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					                             THE CITY OF NEW YOR K

           COMMISSION ON HUMAN RIGHT S




            RESIDENTIAL               MORTGAGE FINANCING AND MINORITIE S




                                              SEPTEMBER,             196 6




JOHN V . LINDSAY                                                                            WILLIAM H . BOOT H
       MAYOR                                                                                        CHAIRMA N
                                                DAVID H . LITTER
                                                    VICE CHAIRMA N

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10   LAFAYETTE            STREET           ' NEW YORK                CITY,       N . Y . 10013 '            566 -5050
       RESIDENTIAL MORTGAGE FINANCING AND MINORITIE S

                         IN NEW YORK CITY




                          Prepared for th e

           New York City Commission on Human Right s

                  William H . Booth, Chairma n

                       John V . Lindsay, Mayor




                            Directed by

                      Louis M. Zimmerman
                   Chief, Housing Divisio n




                            Prepared by

                            Robert Starr



New York City Commission on Human Right s
80 Lafayette Stree t                             September, 1966
New York, New York
                      TABLE OF CONTENTS




                                                      Pas t

LIST OF TABLES AND MAPS	                              ii i


Chapter

     I.   INTRODUCTION	                                 1


   II.    MINORITIES AND LENDING INSTITUTIONS 	


  III .   PROBLEMS OF MORTGAGE FINANCE FOR NEGROE S
            IN NEW YORK CITY 	                         17


   IV .   MORTGAGE BROKERS, CONVENTIONAL LENDING
            INSTITUTIONS, AND THE NEGRO MORTGAG E
            MARKET IN QUEENS 	                         51

    V.    RECOMMENDATIONS 	                            74




                              ii
                        LIST OF TABLES AND MAPS




Table                                                          Pag e
   I.      Lending Institutions Active i n
             Southern Queens	                                    55

  II .     Amount of Mortgage Brokers' Business i n
             Negro-populated Areas of Southern Queens    ...     60

 III .     Queens' Mortgage Brokers' Assignments	                61



   Maps	                             0	        00   following 6 6




                                  ii i
                          CHLPTNR I


                        INTRODUCTION


      This is a report on the practices of lending institu-

tions as they affect minority purchasers of residential prop-

erly, The purpose of this report is to summarise the problem s

which minorities, particularly Negroes, have encountered his-

torically and do encounter presently in obtaining home mort-
gages ; to identify the specific problems of minorities i n

arranging for residential financing in New York City ; than t o

focus on a particular problem faced by minorities in New Yor k
City ; and, finally, to make recommendations for solutions to som e
of the problems faced by minorities in New York City in arrangin g

for home mortgage financing .

      In line with this purpose, the second chapter summarises
the literature which has been previously published on the sub-

ject of minorities and mortgage financing . This does not include
an exhaustive selection, but does represent the thoughts of man y

knowledgeable individuals and highlights the significant event s

in this field .
      The third chapter deals specifically with the problem s

encountered by minorities, particularly by Negroes, in arrangin g

for residential mortgages in New York City . This informatio n

was gathered largely through inverviews with real estate
                                  2


brokers, officials of   pablic   agencies, members of various

human rights organisations, private individuals and official s

of lending institutions .

      The content of the fourth chapter is focused upon a
particular problem of Negroes who seek mortgage financing i n

the southern half of the borough of Queens . Mich of the data

gathered for this chapter was obtained from special surveys ,

interviews with Negro and white real estate brokers, local resi-
dents and mortgagors, mortgage brokers, and officials of lendin g

institutions .

      The fifth and final chapter of this paper makes variou s
recommendations for solving several of the problematic situations

which confront minorities as they try to arrange mortgage financin g

for residential properties in New York City and, more specifically ,

in Queens . Suggestions are also put forth for further sttdis s

into the problems of mortgage finance and minority groups .
                          CHAPTER I I


             MINORITIES AND LENDING INSTITUTIONS


      Published Studies Indicating Inequitable Practice s



       *any of the published works which have dealt with th e
attitudes of mortgage lenders toward minorities have conclude d

that discriminatory treatment has been and presently is accorde d

to minority individuals, particularly to Negroes . These studies ,

generally, describe the relationships between potential minor-

ity mortgagors and lending institutions on a national basis ,

as if the problems encountered by minorities in obtaining mort-

gages were the same in all parts of the United States . In fact ,
as this study later suggests, it certainly does not seem tha t

the problems which arise will be the same in any two areas, o r
even that the problems to be faced are identical in any two con-

centrations of Negro population within a single city .
       The documentation of some of these publications lend s

credence to suggestions that seriously discriminatory policie s

and   practices against Negroes and other minorities were preva-
lent not too many years ago and may continue to exist in some

areas or with some segments of the lending industry . The
general opinion expressed by many of these works is that it ha s

been, and still is, difficult or impossible for Negroes to
                                4


obtain mortgages through white-controlled lend$ ng institutions ;
and that even when mortgages are obtained, the terms and condi-

tions are much more stringent than for mortgages obtained b y

whites . Difficulty in arranging for mortgage financing by a
Negro is greatest when he wishes to buy a home in a predominantl y

white area, but continues to plague the Negro even when h e

desires to purchase property in a Negro-populated area .
     Charles Abrams, in Forbidden Neighbors   (1955),   gives sub-

stantial evidence of past discriminatory practices toward minor-

ities by a number of lending institutions in New York City .

He tells of a 1946 Department of Justice complaint filed agains t

the Mortgage Conference of New York and 38 of New York City' s

leading banks and trust companies, "charging them with agreein g
'to use their control of credit to cause the exclusion of cer-

tain minority racial and national groups from certain areas .' "

According to Abrams, the government "alleged that the defendant s

'prepared, published, kept current and distributed maps of eac h
section of New York City showing blocks on which Negroes an d

Spanish-speaking persona resided ; refrained from making mort-

gage loans on properties in such blocks ; and induced owners o f
real estate in certain sections of New York City to refuse t o

permit Negroes and Spanish-speaking persons to move into suc h
sections .' The effect of this conspiracy, according to th e
complaint, was that 'Negroes and Spanish-speaking persons hav e

been denied the mortgage financing required to maintain rea l
estate in habitable condition and to operate it successfully a t

r► isonable rental levels .'"
        In 1955, Abrams continued to believe that, "Despite th e

injunction obtained by the Justice Department against th e

Mortgage Conference of New Yor) it does not appear that

interest in New York City's Negro areas has revived . Mortgage

loans are now made predominantly by individuals, with bonuse s
ranging up to 25 per cent of the mortgage principal . "

        Though some Negro-owned lending institutions were making

loans for Negro housing, their assets were very small and i t

was "all but impossible" to raise additional capital . "Their

,[fie   Negro-owned lending institution loans are viewed as unde-

sirable by non-Negro institutions ; hence the Negro companie s
have difficulty in hypothecating or rediscounting their mort-

gages . Even when the federal government has offered to insur e

the mortgage loans unconditionally, most lenders have persiste d
in their refusal to accept the mortgages at par value .

         "The fact that mortgages cannot be had through regula r

channels even when insured by FHA has had a depressing effec t

on the minority housing market . Mortgages taken back by seller s
have been sold at fantastic discounts, though bearing govern-

ment insurance . . . . "

         In 1952,   RealEstate   Forum published a study of mort-

gage financing trends in Harlem, prepared by the Harlem Mort -
gage Council and the State Division of Housing . This study

found that among the characteristics of mortgages on Harle m

properties, when compared to other Manhattan mortgages, wer e
smaller mortgage amounts, higher interest rates, a preponderanc e
of individual lenders rather than institutional       ]enders s,   :and
                               6


a higher percentage of purchase money mortgages . Though the

report did not confine itself to any particular type of prop-
erty, its generalizations are equally applicable to Harlem' s

residential properties .

     A classically economic rationale was provided to explai n

the findings of this study : "The basic problem is that saving s

banks are reluctant to make loans in Harlem because nany prop-

erties there, particularly in certain depressed areas, do no t
meet the risk-rating factors which financial institutions mus t
consider in lending . If it is a fact that mortgage lenders

avoid the Harlem area, we must reluctantly conclude that it i s

because they can employ their funds more profitably elsewher e
or equally profitably with less risk elsewhere . "

     It seems hardly likely, however, that such blatant discrim-
inatory practices by lending institutions in New York City a s

were condoned by the Mortgage Conference of 1946 could have bee n
completely eradicated by 1952, so that mortgage financing poli-

cies could be said to be based on strictly economic considera-

tions . Discriminatory practices are not here one day and sen t

away by proclamation the next day; any economic rationale fo r

the avoidance of Harlem by mortgage lenders must be qualifie d
by the likelihood that some discrimination continued to exist i n

the practices of 1952, if not in the policies .

     In the 1960•s, studies of the experiences of minoritie s
in obtaining mortgage financing continued to cite discrimina-

tory practices on the part of lending institutions .   The 1961
United States Commission on Human Rights noted in its Housing
Report that it had "found evidence of racially discriminator y

practices by mortgage lending institutions throughout the

country," although none of the specific incidents reporte d

occured in New York State .   According to the Commission, a 1959

survey in Chicago "showed that of the 243 associations in Coo k

County . . ., only 21, including the 2 Negro associations in the

city, had made such LEortgage loans in the heavily Negro pop-

ulated South Side area during the preceding 12 months . And
only one white association had made an initial mortgage loa n

to a Negro family in a white area . "
      On October 25, 1962, an article in The Wall Street Journal,
presented the beliefs of Negroes and Negro organisations and th e

statements of some officials of white-owned lending institu-

tions to the effect that minorities were generally discriminate d
against in obtaining mortgage financing throughout the Unite d

States . The head of the United Mortgage Bankers, a Negro organi-
zation, stated that "a study of real estate transactions i n

Cook County (Chicago), Ill ., makes clear that many lender s

exclude Negro borrowers . During the year that ended last May

31 X96), almost none of the 141 commercial banks and 22 5
white-run life insurance companies in Chicago and less . than 10%

of the city's 241 white-run savings and loan associations mad e

any mortgage loans to Negroes . "
      Though it is difficult to find lenders who will admit t o

rejecting mortgage applicants on racial grounds, the Journal' s
article did report the president of an Atlanta savings and loa n

association as saying that, "For both economic and social
                                8


reasons, we don't make loans to colored people moving int o

all-white or transitional neighborhoods . We owe it to our
stockholders not to risk their money on such properties . W e
also have to consider impairment of the value of the mortgage s

we already hold in these areas . "

      Another problem reported by the ,Journaj's article wa s

that local loan correspondents for large lending institution s
were able to discriminate against Negro loan applicants eve n

when the particular lending institution had adopted an officia l

non-discriminatory policy .
      In 1964, Robert Pitts published an article on "Mortgag e

Financing and Race" in RaceandProperty, stating that residen-
tial segregation had long been,and continued to be, supporte d

by lending institutions ; and that, even though a few lender s

were adopting non-discriminatory practices, "the majority con-
tinues to employ them ." All potential borrowers must meet cer-

tain economic requirements, he oo ntinued, "but when the appli-

cant for a mortgage is nonwhite . . . most lenders introduc e
other considerations ." These other "considerations" include

beliefs that : 1) all nonwhites are greater investment risk s

than whites ; 2) mortgage financing for nonwhites should be pro-

vided only in nonwhite areas ; 3) property values depreciate a s
the number of non whites increases in an area .
                                  9



Published Studies Indicating Trends Toward Eq uitable Treatmen t

     A few studies were published in the 1950's which indicate d
that attention was being brought to the problem of obtaining
mortgage financing for Negroes and other minorities and tha t
minorities were being accorded more equitable treatment as mort -
gage applicants than in the past . These early reports wer e
based on favorable experiences with lending institutions i n
attempts to obtain financing for Negro-occupied residentia l
properties .
     The National Urban League, in 1954, published a repor t
of their experiences in obtaining Mortgage Financing for Prop-
erties Available to Negro Occu p ancy .   According to the report ,
several "highly respected businessmen and civic leaders "
across the United States had found difficulty in securin g
adequate mortgage finance for minority housing projects of fort y
units and above . Since "a number of prime lending institution s
in New York had had satisfactory experience with the minorit y
market," and because some of these lenders "had expresse d
willingness to work with the League to help meet mortgage need s
in this field," the National Urban League served to find mort -
gagees for a number of the proposed developments .
     The conclusions reached by the N .U .L ., acting as an inter -
mediary, were that the attitudes of lenders in 1954 ran th e
gamut from absolute refusal to consider the minority market ,
to a limited participation in the market, to those "who are
                                10



willing to enter this market with few or no reservations . "

The N .U .L . indicated that, "This market is not considered o n

merit alone . . .," but "in some communities mortgage conclusion s
are made on age-old sterotypes of the occupations, income ,
education, and living habits and interests of Negro families . "

     In spite of the aualifications, it is at least encouragin g

that the National Urban League was able to find    some lending

institutions interested in financing housing developments for

Negroes . The experiences of the N .U .L . seem to indicate tha t
not all lending institutions in 1954 were entirely opposed t o

making mortgages on p redominantly Negro projects .

     A significant event of 1954 . was the establishment of th e
Voluntary Home Mortgage Credit Program . Through its annua l

reports and other publications, the VHMCP indicated that hom e

mortgage financing was increasingly being made available t o
Negroes and other minorities on equitable terms . Placed withi n

the federal government's Housing and Home Finance Agency, it

was to serve as a nationwide clearing house in making fund s

"available i'or government-insured and -guaranteed home loans to

minority groups and in snail communities where there normall y

exists an inadequate supply of funds for such loans ."     It is

especially noteworthy that the Voluntary Home Mortgage Credi t
Program was established at the instigation of private lendin g

institutions .

     Potential minority mortgagors, accounting for about one -
fifth of all VHMCP transactions (with the    remainder from person s

in   mall communities), could apply to VHMCP for help in locating
                                  11



a mortgagee if the minority individual's application : 1) ha d
been refused by two or more lending institutions ; and 2) me t
the ^roperty and personal credit qualifications for FHA-insure d
or VA-guaranteed mortgages . VHMCP would then offer the potentia l
mortgage to several of the voluntarily participating lending
institutions, and the lenders would have the opportunity t o
accept or reject the mortgage .
     The Voluntary Home Mortgage Credit Program was neve r
extremely active in placing minority mortgages . Between 1954
and 1957, 1115 individual mortgages were placed in the nation
through VHMCP by minority individuals ; in 1957, the total wa s
697 mortgages . In New York State, during 1957, only fiv e
minority mortgages were placed out of twenty applicants .
     Some New York City lending institutions were among thos e
participating in and directing the VHMCP . The First Federa l
Savings and Loan Association and Washington Heights Federal
Savings and Loan Association were represented on the Nationa l
Committee, while officials of The Marine Midland Trust Company
and Carver Federal Savings and Loan Association were member s
of the Regional Committee .
     Considering the terms, if not the quantity, of the minor -
ity mortgages which were placed through VHMCP, it was viewe d
as a success . According to the Fourth Annual Report of the
Voluntary Home Mortgage Credit Program (1958), "The terms o f
the loans obtained for members of minority groups have bee n
at least as favorable as the terms prevailing in the regular
mortgage market . . . . CTJhe lenders in the Program have made
                               12



concerted efforts to charge only the minimum discounts necessar y

to justify the making of fixed interest rate loans in the fac e

of a continued tightening of the money market . During a period

when discounts nationally went to averages of 4 and 5 per cen t

on FHA-insured loans, and even higher on VA-guaranteed loans ,

the discounts charged on VHMCP loans averaged around 2 per cent . "
      In 1959, the Housing and Home Financ e . Agency's Annual Re port,

reported that, "One of the most heartening byproducts of th e

VHMCP is the growing acceptance of the fact that loans to minori -

Us are safe investments . . . . By forcefully focusing atten-
tion upon the worth of mortgage loans to minorities, VHMCP ha s

contributed to a more equitable flow of mortgage credit to thes e

groups ." An increasing lack of activity on the part of VHMC P
was attributed to its success in pointing out the worth o f

minority mortgages, and the Program was discontinued in 1965 .

      As with the experience of the National Urban League, i t

is at least encouraging that in 1954 enough lending institution s
recognised that a problem existed in obtaining mortgages fo r

Negroes and other minorities, and that some lenders were willin g

to offer help and support for the VHMCP in reaching some solu-
tion to that problem . Whether the demise of VHMCP in 1965 wa s

due to its success can be questioned, however, 'since the Pro -

gram was apparently never widely or strongly promoted amon g
Negro real estate brokers and potential home purchasers .

      George and Eunice Grier, in Privately Developed Inter-
,racial Housing (1960), reported some favorable experiences in
arrr ging mortgages for Negroes in open-occupancy developments .
	

                                   13


    They stated that, "Although mortgage financing;   has   often been

    difficult for the open-occupancy developer, it has by no mean s

    been impossible . . .    In general, it seems that lenders wh o

    are foremost in financial status have also been foremost in

    readiness to undertake the financing of racially integrated

    housing ." Some bankers, they indicated, will not lend to

    Negroes under any circumstances, and some will lend only fo r

    all-Negro projects but not interracial projects . Other lending
    institutions, in increasing numbers, are becoming confident o f

    making mortgages for interracial or all-Negro housing once they

    "have had enough experience with Negroes as creditors to len d

    to them if they meet the usual credit requirements . "

          Again in 1960, the Commission on Race and Housing, a

    private organization, published Residence andRace , by Davis
    McEntire„ This excellent study reported that there has been a

    "striking improvement during the past decade in the ability o f

    nonwhites to obtain home-mortgage financing     hicffl   reflects
    their increasing economic strength, expansion of the supply o f

    mortgageable properties available to them, and governmenta l

    measures to stimulate and equalize the provision of mortgag e

    credit . The growing availability of mortgage credit to non -
    whites on liberal terms has sustained their strong demand fo r

    housing in the areas of racial transition . "

          Hal M . Freeman, iba 1965 edition of The Jou rsal o
    Inter&rouo Relations, writes that in Chicago " . . . mortgag e

    financing for Negroes is no longer the obstacle to home purchas e

    that it once was . While many financial institutions in the
                                  14


Chicago area still are reluctant to loan money to the firs t
Negro family moving into a white area, an increasing number o f

such institutions have had positive experiences with Negr o

home-buyers and are willing to make such loans . "
         Contrasting the studies of the United States Commissio n
on Human Rights and of the United Mortgage Bankers, Freema n

cites a report published in 1963 by the Chicago Commission o n

Human Relations entitled MortgageAvailabilityfor Nonwhite s
in the Chicago Area, A Report, which showed that the number o f

non-white borrowers increased nearly sixfold in Chicago between

1950 and 1960 ; and, whereas in 1950 less than a dozen financia l
institutions made mortgages to Negroes, "today J96g we know

of 91 such institutions and the actual figure is probably over

100 ."
         The National Opinion Research Center published in May ,
1966, the results of a survey taken in Washington, D . C . ; San

Jose, California ; and Atlanta, Georgia .   The survey covered a
number of subjects related to Negro housing opportunities, bu t

among the preliminary findings was that, "The informants al l

agreed that mortgage money was readily available for qualified
borrowers, and no one felt that Negroes would have any particu-

lar- difficulties   solely because of their race . While at time s
in the past, both white and Negro buyers of homes in integrated
neighborhoods may have had difficulty in obtaining mortgages ,

that is clearly no longer the case . The current competitio n
in the mortgage market provides buyers in integrated neighbor-
hoodh with the opportunity to shop for financing ."
                              l5

      The NORC report, however, dealt only with stable, inte-

grated neighborhoods and did not "deal with neighborhoods whic h

are changing very quickly from white to Negro . Lending policie s

in these neighborhoods might be more restrictive ." The repor t
also stated that, "If funds become scarce, it is possible tha t

lending firms might be more reluctant to invest in integrate d

neighborhoods, as they once were in the past ." NORC felt th e

survey showed that "past experience has convinced lending firms ,
if not all brokers and home owners, that property values ar e

not adversely affected when a neighborhood is integrated . "




                             unomary


      Judging by published works, then, the national picture o f

mortgage financing available to Negroes and other minorities i s

improving, though minorities are by no means yet given completel y
equitable treatment in the mortgage finance market . Discrimi-

natory incidents have definitely occurred, and several writer s

feel these practices are still widely prevalent . Yet there hav e

also been signs that lending institutions are more frequentl y

making cooperative gestures and making a more realistic evalua-
tion of the minority mortgage market .

      Does this larger picture, however, fit the situation i n

New York City? What are the problems faced by Negroes i n
arranging for mortgage financing in the local New York City area ;

and are these the same problems as Negroes and other minorities
                                16




encounter rationally, or dre some of the problems peculiar t o

the local area's housing product, population characteristics ,
and history?
                         CHAPTER II I

           PROBLEMS OF MORTGAGE FINANCE FOR NEGROE S
                       IN NEW YORK CITY



      In many cases, the problems of Negroes and the availa-

bility of mortgage financing in New York City are very simila r
to those which Negroes encounter on the national level . Prob-

lems of mortgage finance, of course, are conditioned both by

the nature of the area in which a particular property i s

located and the qualifications of the potential mortgagor .
A "pattern of mortgage lending" exists for every neighborhoo d

area because of the distinct qualities of its mortgagors an d

their properties .
      An area of recently built, well-constructed, single family

homes, for instance, where the mortgagors are knowledgeable i n

the procedures of residential purchase and where an ope n
housing market exists, would probably have a mortgage patter n

which included a high degree of participation by conventiona l
lending institutions, largely savings banks and savings and loa n
associations, with a variety of terms and conditions availabl e

at the option of the mortgagor and his attorney . In a section
of aging brownstones, however, where a rapid racial transitio n

was being exploited by real estate and financial speculators ,
and where the purchasers have bad no prior experience with
                                18

arranging for mortgage financing, there is li - .y °t, occur a
mortgage pattern characterized by a high percentage of non -
conventional lenders, junior mortgages and low `.oas. : pric e

ratios .
       Negroes in New York City live in several different an d

di$tinct areas, varying according to geographical location ,

structural and environmental conditions, type of housin g
(whether single family, two to four family, or multi-family

residences), racial and ethnic composition (all-Negro, "tran-
sitional," or stably integrated), and other factors . The mort-

gage patterns which result in each area are different becaus e
of the particular combination of these factors which describ e

the character of the area or neighborhood . Thus, each area i n

which Negroes seek to obtain mortgage financing has its ow n

mortgage pattern, though similar areas such as Harlem an d

Bedford-Stuyvesant would experience similar, but not identical ,
mortgage patterns for their residential properties .

       Because of a desire to get more than a superficial under •

standing of Negroes' mortgage problems in various sections of
New York City, and because of the direct interest in mortgag e

patterns of Negro residential areas, this study concentrate d

its efforts primarily on sections of Brooklyn and Queens . It
is believed that these two areas provide enough of a contrast

to demonstrate that a variety of problems and patterns of mort-
gage financing are encountered by Negroes in different areas ;

and that these areas are fairly representative of the situations
wb ch face Negroes not only in New York City, but in many other
                               19


parts of the United States as well . For a variety of reasbna ,

the Negro-populated area of southern Queens w .s selected for a

more intensive examination of one facet of its mortgage pattern ,

and this part of the study is the subject of the following
chapter.

      Information concerning the patterns of mortgage lending

prevalent in these areas was derived largely from interviews

with white and Negro real estate brokers within and withou t

the two boroughs, officials of public agencies, members o f
various human rights organisations, private home-owners and mort-

gagors, mortgage brokers, and officials of lending institutions .
It mhould be pointed out that almost everyone who was inter -

viewed for this study had some personal interest in the availa-

bility of mortgage finance to Negroes : Negro real estate broker s

wanted to obtain easier financing for their buyers but did no t

want to alienate their existing sources of mortgage finance ;

lenders did not want to be accused either of taking advantag e
of the Negro's difficulties in obtaining mortgage financing o r

of discriminating against the mortgage applications of Negroes ;

and individuals whose mortgage applications were rejected b y

one or more lending institutions might have been unjustifiabl y
antagonistic toward the practices of the lenders . Whe n

supposedly factual information is being conveyed to the inter ..

viev er, there is always the question of whether such informatio n
is accurate or is based on rumor, myths, or obsolescent data .
      The availability of mortgage financing for Negroes is o f

great financial interest to many people, as is also the continued
                              20


existence of present patterns of mortgage financing . The

responses of the interviewees are colored by this fact, and
the conclusions of this chapter must be so qualified . It

was largely with the purpose of getting more objective infor-

mation frog additional and more reliable sources (such a s
the public records of the Queens' Register) that the intensiv e

study of southern Queens was undertaken .
      As a group, Negroes in New York City face five large

problems when they seek to obtain mortgage financing for resi-

dential properties ; 1) they frequently lack sufficient financial "

power ; 2) the residential properties which they purchase ar e
often in poor structural repair and/or surrounded by unfavor-

able environmental conditions ; 3) the absence of a completel y
open housing market limits the selection of available homes ;

4) there exists a low level of sophistication among many poten-

tial Negro mortgagors regarding the cosps, procedures, an d

alternatives involved in mortgage finance ; 5) Negroes have a
legacy of mistrust left by the discriminatory practices o f

lending institutions in the not too distant past .

      These problems organise themselves into different pat -

terns of mortgage finance for different areas of New York City .
In a "transitional" area, for example, the most important an d

significant problem is the restricted housing market, whic h
sends prices skyrocketing and introduces financial speculator s

into the mortgage pattern . For a Negro wanting to buy property
in an all-Negro section of southern Queens, however, the signi-
ficant problem is probably his lack of mortgage sophistication
                                21


combined with a mistrust of conventional lending institutions .

Thus, in order to make more mortgage funds ava .lab1e at a n

equitable cost to Negroes, the distinct mortgage pattern o f

a particular area must be examined, with the objet     of deter-

mining the most critical problems of mortgage financing fo r

Negroes in that area .




                         Economic Powe r

     A general lack of economic power was mentioned by vir-

tually every interviewee in discussing potential Negro mort-
gagors . Some felt that financial ability was the only signi-

ficant problem for Negroes in obtaining mortgage financing ;

others felt that this was only one of many problems, and tha t

once this problem was surmounted, others would appear to thwar t
the potential mortgagor . Almost everyone who was interviewed ,

however, pointed to a general lack of financial ability a s

being one of the most, if not the most, important barrier fo r

Negroes seeking mortgage financing .

     An Associate Director for the Urban League indicate d
that "the primary difficulty of minorities in obtaining mort-

gage financing is a basic economic factor -- they simpl y

cannot meet the qualifications of most lending institutions . "
A Federal Housing Administration official felt that "a lac k

of individual financial ability" was the main reason tha t
Negroes hays problems in obtaining mortgage   financing .   A

Negro real estate broker in Queens noted that a lack of accumu-
                                   22


laced savings for the downpayment was a problea in his expo ..

risnoss.. And an officer of a prominent savings bank stated

that the problems of Negroes were "basically ecznomic, i n

that many minority individuals who purchase homes *imply ar e
not in a position to assume the financial burden of a mort-

gage .*
          A lack of economic power and financial ability i s

expressed in several different ways .     Low income is the most
frequently mentioned indicator of inadequate financia l

resources . Though Negroes desire home ownership as much a s

anyone else, and in many cases perhaps more, they have often

been able to obtain only the less prestigious and less well -
paying jobs in society . As a result of their low-paying

jobs, another indicator of inadequate financial ability

appears ; the absence of savings .
          The type of work which Negroes perform is sometimes a

third indicator . Those Negroes who are employed as unskille d

laborers or domestics are subject to variations in the demand

for their services ; Negroes who are "last hired, first fired "
do not have, in the eyes of lending institutions, a very

assured income to meet mortgage payments . Negroes who world

in such positions as nurses, school teachers, or skilled labo r
are regarded with more favor by lenders .

          A fourth indicator of inadequate financial abilit y
would be a poor credit record with a history of late payment s

or. other debts or judgments against the potential mortgagor .
1 is fourth factor, however, was not mentioned as often as the
previous three indicators as frequent rat . o??~le for lending

institutions to reject Negro mortgage applicant{ .

      The response by a lending institution   ts::F   'A   lack of eco-
nomic per in a potential mortgagor may come in one or more

of several ways . Most dramatically, the lende' si-ply refuse s

to finance the desired mortgage . Frequently, however, the

lending institution will require that two or more persons b e
named as mortgagors on the same property . These may b e

husband-wife combinations or a variety of other ,arrangements ,
such as brother-brother-sister or husband-wife-father . The

likelihood is that all of the mortgagors will live in the resi-
dential property ; thus, if a husband and his wife do not com-

mand enough economic resources between themselves to convinc e
a lending institution to finance their mortgage, they may hav e

to invite a relative or friend to live with them and assum e

the responsibilities of a mortgagor . Though some of these
arrangements may turn out to be unstable, this is not an infre-

quent method of financing a mortgage for Negroes .

      One of the biggest problems reported by Negro real estat e
brokers (who frequently arrange the mortgages for the hom e
buyer) involves persuading the lending institution to accep t

enough of a wife's salary on the mortgage application whe n
computing the financial capability of a Negro family . Lending

institutions will usually accept a portion of the wife' s

salary in the computations, perhaps one-third or one-half ,
depending on the type of work which she does, whether she is

in a child-bearing age group, and whether the couple already
                                 24.


have children . Though this standard is supposedly applied o n

an equal basis to whites and Negroes, a greater percentage o f

potential Negro mortgagors require that the wife's salary b e

considered . A Queens real estate broker reported that almos t

every Negro family applying for a mortgage needed this con-

sideration .

       The frequent lack of accumulated savings by a potentia l
Negro mortgagor means that he is usually only able to affor d

properties which allow for a relatively low downpayment . Mort-

gages may be arranged in two ways so that little initial cas h

outlay is needed . First, FHA-insured or VA-guaranteed mort-

gages may be obtained to finance a large proportion of th e

property's cost on a single first mortgage . Of the FHA
appraised value of a house, FHA will insure up to 97% of the

first $15,000, 90% of the second $5,000, plus 80% of the balance ;

the mortgage is repayable in monthly amounts up to 30 years .
VA-guaranteed mortgagee may cover up to the full value of a

residential property and are also repayable in amortisatio n
per .ods of up to 30 years .

        Government-insured mortgages are by far the favorite typ e

of r ortgagee in the Negro-populated area of southern Queens .

L N41gro real estate broker in St . Albans estimated that 95 %
of the mortgages arranged for properties which he sold wer e

FHA-insured or VA-guaranteed . An FHA official stated tha t
approximately 2200 FHA-insured mortgages were obtained eac h

year in Queens, of which at least three-fourths were in souther n
Q. leis .
                                 25


      In the Bedford-Stuyvesant - East New Tork area o f
Brooklyn, government-insured mortgages are not nearly so pop-

ular because most of the properties will not meet the struc-

tural and environmental qualifications of PHl-insured an d

VA-guaranteed mortgages . A Bedford-Stuyvesant real estat e

broker noted that malty of his properties could not qualify fo r
FHA approval because of age or structural conditions and, in

some cases, because of seemingly minor technicalities, and s o

his buyers had to seek conventional financing . The president

of a nearby neighborhood association in Boerum Hill, wher e

middle class Negroes and whites are attempting to purchase an d
renovate some of the old brownstones in a presently deterio-

rated area, said that FHA would not approve the propertie s

for insurance and that this was a definite hinderance to the

improvement of the area .
      Where government insurance is not available for residen-

tial properties, conventional financing must be obtained .
Thie means that a higher downpayment will be required of th e

purchaser, since savings and loan associations, savings banks ,

and commercial banks are limited by law to loaning no mor e

than a certain percentage of the appraised value of a home .

In New York State, savings and loan associations may loan u p

to 90% of the appraised value, savings banks may loan up t o
75%, and commercial banks may loan up to 75% of the appraise d
value of a home .

      With conventional financing, in order to reduce th e

ar )u-It of equity which . the purchaser must initially invest,
                              26


second and third mortgages may be used . This is the second

method, which is used to finance properties where governmen t
insurance is not provided . Thus, if an individual has a firs t

mortgage for 70% of the appraised value of his home, he ma y

need to obtain a second mortgage for another 20%, and perhap s

a third mortgage for part of the remainder . Second and third

mortgages (junior mortgages) are rarely part of the mortgag e

pattern of the Negro-populated area of southern Queens becaus e

of the easy availability of government-insured mortgages there ,

but they are very much a part of many of the older parts o f
Brooklyn where Negroes are buying property .

      Junior mortgages are not obtained from conventional

lending institutions, but usually from individuals, mortgag e

companies, household finance companies, credit unions, etc .
High discounts are almost always charged for junior mortgages ;

when the New York City Commission on Human Rights investigate d

"blockbusting" activities in East New York during 1962, the y
found that some of the discounts on junior mortgages were 50 %

or more . Thus, when junior mortgages are necessary to financ e
the purchase of a home, a large part of the purchase cost ma y

be in the discounts on the second and third mortgages .

      Those persons who are able to obtain an FHA-insured d r

VA-guaranteed mortgage, however, do not escape the necessity o f
paying an indirect fee akin to discounts . Since lending insti-

tutions may charge no more than a fixed interest rate o n

government-insured mortgages (presently 5 3/4%), and sinc e
this interest rate is usually below the interest rate which
                              27


lenders would ordinarily charge on conventional home mortgage s
(presently 6% in most cases), "points" are charged when origi-

nating the mortgage to make up for the loss in interest rate .
One "point" is equal to one per cent of the face value of a

mortgage ; thus, five points charged on a $20,000 mortgage is a

charge of $1,000 .

      As the potential mortgagor is judged a lesser or greater

risk, fewer or more points are charged, respectively, as a fe e

for making the government-insured mortgage . Since the qualit y

of a person's credit is a subjective evaluation of the mort -

gagee, the points to be charged vary from mortgagor to mort-
gagor and from mortgagee to mortgagee . The number of point s

charged also varies according to money in the lending industry ;

when money is "tight," as it is now, more points are charged tha n
when money is "easy . *

      Lending institutions do not all have the ease policie s

regarding the points to be charged on a mortgage . Some lending
institutions charge one point and accept only a certain qualit y

of mortgage risk ; other lenders charge a fixed number of points ,

four or five points, for instance, but will accept a greate r
variety of risks ; others charge different points for differen t

mortgagors . It is such to the advantage of the potential Negr o

mortgagor to seek the institution which charges the fewest point s
for his mortgage .

      Unfortunately, the subjective evaluations that are involve d
in determining the number of points to be charged to a mortgago r

cc 1d lend themselves to almost undetectable discriminatory
                                28


practices on the part of mortgagees . Every official of lending
institution, bankers and mortgage brokers, denied that mor e

points were charged for a Negro mortgagor than for a whit e

mortgagor because of color ; but several individuals not con-

nected with such institutions suggested otherwise, including a

white real estate broker from Bellerose who stated that mort-

gage brokers and conventional lending institutions charge mor e

points for Negro mortgagors simply because "they can get it . "

      Points may not legally be paid by the mortgagor but mus t
come from either the seller or the real estate broker ; except

that a one per cent "origination fee" may be charged to th e
purchaser . The effect usually is that the selling price of the

particular property is raised by the seller in anticipation o f

the cost of points, and the financing costs are effectivel y
passed on to the purchaser in this manner .

      Another result of inadequate financial resources is tha t

"non-conventional" sources of financing may have to be relie d

upon in order to obtain a first mortgage on the property, le t
alone any junior mortgages . Sometimes this non-conventional

source is a mortgage company or investment corporation . Mor e

often it is a mortgage broker, who initially makes the mortgage ,

but within two or three months sells the mortgage to an insti-

tutional investor such as a savings bank, savings and loan asso-
ciation, or commercial bank .
      The mortgage broker is essentially an intermediar y

between the mortgagor and an institutional investor who origi-
nrtes the mortgage and finds an investor with which to place it .
                               29


Mortgage brokers deal almost exclusively with FHA-Insured an d
VA-guaranteed mortgages, and so the fees for their services ar e

collected through the system of points .

      Mortgage brokers are active in both white and Negro mort-

gage markets, but (as explained in more detail in the next chap -

ter) they seem to do proportionately more business in the Negro -
populated areas . The reason for their extra-ordinary activit y

with Negro mortgagors is partly because of the economic positio n
of some Negro mortgagors, partly because of the customs and pro-

cedures of real estate brokers in Negro areas, and partly th e
result of past discrimination by lending institutions . The

relationship of the mortgage broker to the Negro mortgage mar-

ket is examined in more detail in the next chapter .
      Mortgage brokers have arrangements with several institu-

tions where they can place (sell) the mortgages which they ori-

ginate . For the real estate broker, this means that he does no t

have to search out a conventional lending institution to tak e
the mortgage of his buyer ; since the mortgage broker has con e

nections with such institutions, the mortgage broker can mor e

easily find one that will accept the mortgage . Having a numbe r

of investors with which a mortgage may be placed also means tha t

the mortgage broker can accept many of the "marginal" risks ,

since at least one of his connections is likely to accept th e
mortgage, especially if it is offered at a favorable price .
      It must not be forgotten that the mortgage broker's ser-

vices are an extra cost for any individual who arranges a mort-
ga,e through him . If a Negro is more likely to arrange his
                              30



mortgage through a mortgage broker than is a white person ,

though both are equal credit risks, then the Negro is mor e

likely to be assessed an extra charge for purchasing a resi-
dential property . A Negro real estate broker in souther n

Queens estimated that 95% of the mortgages for persons wh o

bought homes through him were arranged through mortgage bro-

kers, and he felt this was the experience of most other Negr o
real estate brokers in that area . It seems unlikely that 95 %

of the Negroes who seek mortgages for these homes would b e

unable to qualify for mortgages from conventional lendin g

sources .

      A final problem for potential Negro mortgagors whic h

can be engendered by inadequate financial resources arise s
when the mortgage payments which are provided for in the agree-

ment are so large, relative to the individual's monthly income ,

that he is unable to meet unexpected costs of maintaining the

property such as special assessments, necessary repairs, o r
a tax increase . These costs may be completely unforseeable ,

but the possibility of their occurrence is sometimes overlooke d

or not mentioned to the potential Negro mortgagor . The desire
of a Negro to escape the deprivations of the central ghetto ,

for instance, and to live in an area such as St . Albans o r
Laurelton, or to remain in a section of brownstones but in a n

area with better facilities and conditions than Bedford-
Stuyvesant, is frequently so strong that he is little concerne d

with how much the house will cost in terms of monthly payment s

a 1 more concerned with the goal of getting the house first
                                 31


and figuring out how to make ends meet later .
      One Queens' attorney pointed out that this situatio n

leaves a wide open field for the real estate broker who induce s

the novice Negro buyer to purchase the most expensive propert y

he can afford and then neglects to inform the buyer of th e
possibilities of unanticipated expenditures which may make i t

impossible for the mortgagor to meet his mortgage payments .

The attorney indicated that an apparently high foreclosure rat e

in the Negro-populated areas of southern Queens could be partl y
attributed to such practices .

      Summary :   The lack of personal financial capability ,

then, is a frequent hinderance for Negroes in seeking to obtai n

mortgage financing . This lack is usually evinced by : : 1) rela-

tively lower incomes ; 2) employment in an industry where job s
are less secure than most ; 3) small accumulated savings ;

4) occasionally weak credit records . ♦s a result, many Negroe s
must make one or more of the following arrangements to obtai n

mortgage financing : 1) two or more persons must be included a s

mortgagors ; 2) a low downpayment must be arranged throug h
government-insured mortgages or with conventional mortgage s

and junior mortgages ; 3) more points are charged ; 4) non-

conventional sources of financing may have to be resorted to ;
5) there may be an inability to meet unanticipated househol d

expenses .
      These situations should not obscure the fact that mor e

and more Negroes are today becoming financially able to pur-
c'*Le and successfully mortgage residential properties .
	




                                    32


    Neither do these patterns indicate by themselves that inequi-

    table treatment is being accorded to potential Negro mort-

    gagors in New York City because of their race . They do suggest
    that, generally speaking, many Negroes encounter economic prob-

    lems when they seek to borrow money to finance the purchase o f
    a home . These economic problems are complicated and exacer-

    bated by other conditions, however, such as a restrictiv e
    housing market ; so that, for a white person, what is simply a
                                                                          r
    problem of not enough money becomes, for a Negro, much more
    than that .



                  Structural and Environmental Condition s


          The residential properties which Negroes in New York Cit y

    purchase are often structurally deficient by virtue of thei r
    age, style, . construction, or other characteristics ; or they ar e

    in an area which is denoted as environmentally deficient b y

    lending institutions, perhaps because of inadequate publi c

    facilities, the poor structural condition of surrounding pro-

    perties, or a high rate of mortgage foreclosures in the area .

    These problems are most serious in the older sections of th e

    City, such as in Bedford-Stuyvesant or East New York in Brooklyn .
          Lending institutions are very concerned with the proba-
    bilities of having to foreclose on a property which they hav e
    mortgaged . If foreclosure is necessary, the mortgaged propert y

    must be worth enough to reimburse the lender for the amount
                                  33


of the loan outstanding . Not only must the value of each indi-

vidual property be high enough to guard against loss, but th e

lender seeks to assure itself that the surrounding area wil l
not bring down the value of the mortgaged property . Since

many of the residential properties in the Negro-populated area s
of Brooklyn require conventional financing, this is a considera-

tion of lending institutions which definitely affects thos e
areas .

          The problem of structural and environmental conditions i s

an area problem, rather than an individual problem . Lendin g

officials are well acquainted with area conditions, not wit h

the values of individual houses ; so that if a mortgage appli-

cation is made for a property in a certain area, it is the are a

which gets first consideration and not the particular piec e
of real estate . It is the opinion of several real estate bro-

kers in Queens that sections of the Negro-populated area hav e

experienced a relatively high foreclosure rate, and that thi s
has made some lenders reluctant to make mortgages in thos e
sections . Many banks have virtually boycotted the centra l

Brooklyn area because of the generally deteriorated nature o f
the area ; the efforts of at least one neighborhood improvemen t

association to bring in new white and Negro home buyers ha s
been frustrated by the banks , refusal to make mortgages in th e
area .

          Negroes frequently purchase residential properties i n

deteriorated areas because of two reasons . First, they may b e

f iancially incapable of buying a house in a more expensive
                             34


neighborhood . Many of the now deteriorated areas were onc e

well-kept and costly neighborhoods, but they were abandone d
by their white residents for the more expensive homes of th e

suburbs or because they feared the expansion of a nearby Negro -
populated district . Secondly, many Negroes must buy homes i n

particular sections of New York City, regardless of the housin g

conditions, because of the restrictive market which makes i t
extremely difficult for any Negroes to purchase residentia l

property outside of the neighborhoods which have been desig-
nated for them by whites .

      One response of a lending institutions to poor struc-
tural or environmental conditions would be a refusal to len d
money in the area . ♦ more common response would be a mortgage

which provides for a low loan :price ratio . This is not th e
same as a low loan :value ratio, since properties available t o

Negroes in a restrictive market may be priced far above wha t
their actual value would be in an open market . Since lending

institutions make their own appraisal of a property's valu e
prior to granting a mortgage, their appraisal may be much lowe r

and closer to the actual value than the asking price . Thi s
situation was documented for a "transitional" part of East Ne w

York by a New York City Commission on Human Rights' investi-
gation into blockbusting activities, where the amounts offere d
by lending institutions for the first mortgage would probabl y

have been sufficient to finance the properties for Negro an d
Puerto Rican buyers had not the prices been grossly inflated b y
speculators .
                              36


and that this was a definite hindrance to individuals wh o

wished to obtain mortgage financing on property in the area .
      Frequently, properties in Bedford-Stuyvesant, East Ne w

York, and even southern Queens require some additional invest-

ment to make them adequate . This may include such operations
as rewiring the house for a heavier electrical load, modernizin g
the kitchen, or adding an extra room . Some lenders make thes e

repairs mandatory as a condition of receiving the mortgage ; but

more often such construction is undertaken after the firs t
mortgage has been made . The cost of these repairs may be covere d

by a junior mortgage, thus adding to the financial burden beyon d

what had been calculated for assuming the first mortgage .
      Negro home-owners are particularly susceptible to con-

struction repairmen and salesmen, indicated a Negro real estat e
broker . He felt that one of the weaknesses of Negroes wh o

were moving out of the central ghetto was that they attempte d
to "keep up with the white Joneses ." In their attempts t o

improve their property through secondary financing of hom e
improvements (and aided by high-pressure salesmen), the y

saddle themselves with too great a financial burden and th e
whole property is lost through inability to meet the accumu-
lated payments .

      Reliance upon non-conventional sources of home financ e
appears where oonventional lending institutions will not mort-
gage properties because of the structural or environmenta l
conditions . Individual and financial spaoialators are preva-
l 1t especially in the older Negro-populated sections of
                               37


Brooklyn . The discounts and points charged by these financer s

are usually higher than conventional sources would normall y
charge for qualified properties . Mortgage brokers are mor e

active in these areas, but their activity is limited by th e

necessity of selling these mortgages to institutional lenders
and of finding a lender willing to take the risk of buying a

mortgage in the area .

      Supmary :   Many Negroes in New York City face the problem

of trying to obtain mortgages on properties which conventiona l

lending institutions find inadequate for one reason or another .
Because Negroes are frequently not allowed to compete in a n

open market and are given the opportunity only to buy the pro-

perties which whites no longer want, poor structural and environ-

mental conditions affect Negroes inequitably when they see k

mortgage financing .
      Structural conditions of individual properties may b e

adversely affected by age, obsolescence, or misuse ; environ-

mental conditions may be unfavorable and affect the values o f
individual properties because of such things as poor publi c

facilities or a surrounding section of deteriorated housing .

This may result in 1) refusal to loan in a particular area ;
2) a low loan : price ratio ; 3) inability to obtain government .

insured mortgages ; 4) necessity of additional investment t o
bring the property up to adequate standards ; and 5) relianc e

on aeon-conventional sources of finance .
                             38



                 Restricted Housing Marke t


      Iegroes in New York City generally must purchase pro-

perty in a restricted housing market .   Even though State and
City Pair Housing Laws have been enacted, white real estat e
brokers and owners of property in lily-white residential area s
are by no means universally enthusiastic about the application s

of the Laws . Many areas of the City remain all-white, an d
Negroes often find it difficult to purchase residential pro-

perty except in established Negro areas or in "transitional "

areas at inflated prices .
      The restricted housing market which confronts potentia l
Negro home purchasers and mortgagors is important in a dis-

cussion of the availability of mortgage financing for Negroe s

primarily because of three disadvantageous situations whic h

it encourages . First, of course, the restricted market means

that the prices which Negroes pay for housing will generally b e
higher than those paid by whites . As explained above, thi s
results in a mortgage which offers a low loan : price ratio ,

and thus necessitates a higher downpayment or reliance upo n
junior mortgages .
      The second situation is hypothetical, since no substan-

tiated oases were available, though many persons were sure tha t
it existed . A lending institution could conceivably hav e
pressure brought upon it not to finance a Negro's mortgage i n

an all-white area . A lending institution which financed euo h
a mortgage might fear that its white depositors who live i n
th area would withdraw their savings . Such lenders might also
                            39


believe that they were jeopardizing the value of mortgage s

which they already held in the area by making it easy for a
Negro to purchase a home there .

      A Queens' real estate broker felt that if a lendin g
institution provided mortgage financing to a builder in a n
all-white area who later sold his house to a Negro, the lending

institution would "find excuses never to make mortgage loan s

again to that particular builder ." This suggestion was no t
supported by any actual experiences, but an official of on e

lending institution commented that "some" lenders would fee l
their public relations would be jeopardized by financing th e

first Negro to move into an all-white neighborhood . He als o
noted that a lender's relations with real estate broker s

were more important than its public relations, and that a
lender could lose its sources of mortgage referrals by pro-

viding mortgage financing for a Negro in an area where hi s
entrance was opposed by white real estate brokers .

      The third disadvantageous situation which Negroe s
encounter in New York City because of the restrictive housin g

market is the practice of blockbusting . Blockbusting in Eas t

New York was the subject of a 1962 investigation by the Ne w
York City Commission on Human Rights ; financial speculator s

were found to play a significant part in the rapid transitio n
of a neighborhood from white-populated to a Negro and Puert o
Rican population and the unethical real estate practice s
which characterize the process of blockbusting .
                                                                   1


                             40


       An NAACP official who testified at the hearings held b y

'CCRR for this investigation defined blockbusting as the acti-
vities of those persons who seek "by deception, manipulatio n

and the instilling of fear and anxiety, to induce white peopl e

to sell out at the lowest possible price in order to exploi t
the desperate need of colored people for a plane to live an d

charge them exorbitant prices ." The procedures of blookbustin g
are designed "to panic white home owners into selling thei r

properties and then to resell these homes exclusively to Negr o
and Puerto Rican families at prices consistently far abov e

market value . "
       Examining in detail eleven sales transactions in th e

section affected by blockbusting, the Commission found that i n

every instance the Negro or Puerto Rican buyer who purchase d
the property from a speculator had to resort to two or mor e
mortgages, which were obtained for him by the speculator . The

junior mortgages were non-liquidating, which meant that after
several years of paying premiums to carry the mortgages, th e

mortgagor was faced with a large remaining sum due and payabl e
immediately . The mortgagor then could face fams,losure o r

refinance the remaining debt . Since the latter alternativ e
would be more acceptable, he would find himself on a "debtor' s

treadmill," with a remaining sum coming due and payable agai n
and again .
      In all of these cases, conventional first mortgagee wer e

obtained by the speculator for the buyer, but the amounts wer e
inadequate to finance the purchase without at least a second
                               81.



mortgage, due largely to the inflated sales price asked by th e
speculator . Discounts and other financing costs for the firs t

and second mortgages were as much as $5,125 on a property whic h
was originally sold to the speculator by the previous white owne r

for $10,500 and was resold to the minority buyer for $18,500 .
The largest discounts were, of course, on the second mortgages .

These discounts ranged between one-third and one-half of th e
face value of the second mortgage .
      The City Commission felt that, "The issue of mortgag e

financing,and its availability to moderate income minority

families bent upon purchasing their own homes is central t o
the whole problem of blockbusting .   .   .   . The families wh o

purchased homes from speculators in East New York did so wit h
a conviction that there probably were no other financia l

arrangements available to them ." The Commission chided th e

lending industry for "the malpractice of a substantial portio n
of it which declines to make available adequate mortgag e
financing to Negro and Puerto Rican families .       .   .   . There is
an inability of minority families to obtain on the free marke t

adequate first mortgage financing which would bring moderat e

priced existing housing within their reach . This exclusio n
from normal mortgage finance channels, coupled with a comple x

pattern of mortgage placement practices and the easy availa-
bility of second and third mortgages at exorbitant cost, make
minority families easy prey for speculators . "
      The investigation, however, did not make clear that the
reluctance of lending institutions to make mortgages on these
                              42


properties would have been any less had the prospective mort-

gagors been white . An examination of the amounts of the firs t
mortgages indicates that they would have been adequate in
most cases to finance the purchases if the prices had not been

grossly inflated by the speculators . Certainly, however, th e
lending institutions' avoidance of such properties affect s
minority individuals much more than it does whites, becaus e

minority individuals are more often involved in such transactions .

      This example of the problems of Negroes and other minor -

it* groups with obtaining equitable mortgage financing in a
"transitional" area is, as noted, taken from a section o f
East New York and in an atmosphere of blockbusting .    The prob-

lems of obtaining equitable treatment in "transitional" areas ,
however, are neither limited to cases of blockbusting nor t o
the brownstones of East New York nor to the machinations o f

real estate operators and financial speculators . In th e

Cambria Heights - Laurelton section of southern Queens, a
white home-owner, who felt he was "obliged" to move becaus e

of the "Negro influx," put the asking price of his propert y

$5,000 above the $20,000 he would have asked if he had move d

"voluntarily . "   Such activities cannot help but affect th e

ability of minority buyers to get adequate and equitable term s

for their home mortgages .

       Summary :   The restricted housing market which confine s

many Negroes to particular sections of New York City and th e

pressure exerted by Negroes for more and better housing thu s
stimulates certain responses which make for disadvantageous
                            43



` situations for Negroes seeking to obtain mortgage financin g
for their properties . These responses are : 1) a high pric e

for housing in the predominantly Negro areas,     which makes fo r

a low loan :price ratio ; 2) the possibility of pressure o n
lending institutions to refuse or discourage mortgage appli-
cations by Negroes seeking to move into all-white areas ;

 3) financial speculation in "transitional" areas, which prey s
on the Negro demand for housing and culminates in the practice s

of blockbusting .




               Lack of Mortgage Sophisticatio n

      Negroes who are purchasing homes in New York City appea r

to be entering the housing market with a serious lack of under -
standing and sophistication as to the costs, procedures, an d

alternatives of mortgage financing . The reasons for this lack

of sophistication are several, and they are primarily th e
result of past and present discrimination against the Negr o
in the housing market . First, the absence of a history o f

home purchase among Negroes in the United States or New Yor k
City has deprived Negroes of valuable experience in arrangin g

for home mortgages . Secondly, this lack of experience extend s
to Negroes as a group, meaning that a Negro who wishes to mov e

out of the central ghetto has few or no friends and relative s
with whom he can discuss his prospective purchase and ge t

their advice on how bestto obtain mortgage financing .
                               44


      Thirdly, and in addition to the restricted housing mar-

ket which prevented Negroes from escaping the central ghett o

through home ownership, lending institutions themselve s
engaged in discriminatory practices during the recent past .

This was especially evident in the activities of the Mortgag e
Conference of New York, against which the United State s

Department of Justice filed a suit in 1946 . It is difficul t
or impossible to determine how long these discriminatory prac-
tices continued with individual banks, though some indication s

of their improvement was already evidenced in the partici-

patton of several New York City lending institutions in th e
Voluntary Home Mortgage Credit Program begun in 1954 . Thes e

practices were also effective in keeping potential Negr o
home-buyers away from conventional sources of mortgage finance .

      These deprivations have resulted in a aok of mortgag e

sophistication which shows itself in a number of ways a s
Negroes seek to obtain mortgage financing . Though only a fe w

recent Negro mortgagors could be contacted and interviewed ,
the results of these interviews were generally confirmed b y

real estate brokers and officials of lending institution s
operating in the area . The individuals who were interviewe d

had all arranged their mortgages through mortgage brokers ,
rather than conventional lending institutions . The conversa-

tions with these mortgagors revealed that : 1) this was th e
first experience they had had with obtaining a mortgage ;
2) they had allowed the real estate broker to handle the mort-
gage arrangements ;   3) they had made little or no attempt to
                             4


influence where the real estate broker placed the mortgage .
      To ensure their commission, real estate brokers ar e
likely to take the easiest and surest way of placing the mort -
gages for the properties they sell . In Negro areas this alter -
native is usually a mortgage broker . Since the mortgage
broker is a frequently unnecessary intermediary, and sinc e
there can be very real advantages in shopping among differen t
lenders for a home mortgage, the indifference of many Negr o
mortgagors to the type of institution with which their mort-
gage is placed seems to indicate a definite lack of mortgag e
sophistication .
      In some of the Negro-populated sections of southern
Queens the mortgage originations by mortgage brokers accoun t
for more than 50% of all such transactions . In the predomi -
nantly white sections the percentage is usually less than hal f
of that . Since it can be shown that a variety of conventiona l
lending institutions are also active in originating mortgage s
for the Negro-populated area (see below in Chapter IV), i t
does not appear that such reliance upon mortgage brokers
should be necessary, and that a greater awareness on the par t
of potential mortgagors of alternative lending sources woul d
result in lowered financing costs, which would, in turn,lowe r
the cost of housing to Negro purchasers .
      Another indicator of a lack of mortgage sophisticatio n
is that many Negro home purchasers approach the mortgage
negotiations without an independent attorney to represen t
their interests . If a potential mortgagor does not have an attorney
before he goes into the closing of the sale, the real estat e
broker may or may not recommend one for him . There is n o

guarantee, however, that a recommended attorney will be inde-

pendent of the real estate broker's interests and attentiv e
only to the mortgagor or that the attorney will even be com-
petent to deal with the mortgage arrangements .

      This situation is partly the result of the fact tha t

a great many of these home purchasers are finding themselve s
for the first time in a position where home ownership , is a

possibility, and having an attorney is not always a luxury tha t
can be afforded while living in the central ghetto . Since the

seller and the mortgagee will certainly have their attorney s

with them at the closing, however, it is imperative that a n
independent and qualified attorney be present to represent th e

interests of the mortgagor .
      Summary :    The expression of one of the disadvantageou s

situations which affect potential Negro mortgagors is found ofte n
in a lack of mortgage sophistication . This has resulte d

from the effects of a segregated housing market which allowe d
the Negro little or no experience in home buying and als o

restricted the experiences of acquaintances from whom he coul d
normally seek advice, and also from past discriminatory prac-

tices by lending institutions which limited communicatio n
between the Negro mortgagor and alternative sources of mort-

gage financing .
      The effect of these deprivations today is that : 1) Negro

home buyers frequently take little part in choosing their
                               4 !



mortgagee ;2) potential Negro mortgagors rarely take the ini-

tiative in seeking the least expensive source    of mortgage finance ;

3) an independently selected attorney to protect the mort-

gagor's interests may sometimes be absent    frm the mortgag e

negotiations .




       Discriminatory Practices of Lending Institutions


       One of the central purposes of this study was to deter -
mine whether the practices of lending institutions were dis-

criminating against potential Negro mortgagors . The conclu-
sions of this report are that : 1) a substantial part of th e

lending industry did engage in discriminatory practices i n

the past ; 2) most lending institutions do not engage i n
racially discriminatory practices today, at least in the pre -
dominantly Negro and the "transitional" areas of souther n

Queens ;   3) the discriminatory practices of less than a genera-

tion ago left a legacy of mistrust with Negro real estat e
brokers and potential mortgagors which inhibits them fro m

utilizing the conventional sources of mortgage financing an d
encourages them to place mortgages largely through the service s

of mortgage brokers .
       Evidence of discriminatory practices in the past may b e

seen in the Mortgage Conference of New York, against which th e
United States Department of Justice filed a suit in 194 6
(discussed in the preceding Chapter) . The Mortgage Conference,
according to Charles Abrams' Forbidden Neighbors, was an organi-
zation of 38 leading New York City banks and trust companie s

who used their control of credit "to cause the exclusion o f

certain minority racial and national groups from certain areas . "
It was charged that the Mortgage Conference "prepared, pub-

lished, kept current and distributed maps of each section o f

New York City showing blocks on which Negroes and Spanish -
speaking persons resided fanJ refrained from making mortgag e

loans on properties in such blocks . .   . ."
      That such inequitable practices existed for some tim e

was indicated by an FHA official, who, when interviewed for thi s
study, stated that "eight or ten years ago" inequitable treat-

ment was prevalent . He also indicated that "today, at leas t
in New York and New England, a member of a minority doe s

receive equitable treatment" in arranging for mortgage financing .
      This experience with discriminatory treatment, combine d

with a still restricted housing market, seems to have con-
vinced many Negroes that restrictions on available mortgag e

finance are still prevalent . They became "gun-shy" years ag o
and have learned not to waste time in applying to conventiona l

lending institutions and to seek mortgage financing elsewhere ,

usually through a mortgage broker . Ten years ago, said on e

Negro real estate broker, the only way Negroes could get a mort-
gage was through a mortgage broker .
      Today, though enough real estate brokers in the Negr o

housing market do not realize it, there are a variety of con-
ventional lending institutions that are actively making mortgages
 n the predominantly Negro areas of southern Queens . Thes e

mortgages are being made by conventional lenders in two dif-
ferent ways (as based on data more fully presented in Chapte r

IV) . First, a variety of savings banks, savings and loa n
associations, and commercial banks are presently originatin g

between 40% and 60% of the home mortgages in many predominantl y
Negro areas of southern Queens . No Negro-populated area s

appear to be avoided entirely by conventional lenders, an d
they are active in both the all-Negro and the "transitional "

sections .
       Second, over 80% of the mortgages which are originate d

by mortgage brokers in Queens are sold to New York Cit y
lending institutions . Since almost all of the mortgage s

which are sold to local conventional lenders are serviced b y

the purchasers, they must apply the same standards of credi t
and property quality to the mortgages which they buy from th e
mortgage brokers as to those which they originate directly .

Theoretically, this means that lending institutions would a s
soon originate a particular mortgage as purchase it from a

mortgage broker .
      The memories of discriminatory practices by lenders i n

past years and a suspicion that such practices still exist hav e
impeded a great deal of the communication which should b e

taking place between real estate brokers and lending institu-
tions . As an example of this, an official of a local savings
bank, active in buying southern Queens' mortgages from mort-

gage brokers, stated that representatives of the bank were often
                                 50


invited to attend meetings of the local realtore a ooc       -

tions (composed almost entirely of white real es at brokers) ,

but had never been invited to meet with any of the Negro rea l
estate brokers' associations .

      Negro real estate brokers felt that the conventiona l
lending institutions had established certain quotas for th e

number of mortgages they would originate in Negro-populate d

areas ; officials of lending institutions denied that any suc h
quotas existed . Negro real estate brokers were unsure o f
the points which conventional lenders would charge ; lenders

indicated a willingness to discuss the points they charge d

openly with the real estate brokers . The lack of understanding
which exists between conventional lending institutions an d

Negro real estate brokers of the positions and problems o f
each other suggests a lack of communication between thes e

two groups, an improvement of which could have a definit e
impact upon the cost of housing in Negro-populated areas .

      Summary :   Discriminatory practices in the housing marke t
have inhibited communication between potential Negro mortagor r

and conventional lending institutions . The result today is a n

unnecessary and costly dependence of Negro mortgagors on mortgag e
brokers to originate and place their home mortgages .
                           CHAPTER I V

    MORTGAGE BROKERS, CONVENTIONAL LENDING INSTITUTIONS ,
          AND THE NEGRO MORTGAGE MARKET IN QUEEN S



    In order to produce a tangible improvement in the availa-
bility of mortgage financing for Negroes via this study, effort s

were concentrated on a specific problem faced by one particu-

lar area of New York City . The predominantly Negro areas o f
southern Queens were decided upon for a number of reasons :

1) information on mortgagors and mortgagees was readily avai l
 able through the Queens County Register's Office and throug h

       1
Realdea a private service to real estate brokers, which list s
the mortgages made in sections of Queens by date, amount, loca-

tion, mortgagor, and mortgagee ; 2) the properties in the area s

consist largely of single-family detached homes ; 3) parts o f
the areas had been predominantly Negro for many years, an d

other parts are now "transitional" or all-white ; 4) southern
Queens frequently servEs as the first step out of the centra l
ghettoes for many Negroes into a suburban-like atmosphere wit h

better schools and less crowded housing .
                        The Problem

      As was mentioned in Chapter III, a reliance upon non -

conventional sources of mortgage finance is often part of th e
mortgage pattern in Negro residential areas . In the Negro-

populated areas of southern Queens, interviews with real estat e
brokers and others indicated that mortgage brokers were a muc h
utilized non-conventional source of mortgage finance for tha t

area ; some Negro real estate brokers estimated that over 90 %
of the mortgagee whioh they arranged for home-buyers were place d

through mortgage brokers . If the use of mortgage brokers wa s
a characteristic of Negro mortgagors and not of similarly quali-

fied white mortgagors, this would indioate that Negroes wer e

generally being charged more for mortgage financing than white s
and that the cost of housing for Negroes was being correspondingl y

increased .

      Mortgage brokers essentially serve as intermediarie s
between borrowers and investors (such as savings banks, saving s

and loan associations, commercial banks, insurance companies ,

pension funds, etc .) . Mortgage brokers originate FHA-insure d
and VA-guaranteed mortgages and then "assign" the mortgages t o

investors, who assume all functions and costs of servicin g
(collecting monthly payments, foreclosing, etc .) the mortgages .
Points are charged by mortgage brokers for originating a mort-
gage, and the mortgage is sold to an investor at a discount ;

it is in this transaction that the mortgage broker exacts his
                               a) j



fee and the intermediary's cost arises .
      This non-conventional source of mortgage finance can serv e

a purpose by : 1) distributing available mortgage investment fund s
from areas of capital surplus to areas of capital shortage ;

2) providing investors with a chance to geographically dispers e
their mortgage investments without establishing branch offices ;

3) adjusting the "yields" for investors on different qualitie s
of government-insured mortgages by selling the mortgages t o

the investors at less than the face value of the mortgages ;

4) providing investors with an assured supply of home mortgag e
investments . However, an unusually high degree of activity o n
the part of mortgage brokers in a particular residential are a

would be a disadvantageous situation if it was a reflection o f

a group's inexperience with purchasing housing or the group' s
mistrust of conventional lending institutions .




                     Mortgagee Activity

      In order to more clearly define the relationship of mort-
gage brokers to the mortgage market in the Negro-populated resi-

dential areas of southern Queens, it was first necessary t o
discover which lenders were actually making mortgages in th e

areas and in what quantities . It was then necessary to compar e
the activities of mortgage lenders in the predominantly Negr o

parts of southern Queens with their activities in the predomi-
nantly white areas of southern Queens and the "transitional"
sections, and then to determine if differences in mortgag e
patterns existed which could be correlated with the racia l

composition of a neighborhood .

      In order to discover which mortgagees were active i n
southern Queens, information from Realdex, was compiled over th e

three month period of April 1, 1965 through June 30, 1965 .

The compilation took note of every mortgage transaction i n

•outhern Queens wherein an institution was the mortgagee an d
an individual was the mortgagor . Table I presents the result s
of this survey .

      The initial compilation presented in Table I indicate d

that in the more heavily Negro-populated sections of souther n
Queens, mortgage brokers were more active in originating hom e

mortgages than in the predominantly white sections . Since
Realdexprovides its information on a section basis, such a s

"Woodhaven, Richmond Hill," for which no precise definitions o f
boundaries are given, Table I is arranged in this manner . It

can be seen that, of the total amount of money lent on hom e

mortgages by institutions to individuals in all of southern
Queens, mortgage brokers accounted for 37% of the amount .

However, in the section comprised of the communities of St .

Albans, Cambria Heights, Springfield Gardens, Laurelton, an d
Rosedale, which has a large Negro population, mortgage broker s

originated mortgages equalling 51% of the total amounts loaned ;

while in the area of Woodhaven and Richmond Hill, which has a
small Negro population, mortgage brokers accounted for onl y
18% of the mortgage amounts originated .
	
		




                                                    TABLE I

                      The number in parentheses ( ) indicates an absolute numbe r
                of mortgages issued ; the figure below this indicates the total
                amount of mortgages issued in thousands of dollars .

                Area #1 = Woodhaven, Richmond Hil l
                Area #2 = Ozone lark, Howard Beach, South Ozone Park, Hamilto n
                          Beac h
                Area #3 - Jamaica, Jamaica Estate s
                Area #4 = Hollis, Bellaire, Queens Village, Bellerose, Floral Par k
                Area #5 = St . Albans, Cambria Heights, Springfield Gardens, Laurel -
                          ton, Rosedal e
                Area #6 Far Rockaway, Arverne, Rockaway Beach, etc .


                                                                                                           Rank
                                                                                                Avg .       by
     Lending           Area      Area       Area         Area    Area      Area .       To-     Mrt .      Avg .
     Institution	          #1	         #2	                 #4	       #	        #6	       ta)s	   Arit .	   Amt .
     Jamaica          ( 6)          ( 15)    ( 8)       ( 53)    (3)       ( 10)       (14F )
     Sava . Bk .	     106 .25	 179 .74	 414 .60	 89.51	 r3 .85	 156 .0	 T6 .15	 1 .5 .72	                  1C	
      Inter-County ( 9)
      Inter-Island (

         'eople's     ( 0;
                              5)
                                    (17)
     T .G .&K .Co .	 166 .60	 293 .25	 223 .20	
                                    ( 13)

                                    ( 23)
                                             ( 13)
                                             ( 16)

                                             ( 17)
                                                     C  ( 20)
                                                           26)
                                                                     44)
                                                         52 .70	 801 .40	
                                                                 ( 27)
     .''wee . Corp .	 98 .20	 221 .10	 259 .10	 471 .35	 496 .54	 17 .r 1r .79 17 .57	
                                                        ( 11)    ( 38)
                                                                           ( C)
                                                                           ( 1)
                                                                               0	

                                                                           ( CX89 )
                                                                                          03
                                                                                      1817 .15	 17 .84	
                                                                                       ( F9 )
                                                                                                            2
                                                                                                            3	
     :,Itgee . Co .	       0	       p6 .75	 276 .50	 205 .85	 713 .45	         0	     1562 .55	 17 .56_
     Columbia         ('33)            45)   ( 4)       ( 2)     ( 4)      ( 1)           89
      3av	 & Ln	      482 .03	 830 .54	        67 .50	 49 .23	 66 .20	        28 .00	 1522 .50	 17 .11	     7	
     Richmond         ( 59)         ( 16)    ( 2)       ( 6)     ( 5)      ( 1)           89
      Hill S	ava Bk P29 . 0 3	 202 .10	        34 .25	 1C3 .50	 85 .50	 11 .00	 1266 .19	 14 .23	          14	
      Chase Man-      ( 21)         ( 8)     ( 8)       ( 19)        13)   ( 7)        ( 76 )
      	
     hattan Bk	       254 .0C	 122 .95	 155 .80	 r2 .51	 216 .60	 118 . 0	 1210 .6	 15 .93	
                                                                 (                                          9	
        rilgrim        ( il)
        FundingCori. .17	
        Green Point ( 20)
        Says Bk
          ire Says
                          16 .10
                                    ( 4)
                                 5	 132 .25	
                                    ( 22)
                                             ( 2)
                                                     C     27)
                                               33 .60	 17 .15	 203 .00	 25 .40	 1187 .35	 19 .55	
                                             ( 5)          16J
                                                                 ( 12)
                                                                 (       )
                                                                            ( P
                                                                            (     6)
                                       1 .10 81 .40 247 .20 102 .80 101 . C 1180 .10 1
                                                                                       ( 64 ,
                                                                                       ( 77 )
                                                                                                            1	
                                                                                                           12
        Bk, Bkln .	
        Eastern 3er- ( 5)
        vice Corp .	
        M arshall
                          59 .50	 256 .40	 138 .30	 196 .70	 393 .90	 104 . 6	 11 212.16	 14 .29
                                    ( 10)    (11)
                      100 .85	 167 .7C	 177 .75	 212 .95	 409 .10	
                        ( 1 )       (    4)  (    3)
                                                        ( 13)
                                                        ( 12
                                                                   ( 23)
                                                                     24)
                                                                           t
                                                                            (
                                                                              2(           64 )
                                                                              34 .0C	 1122 .35	 17 .54	
                                                                                  01    ( 44 )
                                                                                                           13
                                                                                                            5	
        Assoc .           20 . 0      68 .80   4• .00 200 .        422 .•0     0        762 .1 17 . 2       6
        U .I . & I .
        Ridgewood
        Says Bk	
          am urg
                        (
                          95 . 0 157 .45 152 .00 57 .40 145.15

                           1
                              3)
                            4 .00
                                    ( 3)     ( 2)
                                         . 0 1 . 80 104 . 0
                                                  1
                                                        ( 7)      22) (
                                                                   (
                                                                        .2
                                                                              14 . 0
                                                                                  1)
                                                                              1 .CC
                                                                                        622 .00 16 .37
                                                                                        (~ 39 )
                                                                                           4 .4 1	 .64	
                                                                                                            8
                                                                                                           11	
        Save Bk        248 .10 156 .00 	10 .00	 65 .90	 56 .25                 0        536 .25	 13 .08	   17
                                                    (cont .)
		




                                                                56


                                                        TABLE   I (cont .)                                             Rank
                                                                                                             Avg .      by
     Lending            Are a          Area            Area      Area    Area         Area          To- Mrtg . Avg .
      nstitution	     1           		                    i                 1            #6)        ta	 l s    Amt .	    Amt .
       v & Ln of   ( 9)                   57       (           I1 ) ( .
                                                         2) ( 14 .00 22 2)0       (     0        (29 )           -
     Richmond Hill 268 .1 0       6 .0                 22 .00                       0             3_ 9 90	   13 .58	   16
      e ance e
     Sav&Ln         6.10	         31 .00	            0	      124 .20	      .80	     0	            2 .10	     13 .61	   15
                    226)          225 y            (132)     (24 9)   (D 1- )     ( 43)         ( 1 176 )
     Total s               .61 6 0 .              2110 .80 . 1 0 .60 0 . 6 .1          6 .26 1•x :8.         16 . 2
     Avg .     g.
     Amount              14 .80        	16 .18	     15 .99	   16 .75	  16 .93	        16 .89	     16 .23



     Total Above        ( 37)     ( $1) ( 72)     (112)    (176
     	?rtg . Brokers 657 .601407 .30                            )     2)	 (490 )	
                                       1171 .15 2038 .353191 .54	 19140 86,714		                             17 .69	
      Total Above     (189)    (144)    ( 60)     (137)    (1251   ( 31)    (6864
      Banks, etc .	 2687 .01 2233 .03	  939 .65 2132 .25 1904 .65	 234 .86 104 1 .45                         15 .21	
      Miscellaneous ( 1)       (( OJ      22)       20J      35)      2)    (100 )
      Mrtg . Brokers	 23 .10	 27. 7	     48 .25	   64 .80	 1; .74	 28 .0 1* .16	                             14 .94	
      Miscellaneous ( 3 7)     ( 85)    ( 80)     ( 84)    (1W )   ( 4 ~       8)
      Banks,etc .	    433 .95 1446 .64 1160 .69 1276 .651525 .95	 721 .90 66)4 .88	                          15 t,1	
      Other
      Mortgagees	      45 .20	 149 .01	 141 .28	 93 .94	 134 .99	 13 .27	 577 .69	
     Totals	           3846 .865511 .553761 .02 5905 .997210 .871489 .93 27795 .52


     Per cent
     Mrtg . Amt .
     Total by
     Mrtg . Brokers	     17 .69%30 .53%	 40 .40% 40 .69%	 50 .59%	 14 .76%	 36 .50%	
                                 57
   are presented in Table II .
          It was found that these seven leading mortgage broker s
       For a more exact picture of mortgage lending activities ,
    did an average of 76% of their Queens' business in the Negro
 each individual mortgage made during this three month period wa s
   areas . Two mortgage brokers, however, did 92% and 94% of thei r
plotted" on , mar by utilizing the tax block numbers given in th e
   Queens' business in the Negro areas of southern Queens . This
Realdex information . This more detailed mai definitely indicate d
   information appears to indicate that at least some mortgag e
that as in area becomes more heavily Negro-i:oiulated, the numbe r
                     heavily involved in the minority mortgage mar-
of brokers are very
    mortgage originations by mortgage brokers increases concurrently .
   ket of these areas .
      In a large i roportion of the Negro-poiulated and "tran-
                                                                  s
sitional"It was also important to know which lending Institution
           sections of southern Queens, mortgage brokers absor b
   or investors were accepting assignments of mortgages from th e
over 50% of mortgage originations, and in some neighborhood s
   mortgage brokers, in order to determine if there were certai n
they hake ui to 6R% of the originations . In the is redominantl y
   lenders who were not making mortgagee directly in the Negr o
white areas, which surround the Negro-iopulateci and "transitional "
   areas, but yet were buying mortgages in the Negro-populate d
sections, the activities of mortgage brokers droj: well belo w
   area of southern Queens from mortgage brokers ., For this pur-
30% ; and in a few white neighborhoods the activities of mortgag e
   pose, Information at the Queens' County Register's Office wa s
brokers are virtually nil .
   examined for the period of July 1, 1964 through June 30, 1965 ,
      Another fact shown by an examination of the Realdex infor-
   and this is summarized in Table III .
mation is that mortgage brokers tend to originate mortgac es fo r
          This information revealed that savings banks, saving s
higher amounts than conventional lending sources . When th e
   and lOan dssociations and commercial banks and trust companie s
most active lending institutions are ranked accordin to th e
   purchased 90% of all the Queens' mortgages that were sold b y
average amount of each mortgage originated, the :six in souther n
   the seven leading mortgage brokers ; savings banks bought 56 %
queens with tie highest average mortgage amounts are all mort-
    of all the mortgages sold by mortgage brokers . Ninety per cent
 gage brokers, and seven of the top eight are mortgage brokers .
     of the institutions which purchased the mortgages from th e
 The average mortgage amount loaned by the seven leading mortgage
    mortgage brokers were, therefore, lending institutions capabl e
_brokers in southern Queens is $.17,70C, while the similar averag e
                                               VA-guaranteed mortgages
      the ten conventional, PHA-ineured, or
 for of making leading conventioN:al lenders is $15,2CC . This
     themselves .

          Eighty-four per cent of the mortgages which were purchase d
                                 58


condition reflects the almost exclusive concern of mortgag e
brokers with FHA-insured and VA-guaranteed mortgages ; while con-

ventional lending institutions are more apt to make mortgage s

which are not government-insured, and therefore make up a
smaller proportion of the purchase price .
       The data also revealed that only seven mortgage brokers

were responsible for the great bulk of mortgage origination s
arranged through such non-conventional sources .     This is con-
trasted with a great variety of savings banks, savings and loa n

associations, commercial banks and other conventional lending
institutions who were originating mortgages in the southern
Queens area .

       In the section comprised of St . Albans, et . al ., where

mortgage brokers originate 51% of the mortgage amounts, th e
mortgage brokers predominate among the individual lenders i n
the section .    Five of the top six mortgage lenders (computed o n

the basis of the amount of money loaned) in this area are mort-
gage brokers .

       Since there did appear to be a correlation between the
concentrations of Negro population in southern Queens an d

increasing activity by mortgage brokers, a study was made o f

information in the office of the Queens County Register to deter -
mine how much of the business conducted by these mortgage bro-

kers in Queens was done in the Negro-populated areas of southern
Queens .   For this purpose, the mortgage originations of th e
seven most active mortgage brokers were studied over the perio d
of July 1, ,1964 to June 30, 1965 .   The results of this survey
are presented in Table II .
      It was found that these seven leading mortgage broker s

did an average of 76% of their Queens' business in the Negr o

areas . Two mortgage brokers, however, did 92% and 94% of their
Queens' business in the Negro areas of southern Queens . This

information appears to indicate that at least some mortgag e
brokers are very heavily involved in the minority mortgage mar-

ket of these areas .
      It was also important to know which lending institution s

or investors were accepting assignments of mortgages from th e

mortgage brokers, in order to determine if there were certai n
lenders who were not making mortgages directly in the Negr o

areas, but yet were buying mortgages in the Negro-populate d

area of southern Queens from mortgage brokers ., For this pur-
pose, information at the Queens' County Register's Office wa s
examined for the period of July 1, 1964 through June 30, 1965 ,

and this is summarized in Table III .
      This information revealed that savings banks, saving s

and loan associations, and commercial banks and trust companie s
purchased 90% of all the Queens' mortgages that were sold b y

the seven leading mortgage brokers ; savings banks bought 56%

of all the mortgages sold by mortgage brokers . Ninety per cen t
of the institutions which purchased the mortgages from th e

mortgage brokers were, therefore, lending institutions capabl e
of making conventional, FHA-insured, or VA-guaranteed mortgage s

themselves .
      Eighty-four per cent of the mortgages which were purchased
	




                                   6C



                               TABLE II .

    The number in parentheses ( ) indicates the number of mortgage s
    given by a particular mortgage broker in the area noted ; the
    percentage figure compares the number of mortgages given in th e
    Negro-populated area of Southern Queens with those given in th e
    whole of Queens by the particular mortgage broker .



                                   Total fo r        Negro Populate d
           Mortgage                 all of            Areas o f
            Broker                  Queens            Southern Queen s
        People's                    ( 325)               ( 304 )
       y
       r rtgee Co ., Inc .           100%                  94%
       Inter-Island                 ( 391)               ( 360 )
       Mrtgee Corp .                 100%                  92%
        U. I. & I.                       269)              231 )
                                        100%               P6%
        Inter-County Title                                 276 )
        Guar . & Mrtg . Co .        ( 1 34)
                                      100%               ( 74%
        Eastern                     ( 292)               ( 192 )
        Service Corp .               IOC%                  66%
        Pilgrim                     (    333)            ( 201 )
        Funding Corp .                  100%               60%
        Marshall                                           153 )
        Assoc .                     100%
                                    ()                   ( 53%

                                    (2272)               (1717 )
        Totals                       100%                  76%
	




                                          TABLE II I


                  The figures represent the number of Queens ° mortgage s
              sold by a particular mortgage broker to a lending institutio n
              or other investor . For example, :;astern sole Th r_or t ? ;€.;,cis t o
              Emigrant, 67 to Lincoln, 9 to r .reater NY, anc'. Qo forth, for a
              total of 298 queens° mortgages sold during the year ; Emigran t
             bought 295 ;;ueens' mortgages during that period, 1b from :lastern ,
                160 from Marschall, 117 from Pilgrim, and h : . from F .I . & I .


       Lending
     Institution s       as -   Inter -   Inter -     Mar-     Poo -   Pil -            To-
     t Investors        tern    County    Island     schall    pies    grim    UI&:I    tals ,

    Emigran t
    Indsi . Says Bk       14                             160            117      4       295

    Lincol n
    Saws ilk	             67     186         1             2      6              8       27 0,

    "reater NY
    "ays Bk	                9     44        38             2            104     27       22 4

    "hale :'an -
    hattan Bk	           1 0                                                             167

    Attic o
    Financial Corp                                              148                      148

    Chen Bk NY
    Trust Co	                      2        00                                  43        13 5

    r:.ower y
    Says Bk	                7      1        72                                            134

    Parton
    Sav<.•Ln	               1      1                              83            13        11 5

    "reen Poin t
    Says 3k	                      29        31             1             27     22        11 2

    Arro w
    Sav &- Ln . . .                2          8                                  88        98

    First Pe d
    Sav   Lr	                               72                                             72

    Richmond Hil l
    Sav Bk 	                      21                       8       1      26               56


                                             (cont . )
                                TABLE III (cont . )



     Lending          Eas    Inter -     Inter -      Mar -   Pao-     Pil -          To -
   Institution        tern   County      Island      schall   pies     grim    UI&I   tal e

Jefferson County
Says Bk	                                                        11.9                    !L9

Ridgewood
Says Bk	                        8            1          37                              46

New York Bk
for Says	                      17                        5               23             45

Columbi a
Sav & Ln	                                                       31

Excelsi o r
Says Bk	                                                        30                       30
Bankers Fed
Sav & La	                                               11                18             29

'p ast Rive r
Says Bk	                                    26                                           26

Peoples Bk for
Says - NR	                                                      15                6      21

Queens County
Says Bk	                         1                              19                       20

Miscellaneou s
Sav & Ln's	              2       41         28          26      17        34     20     168
Miscellaneou s
Says Bks	                8           2        5         10         9       2     31      67
Misc . Commercial
Bks and Trust Co .s      4           2                          14         8      2
Pension Funds ,
Trustees, etc	          21                                                 2      2      25
Life Insuranc e
Companies 	             12                                                       15      27
Others	                  1       11           5                  10        3      5      55
Totals,	               298      369        394         269     486      364     295   2475

                                         (cont . )
	




                                          -63 -

                                    TABLE III   (oont . )

     Type of Lending           Mortgages Purchased from Above Mortgage Broker s
       Institution                    (number)          (per cent of total )

    Savings Bank	                       1395                    56 %
    Savings and Loan
    Associations	                        513                    21%
    Commercial Banks an d
    Trust Companies	                     332                    13%
    Pension Funds ,
    Trustees, etc	                        25                      1%

    Life Insuranc e
    Companies 	                           27
    Othe a                               18

    Totals	                             2475                   100%




          Location of          Mortgages Purchased from Above Mortgage Broker s
    Lending Institutions*             (number)          (Der cent of total )
    One or more .branche s
    in southern Queens . . .             729                      33%
    One or more branche s
    in Queens	                          1131                      50%
    One or more branche s
    In Kew York City 	                  1876                      84%

    (* These figures include only savings banks, savings and loan associations ,
    commercial banks and trust companies ; lending institutions which would be
    most available for originating home mortgages directly )
	




                                       6h-


    from, the. seven leading mortgage brokers by these lending insti -
    tutions were bought by lending institutions with offices . in

    either -Manhattan ., Brooklyn, or Queens:; one.half of the : sort:

    gages so : purchased. were bought by institutions- with at; least
    one office . in . Queens ; a third of the mortgages, were bought by
    landing- institutions with an office or branch in southern

    Queens . This indicates that mortgage money is available i n
    New York City for home-purchasers in predominantly Negro areas

    of Queens ; . most of the . lending institutions, which buy Queens.
    mortgagee from mortgage brokers are relatively close to th e

    southern Queens area and many are within that area.
           It is also noteworthy that among the ten most active Ne w

    Yorke City lending institutions listed . in Table III., only four

    are among .. the ten most active originators of mortgagors : in the
    southern Queens area as indicated by Table I .      Thus, some'. lending

    institutions, with substantial . funds which they are , apparently

    willing to invest in mortgages given by Negro mortgagors, . do
    not lamest their . funds in minority-populated areas directly '

    but indirectly through mortgage' brokers .


              Explanations , for High.-Mortgage Broker Activity =


           If there are .. local, conventional lending :institutlonslwhich .
    are buying mortgages made in. Negro'populated areas by-          gager
    biers, whir are these mortgage. not being made : directly '
    through the conventional lending. thereby'
eliminating an extra oost to the minority mortgagor . -- an

extra cost which the white home-purchaser and mortgagor doe s
not have to pay as often as the Negro? .   There are severa l

possible explanations : 1) conventional lending . institutions

are engaged in discriminatory practices and refusing to len d

directly to Negroes in predominantly Negro or "transitional "
areas, but they ..will buy mortgages from mortgage brokers fo r

a discount ; 2) the properties in Negro-populated areas o f

Southern Queens and/or-the credit qualifications of potentia l
Negro mortgagors are not adequate to meet the standards of con-

ventional lending institutions without considerable discount s
or points ; 3) the Negroes who are mortgaging properties in thi s
area have neither a minimal necessary understanding of the rea l

costs of home purchasing, nor of the intricacies of mortgag e
financing, nor of the procedures and alternatives applicabl e

to financing a hoar,; 4) the real estate brokers in this marke t

have not been accepting the responsibility of informing home -
purchasers of the costs, procedures, and alternatives involve d

in mortgage finance, and have instead directed their mortgage

applications to the mortgage brokers rather than to conventional .
lending institutions .

      The first possible explanation, that conventional lender s

purposely discriminate on racial grounds * does not appear to b e
true . Certainly, some mortgage officers of particular insti-

tutions who are involved with : :evaluating mortgage applications
may -harbor a prejudice against a minority group ; and. some parti-
cular lending institutions may informally discriminate . But,
                                 66


on the whole, there does not appear to be factual evidence tha t
conventional lenders in southern Queens practice racial dis-

crimination in their mortgage financing operations .

      Conventional lending institutions do not appear to sub-

stantially avoid either all-Negro areas or "transitional" area s

when originating mortgages in southern Queens . This conclusion

is based on information derived from the public records of th e

Queens' Register's Office for the period of July 1,     1964 throug h
June 30, 1965 .   For this period, a record was made of all mortgag e

originations by lending institutions for individual mortgagors fo r

two large sections of southern Queens ; the transactions are plotte d

on Maps Ia-b, IIa-b, IIIa-b, and IVa-b .

      Maps Ia-b and IIa-b are contiguous sections which constitut e

an area almost entirely populated by Negroes . Each dot on the map s
represents a mortgage origination during the 12-month period whic h

was covered . On Maps Ia and IIa are recorded all mortgage origin-

ations (not assignments) for savings bank, savings and loan associa-

tions, and commercial banks and trust companies . On maps Ib and lib
are recorded all mortgage originations by mortgage brokers . It can

be seen from these maps that conventional lending institutions d o

not avoid this Negro-populated area simply because of racial consider-

ations ; 174 mortgages were made by conventional lending institution s
in the areas of Maps Ia-b and IIa-b, and 186 mortgages were originate d

by mortgage brokers . Forty-one different conventional lenders wer e
responsible for the originations on Maps Ia and IIa .
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                                                                                       S        t .



                                                                                           tf

                Maps IIIa-b and IVa-b ar°            ontiguous sections which con- .

        stitut a n transitiona.l" area, where Negroes have been buying                     '14

        homes                what was an all-white area several year& ago . On Maps                   '

        IIIa and IVa are recorded all mortgage originations (not assig n

        ments)l ;for savings banks, saving and loan associations,            dd
        commercial banks and trust companies ; while on Maps IITb and IVb ' E
                                                                                                t




        are noted all mortgage originations by mortgage brokers .              Thi s

        informgtion indicates that conventional lending institution s

        do not substantially avoid areas which are "transitional ; "

        270 mortgages were made by conventional lending institutions in                    ,

        the aroas of Maps IIIa-b, and lVa-b, and 283 mortgages were on

        hated ;b '           mortgage brokers . Forty different lending institutions :
        were responsible for the mortgages on Maps IIIa and IVa .

                Thus, it does not appear from this data that conventional                             ,

        lending institutions are bent upon any wholesale avoidance of

        all-Negro or "transitional" areas . The maps show that ther e
        are a vftriety of conventional lenders operating in both areas ,

        and they are originating a substantial number of mortgages in

        each area .                                                                            yf

                As for the second possible explanation of the apparen t

        correlation between Negro-populated areas and the increasing
                     t   +


        activity of mortgage brokers, it seems unlikely, for severa l

    -   reasons, that conventional lenders would have refused the mort-

        gage applications of many of the individuals who eventually go t
        their mortgage through a mortgage broker . First, conventiona l

        lending institutions, as well as mortgage brokers, are allowe d

        to charge points on government--insured mortgages and can thus
compensate for a degree of risk which may exit in a particula r

applicant . Second, any person who applies for a government -
insured mortgage must meet FHA or VA credit and property quali-

fioations before the government insurance or guarantee i s

granted ; thus, there are certain minimal standards which al l
persons must meet to qualify for such mortgages, even though
lenders may set their qualifications higher than those of FH A

of VA or may refuse to take suoh loans altogether . Third, an
Nxeoutive Order was signed by President John F . Kennedy on

November 20, 1962, prohibiting racial discrimination in an y

housing transactions involving FHA-insurance or VA-guarantees .
      A fourth reason makes this explanation also seem doubtful .
The New York City lending institutions which buy mortgages from

mortgage brokers almost always assume the servicing of th e
purchased mortgages . This means that if extraordinary servicin g

costs are incurred, such as in the collection or foreclosin g
proceedings, it is a cost incurred by the lender that has pur-

chased the mortgage . The mortgagor's credit and property quali-

fications on a-mortgage taken on assignment from a mortgage bro -
ker should be no different from those which the lending insti-

tution will originate directly .
    l The third suggested explanation, that the potential hom e

purchasers do not have an adequate understanding of the costs ,

procedures, and alternatives of home financing, seems to b e
more plausible and of some significance in accounting for a hig h
rat, of activity by mortgage brokers . Interviews with several '
make mortgage money available on equitable terms to the minor -

ylty individuals who often live in such areas an.     wish t o

purchase residential property there .
     Similarly, mortgage funds should be provided through
some mechanism for financing second mortgages in cases where

90$ first mortgages cannot be arranged,and the potential mort-
gagor cannot raise the remainder in cash for the downpayment .

These funds could come from two or more sources . One plan would
be a modification of the New York State Howe Owners Purchas e

Endorsement Plan, through which the New York State Housin g
Agency will presently help finance the downpayment necessar y

for the purchase of a cooperative apartment . Another sourc e
would be the establishment of privately funded developmen t

corporations which, according to an ACTION, Inc . repor t

 A Critica, Ana sis •f Selectste Deve ••men Fund
would "involve the use and investment of revolving funds ,

privately subscribed, to provide initial impetus and supple -
mental aid not otherwise available, for the physical improve -

ment and renewal of urban communities ." These private fund s
could come from a variety of interested community groups an d

institutions, such as churches or business groups .
     Conventional Lending Institutions -- Savings banks ,
savings and loan associations, and commercial banks and trus t

companies should be encouraged to take the initiative i n
making more information available to potential minority mort-

gagors and to minority real estate brokers . These conventiona l
lenders should take more frequent advantage of the advertising
	



                                   78



    possibilities in communication media which ee                                 y

    community in order to better introduce this pc                 a :..'a. r ire t

    to their services . Additionally, a conventional ~leod r coul d

    perhaps be induced to serve as the sponsor of tca          i. eviossl y

    mentioned educational pamphlet for potential    ura)o t,y u o

    gagors .




                  Specific Recommendations for Que :ns


          Conferences -- The City Commission on Tyr►az t i t shoul d
    sponsor one or more conferences between convention" lending
    institutions and real estate brokers active    irl~Y» -




    populated sections of southern Queens .   These confe o g ee should

    have as their goal the establishment of a continui~ dialogu e

    between conventional lenders and the real estate broker s
    regarding types of mortgages, points charged, ar     s a    covered ,
                                                  f
    property and personal qualifications, and other c to involved

    in the consideration of a mortgage application ;            objective

    would be to encourage these two groups to come t ; ther fo r

    exchanges of their views during other conference called a t

    their own initiative . These conferences woul d
    method of clearing up much of the mistrust ethi c                            the

    part of the many real estate brokers in th i                                      market

    toward conventional lending institutions, and
    establish a more favorable climate of mortgage fin o .                  from

    which potential minority mortgagors would benefit
	
	




          The information, experiences, and att i
    by conventional lending institutions at this              to,         might
    also be summarised and distributed by mail to all               w eal estate
    brokers in the Negro-populated areas of southern QJee ns, alon g
    with some of the findings of this study (e .g ., a tI.re mort-
    gage originators, conventional lenders who acoept assignment s
    from mortgage brokers, etc .) . In this way, a firer audienc e
    could be informed of the alternatives and probail . a :o pts of
    conventional mortgage financing for their home bra .
          ltanio	   e}1 t + ,ni	        house, -» If adequate mortgage origi -
    nations could not be achieved through other means, the City
    Commission on man Rights could urge that New York Cit y
    establish a municipally-operated clearinghouse for mortgage e
    sought by members of minority groups . This could mu :atthe
                                                           e
    now defunct federal government's Voluntary Home Mortgage Credi t
    Prograa, and could be established with the cooperation an d
    encouragement of savings banks, savings and loan associations ,
    and commercial banks and trust companies . Thus potential minor
    ``tty mortgagors seeking to buy residential properties! in Ne w
    York City could obtain help in placing their mortgages throug h
    a non-profit intermediary .




                            *artber Research Pro Sect s

             flits o  ,      li „
                          ,,,,
                                    .Z _ ort atq
                                    t
                                                      dit --~ Interviews for
    this report revealed that many persons have doubtful views
                             80


regarding the quality of minority credit ; mortgages, several

people indicated, are refused many minority individuals beaaur e

members of that minority are poor risks . While potential whit e
mortgagors are usually judged indivi4ually as either good o r

bad credit risks, it is ae_agroup , that many Negroes and othe r
minority persons are said to be poor risks .

      With the cooperation of lending institutions, a stud y
should be made by the City Commission on Human Fights comparing ,
on the basis of equal credit qualifications, the payment record s

(delinquencies and foreclosures) of individual mortgagors i n
comparable Negro-populated and white-populated areas of Ne w

York City . The findings of such a study might very well be tha t
minorities, because of their strong desire to own residentia l
property, had better payment records than other societal group s

when compared on the basis of equal credit ratings . If the

results were favorable in this way, it would aid in clearin g
up some of the myths about Negroes and other minorities in th e
minds of the public and potential mortgagees . If the findings

indicated that minorities in fact have poorer payment records ,

problems would be pointed out whore the Commission would b e
able to bring its educational and persuasive powers to bear .

      !omen Mort gagors -- Minority individuals usually find i t
necessary to include both husband's and wife's income on a mort-
gage application, although the wife's income is infrequentl y

given full consideration . Much research needs to be done i n
establishing the proper consideration to be given on a mortgag e

application to a woman's salary . ,The object of such study
                                $1


should be to establish the maximum consideration ; it would b e

a significant aid to many minority individuals and potentia l

mortgagors if the wife's income could be given greater weigh t
in applying for a home mortgage .
           4
      Mortgagt Pattyrne in Other Are'') , -- More intensiv e
research needs to be done into the mortgage patterns of othe r

Negro-populated areas in New York City than southern Queens .
The mortgage patterns, problems, and remedies to be effecte d

are different for every separate concentrationof minority -
population in New York City . More research needs to be don e
particularly into the patterns existing in the following areas :

1) areas characterized by deteriorating facilities and properties ,
such as Bedford-Stuyvesant and Harlem ; 2) all-white areas int o

which a member of a minority wishes to move and seeks mortgag e
financing ; 3) "transitional" neighborhoods, where communit y
pressures and rising prices affect the ability of minorities t o

obtain equitable mortgage financing .

				
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