Then in 1972, a real estate scandal of national magnitude gave additional confirmation of the abuses pervading the housing market. Involving the newly merged FHA and HUD, it was so massive in scope that it made the doings of Chicago slum landlords look picayune. The scandal involved the abandonment and ruin of over 240,000 units of housing nationwide—enough to house over one million people. In Detroit alone, more than 25,000 houses had been abandoned—about 10 percent of the city’s housing stock. The cost to the U.S. government was estimated at close to $4 billion, in preinflationary, early-1970s money. James M. Alter, chair of the Governor’s Commission on Mortgage Practices, commented, “Outside of Watergate and Viet Nam, there is no greater scandal than in FHA and HUD housing. The cities are rotting and nobody seems to be responsible.”

This FHA-HUD scandal was actually a series of scandals involving the exploitation of several different programs that had been created as a part of the Housing and Urban Development Act of 1968. U.S. cities were most affected, however, by the misuse of the FHA’s 223(e) program, the one explicitly created to extend FHA mortgage insurance to low-income urban areas.

The Section 223(e) program should have been a godsend to American cities. A buyer of limited income but sound credit history could now apply for a mortgage to buy a home with as little as $200 down. Mortgage bankers were willing to lend the remainder of the purchase price to the qualified buyer, since their mortgage loan was 100% guaranteed by the FHA. In theory, both the buyer and the lender knew that the home was sound and the price fair because the FHA guaranteed loans only after inspection of the premises. In thirty years the buyer would have paid off his or her mortgage, becoming the proud owner of an investment that could be passed on to the next generation. And if, for some reason, the buyer defaulted on the loan, the mortgage company was protected from loss. It would secure the defaulted buildings from vandalism and collect the remainder of the loan from the FHA insurance pool. The FHA would then sell the vacant but protected building to another buyer.

But the program did not work out as planned. As noted, some contract sellers took available of the newly available FHA-guaranteed mortgages to “settle” with contract buyers and get the full, grossly inflated price—or something close to it—for their properties. Section 223(e) also became the linchpin of an entirely new scheme of exploitation. Much like the contract-sale scenario, this new scheme enabled speculators to buy low from whites and sell, at a triple to quadruple markup, to blacks.

It worked like this. First, the “suede-shoe boys,” as the real estate speculators were colloquially called, scoured urban neighborhoods looking for decayed buildings they could buy for the lowest possible price—say, $5,000. Next, they bribed FHA appraisers to value the buildings at vastly inflated rates. A typical corrupt FHA appraisal might claim that the speculator’s crumbling $5,000 house was actually worth, say, $20,000. With the corrupt appraisal in hand, the speculator could easily sell his slum building for quadruple its worth. Now, rather than selling the building on contract, he could recoup the full price immediately with an FHA-insured mortgage. So what if the price seemed high? The mortgage lender couldn’t lose: after all, $20,000 was the property’s appraised value, and more importantly, the loan was 100% guaranteed. As one broker explained, once the speculators “saw how they could get a mortgage commitment far in excess of [their purchase] price, zoom, it was wide open.” The gold rush had begun.

All that a speculator needed was someone to buy the building. He enticed buyers by emphasizing the low down payment—often no more than $200—rather than the final cost. In Chicago and other cities, people eager to buy buildings on such terms were easy to find. They were usually black or Hispanic, and always low-income. Given the desperate housing shortage facing low-income families, an offer of a home of one’s own for a $200 down payment was often irresistible. The speculators made the procedure seem quick and easy. They did all the paperwork, sometimes even lending the buyers the down payment. The speculators made sure that the purchasers—many of whom lacked the resources to carry their buildings’ dramatically inflated prices—qualified or an FHA-insured mortgage by doubling or tripling their stated income, while hiding their debts. This fraudulent activity was shockingly blatant. Many speculators simply picked up blank tax forms and filled in whatever income they felt the mortgage companies might require. The mortgage companies didn’t ask too many questions about these loan applications for the simple reason that the mortgages were fully insured. The creditworthiness of the borrower was of no relevance, since the company would never lose money on FHA-insured loans.

Since mortgage companies made their profits through the exorbitant service fees they charged on FHA loans, they made money on every sale, with no risk whatsoever. The mortgage companies got away with high service fees because banks and savings loans continued to redline “changing” and all-black areas and refused to make conventional mortgage loans there. While FHA-insured loans had long been a supplement to mortgage activity, they now became the only mortgage activity in town. And the companies made even higher profits on FHA-insured mortgages when these actually defaulted. This was because, in addition to service fees, the lenders also charged interest rates of 7 to 9 percent; if the borrower defaulted within the first year of ownership, the FHA paid the mortgage company the entire value of the loan, plus 7 percent interest and all the service fees, within one year instead of over thirty years. If large numbers of homes were sold to buyers likely to default, the mortgage companies stood to make a lot of money.

And large numbers of homes were sold. In the early 1970s, white working-class neighborhoods across the country were once again flooded with speculators who terrorized residents into selling low. Instead of using the traditional scare phrase “The blacks are coming,” speculators adopted a subtler, more up-to-date slogan: “This is an FHA area.” Everyone knew that it meant the same thing. Using racial anxieties to convince urban whites to sell their homes was profitable not only to the mortgage companies and the speculators but also to the banks and savings and loan companies that had originally made the mortgage loans to whites. Many older white residents had bought their homes in the 1940s and 1950s, when mortgage rates were extremely low. Now that inflation was pushing up interest rates, lenders had every reason to want to close those mortgages out. “In a community like this, older people had 3 1/2 and 5 1/2 percent mortgages,” one West Side resident explained in 1972. “The banks were unhappy about that. It was bad money. It was worth it to clean out a whole area if you can get 8 3/4 percent,” that is, the current conventional mortgage rate. She summed up the situation: speculative real estate brokers like to “keep people hating each other and fighting each other and moving” because when they are doing so, “everybody makes so damn much money.”



Waner was one of many to note that mortgage companies, like the contract sellers in their heyday, were inordinately eager to foreclose on their buyers’ overpriced homes. “If the buyer defaults on the first payment or the second payment, the mortgage company throws him into foreclosure immediately in order to pick up the windfall money,” he explained. “The more FHA buyers who default, the higher the mortgage bankers’ yield.” Mortgage companies sometimes pushed buyers to default. “If the buyer missed last month and comes in with this month’s payment, they’ll tell him, ‘I’m sorry, I won’t take it,’” Waner said. The FHA’s own records backed Waner’s claim. These showed that the foreclosure rate on 223(e) FHA-insured mortgages was not double, or even quadruple, but an astonishing seven times that of conventional loans. The repossessed buildings sometimes ended up back in the hands of the speculators, who then started the cycle anew. In a clear replication of the contract sales scenario, there were buildings resold as many as six times in an eighteen-month period. New York City’s Assistant U.S. Attorney Anthony Accetta described the social and emotional costs that such statistic suggested. “I don’t see how anyone who is black or Puerto Rican could have faith in the white system after being shaken down like this and then losing his house months later.”

The results of the scam could be seen in “the bombed-out appearance of may central cities, where block after block of structurally sound housing has been abandoned,” New York Times reporter John Herbers noted in 1972. Of course, while the scandal meant ruin for some, it meant huge profits for others. In Chicago, the FHA paid out at least $42 million to real estate speculators and corrupt mortgage firms. In Brooklyn, such operators received $250 million from the FHA. In Detroit, which was hardest hit by the scandal, FHA insurance payments amounted to a shocking $375 to $500 million. As Brian Boyner observed, in return for this immense payout to Detroit’s mortgage brokers and speculators, the U.S. government received “a deserted slum and the concomitant problems of rampant heroin addiction and the highest big city murder rate in the U.S.A.” Later generation had a simpler—and distorted—explanation for the desolation they saw in Detroit and other black urban areas. The devastation was caused, they insisted, by “the riots.”

Beryl Satter, Family Properties: How the Struggle Over Race and Real Estate Transformed Chicago and Urban America

I think this is the most important excerpt I have quoted from this book, and I’m pretty sure I’m just going to bookmark this and link it every single time another white person sees fit to open up their mouths about Detroit or “urban decay.”

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nooneslife:

mad-man-with-a-scarf:

shavingryansprivates:

this is my favorite video of all time bar none

I cannot stop laughing. 

I’m cry

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neil-gaiman:

youaintpunk:

sarajevomoja:

talk about perspective. shit.

Fucking hell.

I remember the first time I saw a map of Africa to scale. My jaw dropped.

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mindofkimbo:

iwriteaboutfeminism:

Police continue to make arrests at Ferguson protest.

Part 4.

notice how these retweets and favorites have gotten smaller in numbers….why are people paying less attention.? 

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bunmer:

redhester:

bunmer:

A young Jewish refugee with her Chinese playmates. Shanghai, China (x)

Between 1933 and 1941, it is estimated that 20,000 Jews escaped persecution by fleeing to the Chinese port of Shanghai. Shanghai was one of the few places in the world that would accept Jewish refugees at this time, Japan being another.

i am furious that i am just now learning about this important fact.

Because it has nothing to do with the USA being the superhero and saving all the Jews

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thejohnsu:

uguu~

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itsstuckyinmyhead:

Cats and Tumblr

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iquantny:

We’ve all been there.  The train is coming into the station, and you grab your MetroCard and quickly try and swipe it at a turnstile.  

"Please Swipe Again".  "Please Swipe Again".  "Insufficient Fare".

The last two words are killer.  You think to yourself “I swear I had a balance on this card”.   You go and check the card out and you see you have “$2.45”.  Yes, you need $2.50 to ride the subway, and you have $2.45 on your MetroCard.  Sure enough you miss that train all because of that nickel. 

How did you end up in that situation any way?   It turns out the MTA has designed it that way.  Imagine how many tourists come to NYC and leave with balances that never get used.  Imagine how many people lose metro cards with those balances that never get used.  And even if it gets used on a later refill, the MTA gets to collect the cash earlier this way!  Win win for them, right?  

But now, with some simple math, you can fight back!  

First, let’s see how the MTA tricks you out of your money earlier than you might want to release it to them.

When you are buying a MetroCard, you can get a 5% bonus if your purchase is big enough.  So you get the following screen early on in the purchase process: 

image

If you click the button on the left, they just got you.  Your card will have $9.45 on it, meaning you will get 3 rides and end up with $1.95.  That is a great deal for the MTA.  They get all the money from every rider who does that, and they get the interest on that until you refill again and repeat the cycle.  

Let’s say you don’t take the bait.  You click MetroCard.  Then you get this screen with three new short cuts:

image

Three quick options.  But wait a minute.  One button leaves you with the same $9.45 card, and gives a remainder of $1.95 after just three uses. The next one is even more frustrating: you end up with a $19.95 card, leaving a remainder after 7 uses of $2.45!   That’s right, the nickel we were talking about earlier.  The last option does not leave you much better off.   You’ll get a $40.95 card, which leads to $0.95 on your card after you use 16 rides.  So all three buttons presented leave quite a bit of “insufficient fare” on the card. 

So how do you fight back  Well, click “Other Amounts” and type your own values: 

image

and remember these three magic numbers:   $9.55, $19.05 and $38.10. That’s right. Never use the short cuts.  Just type in one of those numbers.  

Once you do, you’ll see your excess balances nearly vanish once you apply the 5% bonuses: 

image

Buy a $19.00 card?  $2.45 left on card after use.  Buy a $19.05 card?  No balance left after use!  Magic.  But what if you want a $10.00 MetroCard? There is literally no way to buy one because of the 5% bonus and the fact that all payments need to be divisible by a nickel.  Your options are to pay $9.50 to get a $9.98 card after bonus, or pay $9.55 to get a $10.03 card after bonus.   Once again, you literally can’t buy a $10 metro card from a machine. 

If you absolutely don’t want any left over money, you really only have three choices of payments below $40, as seen in the table below: 

image

If the pennies bother you, then maybe memorize these three numbers: $11.90, $19.05, $30.95.

So if the MTA really cares, what can they do to fix this?

Well here at I Quant NY, I’ve been hard at work coming up with a proposed software change.  After much thought, check out this before and after: 

Before:

image

After:

image

Not a big change you say?  Echm.  That’s right.  If they really wanted to fix the issue, they could ask “How much do you want on your MetroCard” instead of “How much do you want to pay”.  But don’t count on those changes coming to a MetroCard Vending Machine near you anytime soon, given how lucrative the current set up is.   

Which means it’s up to you.  Write down the three numbers, $9.55, $19.05 and $38.10 or pick just the one that matches your buying habits best.  You could even write it on the back of your Metrocard if you can figure out how to get ink to stay on it.  (There’s a reason they are so shiny.)

A side note: one reason that the MTA may do this is to make paying with cash easier. It would be a nightmare to dispense change if cash buyers used this technique.  But that does not explain why they can’t update the credit card only machines or all other machines if they first ask if you are using cash or credit.  And of course unlimited card buyers avoid this all together.  Also, this does not include the $1 fee associated with new metro cards. 

So in closing, Math is useful.  And luckily, you don’t have to be Einstein to outsmart the MTA.  Plus, guess what year Einstein handed in his dissertation…  You guessed it.  1905.  

For the latest I Quant NY data analysis of this great city, sign up for my Mailing List (about one post a week), Follow me on Facebook or Follow me on Twitter.  I tell stories with data.

Past posts include finding and fixing the most profitable fire hydrant in NYC, showing that the Health Department is inflating grades or looking at gender and Citibike.

Ben Wellington is a Visiting Assistant Professor in The City & Regional Planning Program at Pratt Institute in Brooklyn, where he focuses  on NYC Open Data.  He holds a Ph.D. in Computer Science from NYU.

Update (9/8/2014):

Some have pointed out that this may not be intentional.  Yes, it could be the case that even though the MTA takes in about $50 million dollars a year in unredeemed excess balances that no one ever noticed this.   I don’t have any idea where these decisions come from, so I am not in a place to point fingers with any proof.  But, intentional or not, the buttons are tricking people out of their money.  If it really is unintentional, I’d be thrilled because it won’t be long until the problem is fixed given all the attention this post has gotten.  So let’s hope all the people who say the MTA did not do this intentionally are correct.  I can think of no better way to be proven wrong. 

Update2 (9/8/2014):

MTA Responds!  Read more here

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unquietpirate:

unquietpirate:

thegreatgodum:

cleromancy:

autisticfandomthings:

madeofpatterns:

"Always believe people about abuse" sounds like a good rule but it isn’t.

It is really, really important to remember that abusers often accuse their victims of…