Baltimore’s foreclosure crisis is worse than during the Great Depression.
Sure, things were bad during that economic collapse. Between 1929 and 1936, local financial institutions took back 7,375 homes in Baltimore, a city of some 900,000 residents. But repossessions were easy to handle because those properties belonged to local lenders, which financed them at their real value.
Some 700 building and loan associations repossessed 45 percent of foreclosed homes. The Safe Deposit and Trust Company held another 38 percent in its portfolio, but the firm was in sound financial shape. The rest of the defaulted properties were widely dispersed among mutual savings banks, insurance companies and liquidators, all local.
Because housing was in short supply, repossessed houses could be instantly rented out. Lenders sold only 456 foreclosed houses in 1935 and 1936. “There is no large concentration of distressed housing, and consequently no active campaigns have been undertaken to dispose of such houses,” the Home Owners Loan Corporation, a government bailout agency, reported in 1936.
What a contrast! Today, the real values of many subprime properties bear little resemblance to the excessive prices at which they were bought and financed. Also, instead of a housing shortage, Baltimore now has a considerable overhang of unoccupied houses. In any case, lenders want cash.
In order to help the housing rescue during the New Deal, HOLC secretly mapped 239 cities. Each neighborhood was given a color code based on the age and condition of housing stock but also on the race, ethnicity and class of residents. The result was a collection of confidential “residential security maps.”
The most coveted category in those maps was green. It was bestowed on new neighborhoods that banned blacks and Jews through covenants. Guilford and Homeland were among a dozen designated green.
The next best category was blue. It marked established discriminating neighborhoods like Roland Park, then all of four decades old, described as “still desirable.” “They are like a 1935 automobile — still good, but not what the people are buying today who can afford a new one,” the Home Owners Loan Corporation explained in 1937.
Yellow marked areas where restrictive covenants had broken down. Most Jewish and East Baltimore’s ethnic neighborhoods fell into that category. HOLC predicted that they would ultimately deteriorate to red, the color denoting “dangerous” neighborhoods, where housing stock was old and residents were either African Americans or recent unassimilated immigrants.
The federal government said lenders should avoid such neighborhoods. That was the genesis of redlining, whose assumptions guided Federal Housing Administration policies until the 1960s.
HOLC and FHA achieved great things by systematizing the discrimination that the real estate and lending industries practiced for years. Thus discrimination formed the basis of uniform appraisal standards that enabled revolutionary 30-year mortgages. Up to that point, buyers lucky to get a mortgage had to put 50 percent down and redeem the loan within three to five years.
Discriminatory practices have continued since those days. The subprime loan craziness is the latest exploitation of bigotry in lending. It is based on discrimination that redliners of the 1930s would have understood. “One tier serves primarily middle- and upper-income, primarily white suburban markets, and the other targets low-income and predominantly minority communities concentrated in central cities with higher-priced, often predatory products,” explains Georgetown University sociologist Gregory D. Squires.
A president has never tried to end this type of exploitation. Will Barack Obama, the community organizer, attempt to tackle it? That is a question of monumental proportions. Because it would take an extraordinarily brave man to touch a lending tradition enabling America to keep so many residential neighborhoods segregated for all these years.
Antero Pietila is writing a book about how bigotry shaped Baltimore between 1910 and 1975. His e-mail address is [email protected].
