Chapter V: The Negro Housing Problem (5)

Only a few real estate firms that have a large number of Negro clients have funds available for such loans. These meet but a small part of the demand. The three banks that have large Negro deposits, the Lincoln State, the Franklin State, and Jesse Binga's, make such loans when deemed desirable, but they seem not a large factor in relieving the loan situation. Many of the banks that are depositories for Negroes' funds do not make loans to them, giving as their reason that they do not lend on the class of property purchased by Negroes. Some of them have no real estate department. Only three of the downtown investment bankers make no restrictions regarding Negro borrowers that are not common to all; they have dealt with Negro clients for many years and have found them entirely satisfactory. Possibly one reason for this is that they educate their buyers of mortgages concerning the value of these loans; and thus have succeeded, they say, in overcoming many objections based upon race prejudice.

Most large real estate firms and loan companies decline to make loans on property owned or occupied by Negroes. With some of them this is a blanket provision that covers generally property in changing or depreciated districts. Difficulty of disposing of such mortgages is one of the commonest reasons given for refusing to handle them.

Even among the agencies that handle such loans opinion is not unanimous on fundamental points involved. The Commission asked several brokers representing large interests this question: "Does your experience indicate that loans up to 50 per cent of the valuation on property in the residence districts from Twenty-sixth to Sixtieth streets and from State Street to the lake have a safe-and-sound investment value?" Among those favorable to Negroes the answer of Yondorf & Company, a downtown firm, is perhaps typical: It is necessary to consider each house separately, as conditions vary widely; consideration must be given to future uses of the property, the present condition of the improvements, and especially the stability of the person asking for the loan. As a general rule, loans on old residence property are not as good as those on houses in new districts; on an old house about $1,000 would be loaned on a market value of $5,000, whereas in new districts the contractor can borrow up to two-thirds of the cost of the house; no conscious discrimination is made in the nature of higher rates because a borrower happens to be a Negro; careful consideration is given to the margin of safety, and safeguards are arranged in the way provided for payments.

Lionel Bell, another downtown loan broker, regarded this general type of mortgages on old residence property as fully secured, and does not hesitate to recommend mortgages in the district mentioned.

John A. Schmidt, who handles a large number of loans on Negro property in that district, considers them of high value, though the risks are both physical and moral; it is essential to know both the client and the property; the amount of the loan asked on Negro property usually is not high as compared with its value. No distinction is made as to the color of the borrower, the condition and value of the property being the only basis for the loan; loans to Negroes are less in amount than to whites, though clients thus far accepted are commonly found satisfactory; the period of payment is about the same, varying between three and five years, according to the amount paid monthly, the kind of property involved, and so on. The usual range of amounts requested was one-third to one-half of the value of the property.

R. M. O'Brien & Company, an active South Side real estate firm which also deals largely in Negro mortgages, found that the average amount loaned to Negroes was smaller, and that it is a smaller percentage of the value of the property than in the case of loans to whites, and that the average period for loans to Negroes was three years.

Mead & Coe, another real estate firm, found that the Negroes usually are allowed $1,000 to the white man's $1,500; that only 35 per cent of the value of the property is loaned to the Negro, whereas 50 per cent is granted to whites. Maximum time of loan was five years for the white and three years for the Negro.

The Chicago Trust Company answered that the same requirements were made of white and Negro; the range was from $2,000 to $6,000, limited to 50 per cent of conservative valuation, and five years.

In general it was found that property values in the districts where Negroes usually buy are affected by more factors than is the property in districts where whites usually buy. Where Negroes are buying the majority of white people are renting.

It was sought to find out whether Negroes ask for renewals more often than do white borrowers; whether there was any marked difference between Negroes and other racial groups in the promptness of making payments, in asking for additional time, in the difficulty of collections, and in compelling foreclosure. Comparison of Negroes and whites was found to be difficult because of differences between various nationalities as to repaying loans. The Poles pay promptly when dealing through loan companies or banks conducted by Poles. The Italians are eager to get their property cleared. Jews are likely to ask for renewals and to expect the property to pay the mortgage out of earnings. The Negroes pay if they can, but sometimes have difficulty because they have arranged heavy payments on their contracts; during the period of high wages there has been little trouble, but the feeling was that as yet there had been no real test. Speaking generally, a representative of Yondorf & Company said it was estimated that only about 25 per cent of working people are thrifty and save anything; 75 per cent save nothing; and that proportion holds true of the Negroes.

Firms that deal with Negroes ask for no larger reduction when a Negro renews his loan, they say, than when a white person renews if the character of the property is the same. The facts as to the reliability, character, and standing of the borrower are established when the loan is first made. Negroes buy old properties where deterioration is rapid, and when the renewal is asked the value of the property has fallen in proportion. White persons do not buy the same class of property. So it is necessary to ask the Negro to reduce his mortgage considerably, except when his property is in a location of newer houses, such as Morgan Park or Woodlawn.

Difficulty is experienced by mortgage bankers and brokers in selling Negro mortgages to white clients. Yondorf & Company declared that while their old clients would buy regardless of the color of the borrower, others had to be convinced of the value of the property and of the earning power and stability of the Negro borrower. The Negro mortgages are usually for smaller amounts and hence within the reach of small investors. When white investors find that Negroes' loans are promptly paid they continue to buy such securities.

Lionel Bell reported some difficulty in selling Negro mortgages to white clients, though he generally succeeded, by showing their value and by inspection, that the Negroes were keeping their houses in good condition as to both sanitation and repair.

E. A. Cummings & Company have difficulty in selling such mortgages because many of their clients are out-of-town buyers who are suspicious of Negro property.

E. and S. Lowenstein find no market for such loans; non-resident buyers and even local buyers fight shy of Negro property in particular, and property in general that is undesirable because of overcrowding and consequent hard usage.

In general, the refusals to buy Negro loans are due to feeling against the Negro, a disbelief in the Negro's ability to pay them, and distrust of the old properties which Negroes commonly buy. The opinion was general that anything which would tend to stabilize values on the South Side, especially in the lower part of the district occupied by Negroes, would be desirable; that improvements such as the widening of South Park Avenue would aid materially.

Real estate men who have Negroes for clients are finding it advantageous to educate them in the meaning of mortgages, in the method of issuing and renewing them, and in what is expected of the mortgagor and what the mortgagor may expect. When the Negro is carefully informed of the processes involved in financing the purchase of a home, and the terms are thoroughly understood, there is much less likelihood of losing his property. Friendly real estate men are constantly helping Negroes to carry their mortgages and to find means of renewing when that contingency arises. It is helpful also to remind Negroes of the necessity of paying their taxes and meeting other obligations promptly, and of keeping their property in good condition. Some firms stated that the "natural honesty of the Negro and his love of home life" have been fostered by thoughtful friends and leaders, as well as by those who have business transactions with him. This pays dividends in better citizenship.

_Widening the market for Negro loans._--The white people need to know the obstacles in the path of the Negro who wishes to establish a good home for his family and thus improve his citizenship and serve as a good example to others of his race. How to finance Negro home buyers is a large difficulty in solving the Negro housing problem. The Commission held a conference devoted almost entirely to this topic, at which various experts and authorities were consulted. It was sought to ascertain the fundamentals for meeting the needs of the future, assuming that the Negro population in Chicago is likely to continue in normal growth, and that the demand for adequate housing for the Negro population is not likely to lessen for several years. Particular attention was given to the question of how a market might be created for the Negro's loans.

An appraiser for the Fort Dearborn National Bank suggested that a system involving partial payments represented by $25 bonds paying semiannual interest might be helpful. Bonds of such low denominations might, he thought, be purchased by Negroes. By such a system Negroes would learn to invest their money wisely, and by putting money into substantial securities would encourage real estate investments. These securities could be sold by Negro bankers and real estate brokers. But he expressed confidence that not a few white people would buy bonds of that character. They would be based on about 60 per cent of the value of the property.

One real estate broker averred that success in financing Negro home buyers would be contingent upon creating definite districts in any portion of the city where the colored men may find it necessary to live in order to be able to reach their business or their place of employment, districts to be known as their exclusive territory. Then it would be possible to go to a mortgage loan house and present a definite case when a mortgage falls due. Knowing that the property was that of a Negro, and knowing the district, one would have a definite basis for estimating future increase or depreciation of value. It was his opinion that white people would support a market of that nature, because it would not only protect the colored man and the white man alike but all of the property interests of the city. He disclaimed any desire to promote segregation. But he maintained that so long as the races mixed, clashes were inevitable, and that the problem of selling Negro loans, erecting houses, and renewing mortgages would solve itself under this plan, "because white men will be very glad to come to the assistance of colored."

It happens, however, that some subdivisions developed "especially for Negroes" present low standards as well as exploitation. One such subdivision is called Lilydale. An investigator reported on it as follows:

Lilydale is on a flat prairie and was laid out as a subdivision
for Negro residents near the corner of Ninety-fifth and State
streets several years ago. It is about five blocks square. The
developer is a prominent white real estate dealer active in
subdivision property generally. Another well-known real estate
man, who is also a prominent local politician, is interested
in establishing a Negro colony on this property. The latter is
agent for a great deal of property on the South Side tenanted
by Negroes.

Many Negroes purchased lots in Lilydale at fairly high prices,
considering that virtually no improvements had been made to
the property. Water has since been laid in some of the streets
and some of them are supplied with sewers, but there is no
paving and no lighting. Sidewalks are few, mud holes many.
Yards, streets, and alleys are unkempt.

Those who promoted the subdivision set up the shells of a few
houses, mainly of the bungalow type. Most of these were sold
and the inside finish was supplied by the purchasers. Most
of these sale houses, though, remain unfinished. The building
of houses in Lilydale has been half-hearted, and most of the
structures are so poorly constructed that they are conspicuously
uncomfortable. Some of these were built by piecemeal with any
kind of waste building material that could be gathered. The
people in this isolated community apparently are making the
best of a hopeless situation. They express a desire to recover
the money they have invested. Provisions are obtained from two
or three small stores. There is a church in the vicinity, but
at the time of the investigation no services were being held
in it. The children attend a branch of the Burnside School,
which is conveniently located. The teacher is a Negro woman,
a graduate of a southern normal school. She reported that
there is apparently no prejudice between the white and Negro
children; that their only differences are those to which all
children fall heir. She regards the Negro colony of Lilydale
as a bad mistake and would discourage other Negroes from
making purchases there. She regards the investment there as
of doubtful value.

There is a car line on Ninety-fifth Street which connects with
the industries of South Chicago, where a number of the men of
Lilydale are employed.

Adding to the loneliness of the general aspect is the fact that
most of the surrounding area is still what is termed "acreage."

Pertinent also is the statement of a man who for years has been interested in the housing difficulties of Negroes.

Some people have suggested taking a vacant piece of property
and building it up for colored occupancy, but there is the
biggest hubbub raised when any such attempt is made. People
complain: "You will ruin this whole neighborhood! You will
ruin the street car line! Everything out in that neighborhood
will be ruined all along the street, because if you build up
a colored neighborhood in any one particular location nobody
else will want to go out that way." So that I have come to the
point where I say there is no solution. I can't do anything.
I'd have been willing to put in a million dollars in property
anywhere where there would have been a chance to get 5 per cent
return on my money. There isn't any use in doing a thing that
isn't economically sound. I wanted to bring this up to show
that I had given it some thought, and that I am very desirous
of having somebody make a suggestion that is feasible so that
something can be done.

The difficulty of disposing of loans in a district inhabited by Negroes was touched upon by a loan expert from the Chicago Trust Company, which handles such loans. The trouble, he thought, centers on the character of the property and of the district, rather than on the fact that the property happened to be owned or occupied by Negroes. He said that even Negro investors object to property in such a district for the reason that it is old, little in demand, and generally a poor risk. He suggested the possibility of small mortgage bond issues with separate notes. This would save the expense of printing the bonds, which is considerable at present prices, and the investor would be afforded the same security. He also suggested having "baby" bonds printed in standard form, so that they could be simply filled in, thus saving expense.

Another real estate broker who had dealt in mortgages of South Side Negroes for a number of years declared that the average mortgage buyer seems to prefer those on new bungalows where the margin of security is less than that on property in the Negro district. Since the bungalow's cost of construction was less, the chance of revenue under adverse circumstances would be less. He maintained that a ten- or twelve-room apartment house in the Second Ward (South Side) affords a better margin of security than the ordinary cheap bungalow, and that it was therefore a question of educating mortgage buyers on the question of security. The best evidence on this, he maintained, would be the number of foreclosures. He had never had to foreclose with Negroes in the fifteen years of his experience. In that time only two contracts had been forfeited, both because of disputes between the heirs and the buyers. His firm had, however, made new contracts when illness or other adverse circumstances had halted payments, thus allowing the buyers to start over again. Means had also been taken to see that buyers paid their taxes, in which process they had required education. White people must be depended upon to buy the Negro's loans. Very few Negroes buy loans. Their tendency, he said, is to invest in a home earlier in their career than the white people, and they buy as soon as they have accumulated enough to make the initial payment.

According to a bank appraiser's opinion Negroes do not understand values, and they are often led to purchase a building at much more than its worth. In consequence the amount of loans they need is much greater than it ought to be. He had not found, however, that the Negroes allow their property to deteriorate unduly. A different situation had been found where white people lease to Negroes.

According to some real estate dealers, there are cases where houses are allowed to deteriorate, where the payment has been larger than the purchaser could carry conveniently. But "after he has taken care of the payment and has his deed, he will give attention to the improvement of the house." Others agreed that the Negro mortgage debtor is quite as reliable as a white debtor of the same class.

The president of the Cook County Real Estate Board suggested that one means of creating a market for Negro loans would be the passage of the "Home Loan Bank Bill." Its provisions are that no loan would be made in excess of $5,000, but loans would be made up to 80 per cent of the fair value of the property. Many of the loan houses, he declared, do not consider small loans, a fact confirmed by the Commission. He cited one house that will not consider a loan of less than $500,000. For this reason he suggested that this business should be handled by the building and loan associations, since they do business on a smaller margin of operating cost and he regarded them as the proper media for finding suitable markets for Negro mortgages.

Involved in the plan for funding the Negro's loans was the question of segregation. It has been maintained that not much financing could be expected from white people unless boundaries were allotted to the Negroes, so that investors in loans would know definitely what to expect. Opinions, of course, differed on segregation. It was admitted that a spreading out of the Negro population in Chicago is to be expected, that Negroes can hardly be expected to remain in the districts in which they have hitherto virtually segregated themselves. But the opinion was also given that their tendency is to remain among and near their own people.

IV. FINANCIAL RESOURCES OF NEGROES

The chief concern of investors, brokers, and real estate dealers is as to the ability of Negroes to meet obligations. There is a common belief, not shaken even by the satisfactory experiences of those who have dealt with them, that Negroes have no financial resources, and are thriftless and improvident. Inasmuch as a large part of the present housing difficulty hinges upon this point, the Commission made inquiries as to the thrift of Negroes. A group of large banks in the "Loop" and in neighborhoods of Negro residents were asked to give their experiences with Negroes as depositors and investors. In spite of contrary opinion it appears that the resources of Negroes in Chicago are astonishingly large. In the summer of 1920 in one of the South Side banks operated by white men Negroes had deposits of $750,000. One banker told of a Negro banker who sold among the Negroes a bond issue of $150,000 on an old building on Wabash Avenue, paying solicitors 10 per cent commission to make sales. The savings deposits in his bank recently had grown very materially. It was his experience that only a few Negroes buy bonds. They only inquire casually about them.

The sales manager for bonds at a large savings bank, however, told of the sale of $3,000 worth of bonds to a Negro woman who paid for them from a roll of bills of $10 to $50. Another "downtown" broker told of a Negro porter in a "Loop" hotel, who recently loaned $6,000 through his firm.

The information as to Negro deposits, sought by the Commission, was provided by seven trust and savings banks, three state banks, two national banks, and one trust company. These were able to isolate and check up their Negro deposits. One of the banks had $1,500,000 on deposit for Negroes; another $1,000,000. Still another had 4,000 Negro depositors. A state bank had $650,000 on deposit for Negroes, another $150,000 and one of the national banks had $47,000.

The average deposits of the Negroes are not so large as those of all the depositors. The comparison, however, reveals a fair proportion when it is considered that there are many very large individual depositors and business houses among the whites. This is how the amounts run, by institutions:

Average Individual Savings Balance Average Individual Balance
(White and Negro Combined) (Negroes Only)

$125.00 $ 50.00
108.88 66.76
545.00 332.00
400.00 200.00
120.00 60.00
235.00 100.00
125.00 10.00
196.00 105.00
186.82 300.00
230.00 186.00

It was the almost unanimous report that Negroes are more likely to withdraw their accounts than are white people, that their accounts are less permanent. In two instances only was the opinion expressed that they were about the same with both races.

Accompanying the questionnaire to banks was a list of questions concerning real estate loans. One of these was: "Does your bank make loans to Negroes on real estate, collateral, commercial paper, or personal notes?" All except one of the trust and savings banks replied in the affirmative. One of the state banks buys commercial paper on proper security, but not real estate loans because of the difficulty in selling them. One of the national banks buys commercial or collateral paper on its merits, without regard to color. Indeed, it appears that no color line is drawn in this line of business except by the few institutions that decline all loans to Negroes.

In general it was found that the Negroes are showing strong tendencies to open bank accounts, that they are steadily improving in the amount of deposits made, in the steadiness of their accounts, and in thrift in general. However, it appears that in only a few of the banks are they welcomed and in most of them they are only tolerated. In banks located in neighborhoods in which Negroes live there is an amazing number of Negro depositors, who receive, as a rule, friendly advice and help in their financial transactions. Thus Negroes are taught banking formalities, while thrift is encouraged, and a good spirit is developed among the white employees toward Negro depositors. In some instances, however, Negroes, like their white brothers, show suspicion of banking institutions when they have suffered losses.

It appears also that, in addition to the growing desire to invest in homes of their own, Negroes are showing a strong tendency to engage in business ventures. They are developing insurance companies, co-operative stores, retail stores of various kinds, and kindred enterprises.

_Negroes' lack of opportunities for banking experience._--In order to carry forward successfully their business undertakings Negroes need practical personal experience and training in banking and financial methods. Yet there is a strong tendency to bar Negroes from employment in banks, except as porters or in some unskilled capacity, and they are thus denied the experience needed in solving financial problems among their own race.

Bankers were asked: "If Negroes competent to learn practical banking were available, could you employ them?" Here are some of the condensed replies:

1. Other employees would refuse to co-operate with them and
associate with them.

2. They are not reliable as a rule.

3. Do not think so.

4. Yes.

5. No.

6. We have no objections beyond the fact that 95 per cent of
our depositors are white; consequently we would not care to
employ colored tellers or clerks in handling their business.

7. We could not have them in clerical positions.

8. In a general way we feel that the employment of Negroes by
banking institutions would cause trouble with certain classes
of our depositors.

9. Very difficult to work white and colored in same office or
cages. White customers prefer to have white clerks wait upon
them.

10. Clerks who were antagonistic to Negroes would bring
about constant difficulties through the misplacing of papers,
mistakes, etc., which would seem to be the fault of the Negroes.

11. Have found that a Negro will appear to be strictly honest
for a period of years and then turn around and prove not to be.

12. Our section of the city is entirely white, but with a fear
of colored invasion. There is, therefore, a strong prejudice
against them. We have only about half a dozen accounts with
colored people. Two of these are in the savings department
and are maintained with large balances. These two customers
are thrifty and careful with their money. The others are not.

13. In former years a bank position was eagerly sought and
considered exceptionally good. At present, because of higher
salaries which can be offered by concerns which make greater
earnings than banks and can therefore pay more, the banks are
not getting the same high grade of employees. With the former
class it would have been possible to appeal to their sense of
duty to help educate the Negroes and to overcome prejudice.
With present conditions it is not likely that this appeal would
have the same effect, and prejudice against Negroes would make
trouble in our routine.

14. Social factors enter. For instance, banks often have
dinners or other events for or among their employees. No "Loop"
hotel would put on an affair for whites and Negroes. There
is also the difficulty of washrooms, and lockers, etc., where
prejudiced employees could make a great deal of trouble.

It would seem, then, that there is not much chance for the hundreds of intelligent Negro high-school and college graduates in Chicago to obtain a practical education in banking methods through direct experience. Banks owned by Negroes are few and small, and there is scarcely any opportunity to obtain similar experience in Negro building and loan, insurance, and other companies, which are also limited in number.