the destruction that accompanies high concentrations of vacant properties. Baltimore’s plight underscores the devastating effects that predatory lending practices unleash on black communities, which have only worsened over time.

Let’s look at these effects, decade by tragic decade:

• From the 1940s through the 1960s, speculators selling “on contract” and at inflated prices extracted hundreds of millions of dollars from a captive market of African Americans. Instead of getting a lift from purchasing property, black families were immensely burdened by the inflated prices and harsh terms they were forced to accept. Indeed, exploitative contract selling stripped many blacks of their savings even as 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 the late 1960s, the Federal Housing Administration finally stopped denying mortgage insurance to black buyers. Instead, it offered 100% insurance on loans made in low-income minority neighborhoods. Unfortunately, the new policy was quickly hijacked by speculators who flooded these neighborhoods, buying slum properties and reselling them at exorbitant prices.

• Like the contract sellers who preceded them, 1970s-era speculators attracted black and Hispanic buyers by stressing the low down payment, not the high final cost. Foreshadowing today’s “no-doc” lenders, the speculators did all the paperwork, often falsifying their buyers’ income to make it look like they could carry the overpriced loan. The lenders didn’t check. After all, lenders made more money if the buyer defaulted, because then they could collect 100% of the loan money, plus interest and fees, immediately (from the FHA’s insurance pool). The speculators made a killing by selling slum properties at vastly inflated prices, and the lenders made out by charging high rates on the loans, which the government would reimburse if the buyers defaulted.

The victims were the minority homebuyers, who usually lost their properties, and the federal government, which paid billions in inflated insurance payments. By the 1970s, municipal governments across the nation were left to cope with neighborhoods gutted by greed. Writing in 1972, a New York Times reporter covering these real estate scams described the “bombed-out appearance of many central cities, where block after block of structurally sound housing has been abandoned”—a description that could apply to today’s Baltimore.

• Today’s mortgage purveyors who target racial minorities for overpriced loans are part of a long, sorry tradition of racial bias in the credit industry. Its effects are exponential over time. Home-owning whites pass their property on to their children, or use it to finance their education, or to help them with down payments.

Black parents who, as a result of discriminatory federal policies and the unscrupulous practices of generations of real estate professionals, did not own their own property, couldn’t do any of these things. This difference in home ownership rates—a legacy of discriminatory and predatory lending, not of wage differentials—is a primary cause of the current wealth gap between blacks and whites. It will continue until Congress passes laws requiring all lenders to document their loans by race; forcing them to reveal how the race of loan applicants is determined; and punishing those who target credit-worthy racial minorities for high-interest loans. The alternative is the decay of minority communities that we can see in cities such as Baltimore. Will we stand by while yet another generation of African Americans loses their properties because of the greed of companies such as Wells Fargo?

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