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December 10, 2018

11/11/2018 10:18:00 AM
The Federal Housing Administration's Role in Segregating and Cutting Off Mortgage Financing for Black Families in Chicago, 1934-1960
By Larry Gavin


Abstract of Article

In 1969, a lawsuit commonly known as the Contract Buyers League (CBL) case was filed in federal court in Chicago on behalf of about 2,600 Black families who had purchased homes from real estate speculators on the south and west sides of Chicago between 1952 and 1968. The complaint alleged that the real estate speculators purchased homes from White homeowners – sometimes using block-busting techniques – and that they resold the homes after a short time to the plaintiffs at greatly inflated prices. The average markup was about 75%, often within a two- or three-week period.

In addition to the large markups, the real estate speculators sold the homes to Black families on installment contracts. Under the contracts, if a family missed even one payment, the seller could terminate the contract and evict the family. Even if the family made timely payments for ten years, the family would have no equity in the property and could lose everything.

The real estate speculators were able to charge excessive prices and sell on contracts containing oppressive terms because most Black people during this time had no alternative. The housing market in Chicago was highly segregated. Black people could purchase homes in very limited geographic areas. Very few financial institutions were willing to make loans to Black people, and none were willing to make loans to Black people to purchase a home in an all-White area.   

Real estate speculators took advantage of these market conditions and exploited the plaintiffs.

The complaint in the CBL lawsuit was amended in August 1970 to add the Federal Housing Administration (FHA) and several other federal agencies as defendants. The complaint alleged that the FHA played a significant role in creating the segregated housing market in Chicago and in cutting off mortgage financing for Black households in Chicago.

This article takes a look at the FHA’s role in creating the dual housing market in Chicago. In particular, the article takes a look at how a number of different FHA policies contributed to segregation in Chicago, limited the supply of housing to Black families in Chicago, and cut off mortgage financing to Black families in Chicago. The polices include: a) FHA encouraged the use of racially restrictive covenants up through 1948; b) FHA condoned housing developers’ discriminatory policies in the suburbs; c) FHA taught that if a Black household moved into a White area, it would depress property values and cause the area to deteriorate; d) FHA regarded racially changing areas, central city areas, and many older areas of Chicago as ineligible for FHA insurance, and essentially redlined those areas; and e) FHA’s underwriting policies initially required redlining, and then contemplated that redlining would continue to promote consistency and save time.  

There have been many articles and books on the FHA’s discriminatory policies and redlining practices, and about the CBL case, which challenged FHA’s practices. What this article adds is a discussion of some additional provisions of the FHA’s Underwriting Manual. It also collects research and evidence from many sources summarizing the impact of FHA’s discriminatory policies in Chicago.

In addition, the article presents testimony of several FHA officials given in the CBL case about the Chicago office’s redlining policies and practices, and it presents the results of a study conducted by a CBL team that analyzed where FHA insured mortgages in Chicago in 1960 and 1961.

The CBL study suggests that in 1960-1961 the FHA wrote off or redlined all Black areas in the City of Chicago north of 55th Street. The FHA wrote off community areas in which more than 75% of Chicago’s Black population lived in 1960-1961.  

For a pdf of the article, click on the link below.



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• Click here for a pdf of the article




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